Goldacre (Offices) Ltd v Nortel Networks UK Ltd

Rent accruing under a lease is payable as an expense of an administration where the administrator uses or retains the premises for the benefit of the administration. The liability arises under the mandatory expenses regime and does not depend on a discretionary order or on the landlord first seeking forfeiture proceedings. Where rent is payable quarterly in advance, the whole quarter’s rent is payable as an administration expense from the quarter day and is not apportioned if the premises are vacated during that quarter. The liability continues only while premises under the relevant lease are used or retained for the administration. Classification as an administration expense does not necessarily confer an immediate right to payment if the assets are insufficient.

The applicant landlord sought directions concerning rent payable under two pre-existing leases of premises in Harlow occupied in part by administrators of the respondent company. The administrators had used part of the premises for the more efficient conduct of the administration and had paid rent to date. The issue was whether future rent was payable as an administration expense, and whether liability should be limited to the proportion of the premises actually used.

The court considered the interaction between rule 2.67 of the Insolvency Rules 1986, the Lundy Granite principle, and authorities concerning liquidation expenses and administrations.

1. Application allowed. Rent falling due on the December quarter day was payable in full as an expense of the administration. Future rent was payable quarterly in advance for so long as the administrators retained or used any part of the premises demised under the relevant lease for the benefit of the administration.
2. The matter was governed by the rules. If the liability fell within rule 2.67, payment was mandatory and did not depend on a discretion of the administrators or the court. The Lundy Granite principle applies where an office-holder uses or retains leasehold premises for the benefit of the winding up or administration.
3. The rent fell within rule 2.67(1)(a), or alternatively within rule 2.67(1)(f) as a necessary disbursement. The word “necessary” was apt to include rent required by the Lundy Granite principle. No prior forfeiture proceedings or other discretionary order was required.
4. The salvage principle does not impose a proportional payment by reference to the floor space actually occupied. Under Powdrill v Watson, liabilities under an adopted contract incurred while the contract is enjoyed or retained for the benefit of the administration are entitled to priority. Rent payable in advance was therefore payable for the whole quarter and was not apportioned under the Apportionment Act 1870.
5. The court’s discretion concerns the remedy available to the creditor, such as forfeiture or execution. It does not determine whether a liability is an administration expense. The rent liability under each lease ceased to have that priority when the administrators entirely vacated the premises demised by that lease. The distinction between the two leases was maintained.