Laverty & Ors v British Gas Trading Ltd

Charges arising under deemed gas or electricity contracts after an insolvency event are not administration expenses merely because supply continues during the administration. Priority requires the relevant statute to make clear that the liability falls on the administrator as part of the administration, or that the liability arises from something done in the administration.

Where the statutory framework created an anterior obligation before administration, and the company was then vulnerable to the specific liability, a later liability under a deemed contract may instead be provable under rule 13.12(1)(b) of the Insolvency Rules 1986. Daily tariffs do not convert a continuing deemed contract into a series of new daily liabilities.

The joint liquidators of three companies in the Peacocks group sought determination of a preliminary issue concerning the priority of charges for gas and electricity supplied to stores after the companies entered administration and ceased trading from them.

The parties accepted that charges for supplies made while the companies continued trading were administration expenses. The dispute concerned post-trading supplies under deemed contracts arising under Schedule 2B to the Gas Act 1986 and Schedule 6 to the Electricity Act 1989.

The central questions were whether those liabilities were necessary disbursements under rule 2.67(1)(f) of the Insolvency Rules 1986, or debts arising after administration by reason of an obligation incurred before it under rule 13.12(1)(b).

1. Outcome. The court answered the preliminary issue in favour of the liquidators: the post-trading liabilities were provable unsecured debts under rule 13.12(1)(b), rather than administration expenses under rule 2.67(1)(f). Factual issues concerning actual consumption and the administrators’ conduct were reserved for a later trial.
2. Administration expenses. Applying the guidance in Nortel GmbH [2013] 3 WLR 504, a liability is an administration expense where it arises from something done in the administration, normally by or on behalf of the administrator, or where the governing statute clearly makes the liability fall on the administrator as part of the administration.
3. The deemed contracts were not analogous to express contracts entered into by an administrator. An express contract requires a positive and conscious act by the administrator. The deemed contracts arose automatically under statute, with their terms, tariffs and termination provisions determined by the supplier’s scheme rather than negotiated with the administrator.
4. The deemed contracts were also materially different from liabilities for rates. Rates arise as new and independent daily liabilities while the company remains in rateable occupation. The deemed contracts continued according to their terms, and their daily tariffs did not alter their continuing contractual nature. The statutory schemes contained no indication that continued supply gave the supplier priority over unsecured creditors.
5. Section 233 of the Insolvency Act 1986 supported, though did not determine, that conclusion. Parliament had provided a specific mechanism by which a supplier could obtain a guarantee for post-insolvency supplies, but had not given deemed-contract charges equivalent priority.
6. Provability. The three-part approach in Nortel GmbH was satisfied. From the commencement of supply, the companies were subject to the statutory framework and a present or future liability to pay for supply under a deemed contract. Before administration, they were vulnerable to that specific liability because BGT could terminate the existing contracts under their terms. The resulting post-administration charges therefore arose by reason of an obligation incurred before administration.
7. The uncertainty of the future amount did not prevent proof. BGT could prove from time to time for charges incurred for supplies actually made by the date of proof.

The judgment followed a preliminary-issue order made by Henderson J on 21 March 2014. Factual disputes concerning consumption and the administrators’ conduct were left for a further trial.