Today’s decision that Game must pay back £3m in unpaid rent accrued during its administration period has been met with a positive reaction from most quarters.
The ruling was seen as a test case and will have ramifications for the retail sector, making it harder for retailers and their appointed administrators to avoid paying rent while insolvent and giving greater priority to landlords.
However some have expressed concern that administrators, when faced with the extra costs of paying rent, may be more inclined to shut shops sooner in an insolvency process, impacting jobs and the economy.
Reaction from Game
Game spokesman: “The Court of Appeal’s decision in this important test case for the property and retail markets fundamentally changes the law in relation to the payment of rent in an insolvency context. There were important principles at stake for commercial landlords, retail tenants and, indeed, any company with property assets.
“Game’s exposure following this decision is limited to a one-off liability of £3m which has already been accounted for. The real ramification of this decision is, however, that it will have a significant financial impact on all landlords, tenants and insolvency practitioners involved in current and future business insolvencies in this country.
“Game strongly argued against the law being changed on legal and commercial grounds and is now considering the possibility of an appeal to the Supreme Court.”
Reaction from the property community
Intu asset management director Kate Grant said: “This was the only possible fair outcome of the case, and one where common sense prevailed. By working together, the landlords have closed a damaging loophole and now we can look forward to a productive and collaborative relationship with insolvency practitioners and retailers.”
Hammerson head of credit control Duncan Grubb said: “The previous system was deeply unsatisfactory for both landlords and insolvency practitioners and this judgement provides a workable, common sense resolution to the payment of rent as an administration expense.
“This judgement will significantly change the relationship between landlords and insolvency practitioners, and will hopefully lead to more collaboration when dealing with critical situations. Corporate restructuring will now be focused purely on trading patterns and the viability of the ongoing business, rather than on rent free periods from landlords provided by a legal loophole.”
British Property Federation director of policy Ian Fletcher said: “The news of this ruling is hugely welcome, and it is excellent to see that common sense has prevailed. This is the fairest outcome for all, as it means that means landlords get paid and that insolvency practitioners can trade over the best timeframe for the rescue of the business. We welcome the hard work that all involved have put into pursuing this judgement which will benefit all.”
Reaction from the legal community
BLP Real Estates Disputes acted for the landlords. Its partner Michael Metliss said: “This decision is a landmark one and should bring welcome clarity to what has become a contentious area of law in recent years. The landlord community will welcome the decision, knowing that they will receive payment for the use of their property by companies in administration.”
Hogan Lovells partner Mathew Ditchburn said: “The decision will have major implications for the planning and implementation of corporate insolvencies and looks set to transform the relationship between insolvency practitioners and the property industry. Landlords have complained about the seemingly deliberate timing of appointments around rent days to avoid payments and have called for a return to the “pay as you go” regime previously adopted. The result is that administrators will no longer be able to plan for a rent free period during which landlords are kept at bay whilst a business is sold. Yet the decision cuts both ways: administrators will not have to pay an entire quarter’s rent in advance where they happen to retain premises on the rent day but vacate part way through the quarter.”
Simmons & Simmons’ restructuring and insolvency group lawyer Alistair Hill said: “The Court of Appeal has today endorsed a common sense ‘pay as you stay’ principle for administrations. The judgment will, pending any appeal, see the end of the recent practice of administration appointments being timed artificially to benefit from a rent free quarter.”
Chris Alexander, associate solicitor in the property litigation department at SA Law, said the ruling will enable landlords to get a “slightly better deal than previously” but cautioned that insolvency practitioners may be more inclined to shut shops faster in an administration process as a result.
Reaction from insolvency practitioners
Phillip Sykes, deputy vice-president of insolvency trade body R3, said: “The Game decision provides some of the clarity insolvency practitioners have been seeking on administration and liquidation expenses.
“Treating rent as an administration expense may mean a smaller pot for a business’ creditors as a whole, but at least the administrator will now know, and be able to make provision for the costs involved, in an administration. Extra clarity can make the difference between a business being rescued or not.
“We are very pleased to see that the court has backed the common-sense ‘pay what you use’ principle on rent in administration. Recent court decisions had taken administration expenses in the opposite direction. After this decision, administration expenses should be a fairer deal for landlords and businesses.”
KPMG Restructuring partner Brian Green said: “Until now, the law has meant that the mere date a company enters into administration can take away the opportunity to save the business. The fact there was no middle ground often created enormous tensions between landlords and insolvency practitioners.
“The new ruling, which creates the possibility of a ‘pay as you trade’ scenario, not only paves the way for greater collaboration between insolvency practitioners and landlords, but crucially, will also allow administrators to better plan and maximise the value of the business for creditors, irrespective of the date of appointment.
“It’s good news for landlords, it’s good news for workers and it’s good news for creditors.”
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Analysis: Reaction to the Game ruling from retail, property, insolvency and legal communities