Comment: The Game ruling, while fair, will result in more liquidations than rescues

The long awaited “Game” Appeal judgement has now been delivered, to the delight of landlords. The Court of Appeal has overruled the controversial decisions made by the Courts in the Goldacre and Luminar cases.

Game went into administration just after a quarter day.  The quarter’s rent day for a number of its shops had just passed.  On the basis of previous law the administrators did not have to pay that quarter’s rent as an administration expense;  consequentially the administrators benefited from virtually a quarter’s free rent.

Now the Court of Appeal has overruled the previous law.  It has been decided that, when using premises for the purpose of an administration or liquidation, administrators and liquidators must pay rent as an expense of the administration or liquidation, for the duration of that period, on a daily basis.

This appears to be a fair balance between the rights of a landlord (who may be kept out of its property) and the competing interests of creditors as a whole. The Goldacre and Luminar decisions were not entirely fair to either party and certainly open to abuse.  

However, the decision will mean that administrators have to think long and hard before accepting an appointment, to ensure that there are sufficient funds to make an administration viable, which may be argued (by some less reputable factions at least) as a blow to the rescue culture.  

Will the lack of this ‘window of free use’ mean that there will be fewer administrations in cases where there is a lot of potential lease liability - perhaps a rush to close trading units where it is not clear that they could easily be sold?

Also, it does not just apply to lease rents.  Equipment leases can also be used in this way.  It applies to any other contract where the administrator has use of an asset but the payment became due before the administration, and remains unpaid.

This could have serious effects on the number of administrations we see, resulting in more terminal insolvencies, than rescues.

• Frank Bouette is a partner at Thomas Eggar LLP