B e f o r e :
HIS HONOUR JUDGE PELLING QC
(SITTING AS A JUDGE OF THE HIGH COURT)
|LEISURE (NORWICH) II LTD & ORS||Applicants/Claimants|
|- and -|
|LUMINAR LAVA IGNITE LTD (IN ADMINISTRATION) & ORS||Respondents/Defendants|
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STEPHEN JOURDAN QC and BLAIR LEAHY (instructed by Berwin Leighton Paisner) appeared on behalf of the Claimants
ANTONY ZACAROLI QC and STEPHEN ROBINS (instructed by Hogan Lovells International LLP) appeared on behalf of the Defendants
HTML VERSION OF JUDGMENT
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- HH JUDGE PELLING QC:
- This is the hearing of four applications by the applicants, who are landlords of four properties that were let to companies that are now all in administration, by which applications the applicants apply for
- Each of the companies in administration (hereafter “the companies”) is a company within a group of companies known as the Lumina Group. The business of each of the companies was the operation of a nightclub. Until the companies entered administration, the Lumina Group was one of the largest operators of such venues in the United Kingdom.
- The group started to experience financial difficulties in June 2011. Rent was due under each of the relevant leases quarterly in advance. In June and again in September 2011, the companies sought a variation of the leases so as to enable them to pay rent monthly. These requests were refused. On 28 October 2011 the companies were placed in administration. On 31 October 2011 the administrators confirmed an intention to trade the venues on until 1 January 2012 even though they were not in a position to pay rent. On 1 December 2011 the landlord sought permission from the administrators to forfeit the leases. This was necessary because IA¬†Paragraph 43(4) of¬†Schedule B1 precludes a landlord from exercising a right to forfeit a lease by peaceable re-entry other than with the consent of the administrator of the company tenant concerned or order of the court. On 2 December 2011 the administrators refused their consent.
- It is not necessary that I set out the terms of the various leases in detail. Each lease contained an express proviso for re-entry in the event that rent due remained unpaid for a period of either 14 or 21 days after the due date. Rent was payable, as I have said, quarterly in advance on each quarter day. By the end of November, there was a quarter’s rent outstanding for each property that had been outstanding for in excess of the relevant period. In each case bar one the sum was the quarter’s rent that fell due for payment on 29 September 2011. In relation to one club, the sum outstanding represented service charges due on or before 29 September 2011. It follows and it is common ground that, but for IA¬†Paragraph 43(4) of¬†Schedule B1, the landlords would have been entitled to forfeit the leases.
- On 13 December 2011 the landlords’ solicitors served¬†Section 146 notices on the companies on the basis that by parting with possession without obtaining the licence of the landlords, the companies had acted in breach of covenant. Ranimul subsequently decided not to proceed in relation to one of the properties and in consequence on 23 December 2011 the administrators offered to surrender the lease relevant to that property.
- By 13 December 2011 the landlords had identified a prospective tenant willing to take assignment of the existing leases or at any rate to lease the premises on similar terms to those that applied under the leases to the companies. The landlords offered the administrators ¬£150,000 (to be set off against the sums otherwise due from the administrators to the landlords) if the administrators would agree to the assignment of the leases to the landlords’ prospective tenant. The administrator did not accept that offer and it was withdrawn shortly before this hearing. The prospective tenants identified by the landlords remain willing to lease the properties but, in relation to one property, on terms that are now less advantageous than the terms of the existing lease. The landlords maintain that this adverse change could have been avoided if the permission to forfeit had been granted earlier than it was.
- As I have said, the substantive issue concerning forfeiture has now been resolved because the administrators have given permission to the landlords to forfeit the leases. The substantive issue that remains concerns outstanding rent.
- As I have explained, the rent payable under the leases is payable quarterly in advance. The quarterly payments due on 29 September 2011 fell due for payment prior to the appointment of the administrators. The issue between the parties concerns whether in the events that have happened the administrators are under an obligation to pay the rent that accrued due on 29 September as an expense of the administration even though those sums became due prior to the administrators’ appointment taking effect.
- The landlord’s case is that where a landlord seeks to forfeit a lease after an administration or liquidation has commenced and permission is refused, all the rent that is unpaid becomes payable irrespective of when it accrued due, if and to the extent it applies to a period of occupation by the administrators or liquidators concerned. The administrators submit that this is a heretical approach and the only rent that can become payable as an expense of the administration is rent falling due after (a) the administration has commenced¬†and (b) the administrators have elected to retain the relevant property for the purposes of the administration or liquidation. They accept that the¬†Apportionment Act 1870 is of no application to sums payable in advance and in consequence they accept that the whole of the sum due for the March quarter is payable as an administration expense even though permission to forfeit was given only a few days after the March quarter day.
- The Administration Code is now contained in IA¬†Schedule B1 augmented by the¬†Insolvency Rules 1986 (“IRs”).
- Insofar as is material,¬†Schedule B1 provides:
- Insofar as is material IRs¬†Rule 2.67 provides:
- Insofar as is material,¬†Section 2 of the¬†Apportionment Act 1870 provides:
a. permission under¬†Paragraph 43 of¬†Schedule B1 to the¬†Insolvency Act 1986 (“IA”) to forfeit the leases of the properties; and
b. a direction under IA¬†Paragraph 74 of¬†Schedule B1 requiring the administrators to pay in full the rent under each lease that accrued due prior to the commencement of the administrations.
There is no dispute of fact that is material for the purpose of determining the applications. Shortly prior to the commencement of this hearing, the respondents (hereafter “the administrators”) gave permission to the applicants (hereafter “the landlords”) to forfeit the leases. That element of the application remains live only in relation to costs, which have not been agreed. I return to that issue in more detail at the end of this judgment.
The Factual Background.
5. On 11 February 2011 the administrators informed the landlords that the businesses operated by the companies had been sold to a newly-incorporated company called Ranimul 2 Ltd (hereafter “Ranimul”), a company incorporated on 5 December 2011 by the or some of the persons interested in the Lumina Group. The terms of the agreement between the administrators and Ranimul were confidential but, following limited disclosure pursuant to an order of the Registrar, this much is apparent:
a. Ranimul agreed to seek the landlord’s consent to the assignment of the leases to Ranimul;
b. Ranimul would pay ¬£50,000 for each of two of the leases and ¬£74,075 for one of the others, making a total of ¬£174,075. Each sum was payable severally on completion of the relevant assignment;
c. The administrators agreed that Ranimul could occupy the properties pending assignment for the purpose of enabling Ranimul to continue to operate the venues as nightclubs; and
d. Ranimul agreed to pay the administrators an amount equal to the quarterly rent and service charges for the period of their occupancy.
The Statutory Framework
“4. The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable.”
(4) A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company except (a) with the consent of the administrator, or (b) with the permission of the court.”
(1) A creditor or member of a company in administration may apply to the court claiming that
(a) the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or
(b) the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).
(2) A creditor or member of a company in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.
(3) The court may
(a) grant relief;
(b) dismiss the application;
(c) adjourn the hearing conditionally or unconditionally;
(d) make an interim order;
(e) make any other order it thinks appropriate.
(4) In particular, an order under this paragraph may
(a) regulate the administrator’s exercise of his functions;
(b) require the administrator to do or not do a specified thing;
(c) require a creditors’ meeting to be held for a specified purpose;
(d) provide for the appointment of an administrator to cease to have effect;
(e) make consequential provision.”
“(1) The expenses of the administration are payable in the following order of priority ‚Äď
(a) expenses properly incurred by the administrator in performing his functions in the administration of the company;
(b) the cost of any security provided by the administrator in accordance with the Act or the Rules;
(c) where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application and where the administrator was appointed otherwise than by order of the court, any costs and expenses of the appointer in connection with the making of the appointment and the costs and expenses incurred by any other person in giving notice of intention to appoint an administrator;
(d) any amount payable to a person employed or authorised, under chapter 5 of this part of the Rules, to assist in the preparation of a statement of affairs or statement of concurrence;
(e) any allowance made, by order of the court, towards costs on an application for release from the obligation to submit a statement of affairs or statement of concurrence;
(f) any necessary disbursements by the administrator in the course of the administration …
(g) the remuneration or emoluments of any person who has been employed by the administrator to perform any services for the company, as required or authorised under the Act or the rules;
(h) the administrator’s remuneration the basis of which has been fixed under Chapter 11 of this part of the rules and unpaid pre-administration costs approved under rule 2.67A;
(j) the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the company …”
“All rents, annuities, dividends, and other periodical payments in the nature of income (whether reserved or made payable under an instrument in writing or otherwise) shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly.”