Administration Expenses: The Next Instalment

Keywords: administration expenses, High Court, British Gas Trading

The High Court has rejected the argument that amounts owing to British Gas Trading Ltd (BGT) under post-administration, deemed contracts for the provision of gas and electricity are automatically classed as expenses of the administration. The court has reserved for consideration, however, whether and if so how an administrator's conduct may give the liability super priority or bring the salvage principle into play.

Background and preliminary issue

The liquidators of the Peacocks group applied for directions in February this year to determine whether certain charges incurred under deemed contracts pursuant to Schedule 2B Gas Act 1986 and Schedule 6 Electricity Act 1989 should be treated as provable debts or administration expenses.

The liquidators argued that the charges are merely provable debts even though the deemed contracts came into existence after the date of administration because the charges relate to periods of usage after the administrators had ceased trading from the relevant stores or otherwise making use of them for the benefit of the administrations, on the basis that they arose out of obligations incurred prior to the entry of the group into administration.

BGT contended that the charges are "imposed by a statute whose terms render it clear that the liability to make the disbursement falls on the administrator as part of the administration – either because of the nature of the liability or because of the terms of the statute" (per Lord Neuberger in Re Nortel GmbH (In Administration) [2014] AC 209, paragraph 100 (the "Nortel Judgment")) and, as such, fall within the definition of "necessary disbursements" in Rule 2.67(1)(f) Insolvency Rules 1986.

In a judgment handed down last week, the court determined a preliminary point of law as to whether the charges were provable debts or administration expenses. The scope of the question was narrowed and based on a set of assumed facts to avoid the need for any substantive evidence on the facts of the case, namely (a) that the deemed contracts came into being after the date of administration; (b) the charges relate to a period after trading had ceased; and (c) "the charges do not relate to or arise out of anything done by the administrators or on their behalf in the course of the administrations".

The facts

BGT supplied gas and electricity to stores of the Peacocks group pursuant to written contracts for a fixed term from 1 April 2011 to 31 March 2012, subject to BGT's standard terms and conditions. The administrators were appointed on 19 January 2012 and BGT terminated those contracts in accordance with their terms on 20 January 2012 and 23 January 2012.

Notwithstanding the termination and without entering into any new express contracts with the companies in...