UK Court Of Appeal Overrules Goldacre And Luminar

Keywords: UK Court of Appeal, Goldacre, Luminar

The Court of Appeal has handed down judgment in the highly anticipated Game case and has overruled the controversial decisions of the High Court in Goldacre1 and Luminar2.

The decision has confirmed that where an administrator makes use of leasehold property for the purposes of an administration, the reserved rent is payable as an administration expense for the period during which the property is used, and will be treated as accruing from day to day for that purpose. This is true whether the rent is payable in arrears or in advance and the date upon which the rent becomes due and payable is irrelevant.

The Issue

The issue on the appeal was the treatment of rent payable under a lease held by a corporate tenant that has entered administration. The appeal court was asked to determine when such rent is no more than a provable debt; and when it ranks as an expense of the administration.

Background

Whether an expense incurred by a company in administration is payable in priority to other creditors depends on whether it falls within the categories set out in the Insolvency Rules 19863. The decisions in Goldacre and Luminar decided that:

if rent is payable in advance and falls due before the date of administration, then it is not payable as an expense of the administration, even if the property is used for the benefit of the administration during that rent period; and if the property is used for the benefit of the administration, rent falling due during the administration is payable as an expense of the administration whether or not the whole or part of the premises is used for whole or part of the rent period. As rent was payable in advance, rather than in arrears, it was not possible for the rent to be apportioned under the Apportionment Act 1870. Consequently, if a quarter's rent became due before the appointment of administrators, no part of that rent was payable as an expense of the administration.

Prior to these two decisions, it was generally accepted that the payment of rent on properties used during an administration was not an absolute requirement and that a balance would need to be achieved between the interests of the landlord and the interests of the creditors.4

The question in the current case arose in the context of the administration of the Game group of companies. One of the companies in the group was the tenant of many hundreds of leasehold retail properties from which the group...