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Stewart Perry, a partner at Clyde & Co, Richard Heis, a partner at KMPG, and Samantha Bewick, a director at KMPG, examine current issues for landlords and what the Court of Appeal might say in the Game appeal
The case of Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration)  EWHC 3389 (Ch),  All ER (D) 54 (Jan) has caused many difficulties for administrators.
The case of Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (in administration) and others  EWHC 951 (Ch),  4 All ER 894 (Luminar) took the Goldacre reasoning to its logical extreme, and has now also become difficult for landlords. Fortunately, in February 2014, the appeal in the case of Jervis v Pillar Denton Ltd (Game Station) & Others  EWHC 2171 (Ch) (Game) will give the Court of Appeal the opportunity to bring clarity, and some would argue justice, to this area of the law.
The obligation to pay rent and other sums pursuant to a lease entered into before entry into administration is a provable debt. As such it does not fall within the definition of expenses as set out in the Insolvency Act 1986 or Insolvency Rules 1986, SI 1986/1925. However, where there are ‘special facts’ (as referred to in Re Nortel GMBH (in admin); Re Lehman Brothers International (Europe) (in admin)  UKSC 52,  4 All ER 887, para ), the court can oblige the administrator to treat those provable debts as if they were expenses. In the Lundy Granite case (Re Lundy Granite Co (1871) 6 Ch App 462), the principle was set out as follows:
‘If the company for its own purposes, and with a view to the realisation of the property for a better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the court to see that the landlord receives the full value of the property.’
In other words, to the extent that the liquidator uses the property for the benefit of the liquidation estate, he should pay for it.
Although this is a strict rule applied in liquidation cases, prior to the Enterprise Act 2002 (EA 2002), Re Atlantic Computer Systems plc  Ch 505,
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