Lazari GP Ltd v Jervis
When a company goes into administration, it benefits from a "moratorium" that prevents creditors taking legal and other proceedings against the company or its assets. The main purpose of the moratorium is to free an administrator's rescue attempts from the distractions of legal action from creditors.
However, where a creditor can demonstrate that its legal rights can be exercised without adversely affecting the purposes of the administration, the moratorium may be lifted, by the administrator or the Court, to allow the creditor to take such legal action.
In the English case of Lazari GP Ltd v Jervis [2012] EWHC 1466 (Ch), a landlord of a tenant in administration was given permission to forfeit a lease notwithstanding the moratorium in administration.
In this case, a pre-pack sale of the business (including the grant of a licence to occupy the relevant premises) had been carried out. The purchaser's subsequent request for an assignation of the lease was refused by the landlord as the landlord was not satisfied with the strength of the purchaser's covenant.
The landlord wished to re-let the premises to a different party and sought permission to forfeit the lease from the administrators. This was refused. The landlord then successfully applied to court for permission to forfeit.
The administrators could not demonstrate any prejudice to the administration process if the application was granted. By contrast the landlords could show that they would suffer real prejudice if they were unable to forfeit the lease (they would lose the opportunity of a new (presumably financially satisfactory) tenant).
It is not obvious why the administrators did not consent to the exercise of forfeiture rights by the landlord. Where the purposes of the administration would not be adversely affected by the exercise of rights by a creditor, the administrator should not normally refuse consent to such exercise.
The case is a useful reminder also to creditors that although a debtor may be undergoing an insolvency process, the rights of creditors are not necessarily irredeemably lost.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
