Under existing insolvency law, if a company is placed into administration after a quarterly rent date falls due, even if by just one day, then Landlords will not be entitled to that quarter rent as an administration expense but will rather have to prove in the administration as an unsecured creditor. This effectively provides administrators a 'rent free quarter' in order to try and achieve a sale of the business prior to the next quarter date.
GAME, which entered into administration one day after its quarter rent date fell due in March 2012, have been taken to the Court of Appeal by a consortium of Landlords to argue that this 'loop hole' should be closed and that GAME ought to pay them the, circa, three months outstanding rent as an expense of the administration.
This is very much viewed as a test case that could determine how rent in this intervening period (post quarter rent date to next quarter rent date) is to be treated in future administrations. The Daily Telegraph states that the case could affect GAME's proposed flotation as if the consortium succeeds then GAME and its backers will have "to pay out roughly ten per cent of its current annual rent and service charge bill".
A number of Landlords are of the opinion, especially after being the only category of creditors affected under a number of high-profile Company Voluntary Arrangements we saw last year, that it is time that their position is better protected under the current insolvency regime. If the Landlords succeed in their challenge then this will be one major feather in their cap. It will also bring some clarity to when rent is, and is not, an administration expense and may well sound the death knell on the use of tactical administration appointments. More to follow....
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