Court of Appeal decision on the Game Station case

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In case you haven't seen it, the Court of Appeal today published its decision in relation to the Game Station case.

This has drastic effects on how rent is treated in an administration/winding up. Overruling the previous decisions of Goldacre and Luminar, rent must now be treated as an expense of the administration/winding up, accruing from day to day during the period in which the office holder retains possession of the property.

Pre-Game Station (Goldacre & Luminar)

Previously, rent was treated as an unsecured debt where:

  1. the rent was payable in advance; and
  2. the office holder was appointed after the rent date had passed.

Consequently, landlords had little prospect of recovering the entirety of the sums owed. In addition, the office holder was entitled to make use of the premises until the next rent date without having to pay a penny to the landlord.

Conversely, rent was treated as an expense where:

  1. the office holder was appointed before the rent fell due; and
  2. the office holder was still in occupation when the next rent day came around.

This was of obvious benefit to landlords who would be paid in priority to other debts of the company.

Post-Game Station

Following the Court of Appeal's decision in Game Station, it now makes no difference whether the rent days occur before, during or after the appointment of the office holder.

From now on, the office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the property for the benefit of the winding up or administration. The rent will be treated as accruing from day to day and is payable as an expense of the winding up or administration.

Responding to this decision, Phillip Sykes, deputy vice-president of R3, has said:

“The GAME decision provides some of the clarity insolvency practitioners have been seeking on administration and liquidation expenses.”

“Treating rent as an administration expense may mean a smaller pot for a business’ creditors as a whole, but at least the administrator will now know, and be able to make provision for the costs involved, in an administration. Extra clarity can make the difference between a business being rescued or not.”

“We are very pleased to see that the court has backed the common-sense ‘pay what you use’ principle on rent in administration. Recent court decisions had taken administration expenses in the opposite direction. After this decision, administration expenses should be a fairer deal for landlords and businesses.”