The provisions of the Insolvency Act 1986 impose a statutory moratorium which restricts creditors from bringing claims against companies in administration, without the permission of either the administrators or the court.

In the landmark case of Re Atlantic Computer Systems Plc [1992] Ch 505 the courts carried out a “balancing exercise” between the landlord’s interests and the interests of the company’s other creditors when reaching its decision as to whether to grant permission. It set out further guidance that, when determining whether permission should be granted, the court is required to bear in mind “the relevant purpose of the administration”, which is “to achieve ‘a better result for the company’s creditors as a whole than would be likely if the company were wound up”.

The Strata administration concerned the sale of some of its assets to Strada Trading Limited (“STL”), a newly incorporated company with no trading history or independent financial strength. The administrators issued STL with a ‘licence to occupy’ the premises while they attempted to negotiate a formal lease assignment with the landlord.

The Landlord argued that the licence to occupy was in breach of the lease and that it would suffer financial loss if it was denied the opportunity to grant a new lease to a tenant, with more financial standing. STL argued that it would obtain the best result for the creditors if it was able to assign the lease itself at a premium.

The court held that the Landlord was entitled to terminate the lease, despite the ‘statutory moratorium’ that usually restricts creditor. In reaching his decision deputy Richard Spearman QC said that “the purpose of the material provisions of the [Insolvency Act] is to provide a moratorium to enable the administrators to retain or realise assets for the benefit of the creditors, however, the legislation, the case law, and as far as I am aware the arguments before me, do not go so far as to suggest that a lessor is not entitled to rely on rights which it can invoke without legal process, even if it would further the purpose of the administration for the lessor to agree or to be prevailed upon not to rely on them.”

The court’s decision should provide landlords with some measure of comfort that if they are likely to lose out on the opportunity to secure a desirable new tenant as a result of being unable to terminate the lease, this factor will be taken into account when the court performs its balancing exercise between creditors’ and landlords’ interests.

For further information about this case or for any insolvency queries please contact Lauren Hartigan-Pritchard on 01905 677051 or lhartiganpritchard@thursfields.co.uk

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