Administration and Rates - English High Court landmark decision
The English High Court has recently handed down a landmark judgement in the case of Trident Fashions. It held that non domestic rates on premises occupied by a company during the period of administration (whether the property is occupied or not) were payable as an expense of the administration in priority to the administrator’s own fees.
The case will have far reaching consequences. A Council’s claim for rates must now be paid in priority to other unsecured creditors claims and also in priority to the administrator’s own fees. If the claim for rates is significant, this could have a huge impact on the administrator’s fees and the sums available to pay ordinary unsecured creditors. Councils will be happy but other creditors and the insolvency profession less so.
Financially distressed companies and their advisors will have to take into account this obligation to pay rates when deciding the best option for the company. Recently there have been several retail insolvencies where the administrator has continued to occupy and trade from the various outlets but if rates are to be automatically payable as an expense of the administration, many companies will simply not be able to continue to trade in administration which could lead to more liquidations and redundancies. Floating chargeholders could also be discouraged from funding administration as the rates liability could seriously affect their realisations.
The decision in the Trident Fashion case turned on an analysis of the English Insolvency Rules dealing with payment of administration expenses. It is important to remember that the Scottish Insolvency Rules are different and therefore the effect of Trident Fashions on Scottish administrations is at the moment unclear. On the one hand the Scottish Rules applicable to expenses could easily be interpreted in the same way as the English Rules so that the position north and south of the border would be the same. On the other hand the Scottish courts may take a different view.
It remains to be seen whether the UK Government and the Scottish Executive will introduce changes which would overturn the Trident Fashions decision. What is clear however is that we face interesting, if uncertain, times ahead.
FOR FURTHER INFORMATION PLEASE CONTACT: JENNIFER ANTONELLI
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