Innovate Logistics Ltd v Sunberry Properties Ltd

Innovate Logistics Limited (the Company) went into administration on the making of a court order on 30 June 2008. Mr Shay Bannon and Mr Antony Nygate of BDO Stoy Hayward LLP were appointed administrators. On 15 July the same judge as had made the administration order, HHJ Simon Brown QC (sitting in Birmingham as an additional judge of the Chancery Division), made an order on the application of the Company’s landlord, Sunberry Properties Limited (Sunberry), the respondent to this appeal.

The judge gave permission under the Insolvency Act 1986 (paragraph 43(6) of Schedule B1) for Sunberry to commence legal proceedings against the Company seeking a mandatory order for the immediate termination of an occupational licence granted by the Company of about 8.28 acres of its cold store premises at Holmewood Enterprise Zone, Holmewood, Derbyshire (the Property). From 30 June 2008 onwards Yearsley Holmewood Limited (YHL) was in occupation of the Property following its purchase of the Company’s business as a going concern. YHL was a party to the application, along with related companies. It was held jointly liable for Sunberry’s costs in the sum of £20,000.

The judge gave the Company permission to appeal and he stayed the order pending the determination of the appeal. Although YHL was not represented at the hearing of the appeal, it supported it and indicated by letter that this court should reverse the costs order against it in the event of the appeal succeeding.

The appeal was heard urgently at the beginning of the Long Vacation. After the end of oral argument the Court announced its unanimous decision to allow the appeal. The reasons for the decision would be put in writing and handed down at a later date. These are my reasons for the decision.

The main issue on the appeal was whether the judge took the wrong approach to the relevant provisions of the 1986 Act. As the Company was in administration the permission of the court was required for legal proceedings to be instituted against it or its property. The grant of permission is in the discretion of the court. General guidance on the balancing exercise involved in leave applications was given by the Court of Appeal in Re Atlantic Computer Systems plc [1992] Ch 505 at 542-544. The Company contends that the judge did not follow the guidance.

At the outset of the appeal the court granted the Company’s application, which was opposed by Sunberry, for permission to adduce fresh evidence on the appeal under CPR 52.11. Evidence contained in three witness statements- one by Mr Bannon dated 30 June 2008 and the others by Mr Steven Richards and Ms Louise Fox dated 25 July 2008 - was directed to clearing up misunderstandings in the court below about the conduct of the administrators, their treatment of Sunberry, and the circumstances in which the administration order was made and the sale agreement concluded by the administrators with YHL. In particular, the attention of the judge at the hearing on 15 July 2008 was not drawn to the crucial witness statement made by one of the administrators (Mr Bannon) on 30 June 2008. That witness statement had been placed before and relied on by the same judge on 30 June when he made the administration order. It explained the financial position of the Company and the proposed sale of its business and assets as a going concern. It also explained how there was a real prospect that this would achieve the purpose of the administration. It was a “pre-pack administration.” This involved the continuity of the Company’s business as a going concern, the exclusion of the Company’s debts from the proposed sale, the orderly collection of debts and the proposed grant of a right to the purchaser to occupy the Property at a rent.

Unfortunately this important witness statement was not included in the bundle for the hearing on 15 July. Counsel, who had not appeared on the 30 June hearing, was instructed to represent the Company. He was unaware of the statement. The judge was not reminded of it. In consequence the judge made criticisms of the conduct of the administrators which he would not have made had he been in full possession of the relevant facts. For example, he would have been aware of contact between the administrators and Sunberry before the sale to YHL.

Sunberry opposed the admission of the further evidence on the ground that it was fully known to the administrators and their staff at the time of the hearing and that it could have been produced with reasonable diligence. Mr Bannon’s statement had been overlooked and so was not relied on by the administrators in opposing Sunberry’s application, despite being fully aware of it and having used it at the earlier hearing. In any event the proper way of dealing with the situation was not for the Company to seek leave to introduce fresh evidence on an appeal to this court, but to apply to the first instance judge to review his decision under Rule 7.47 of the Insolvency Rules.

The court concluded that it was in the interests of justice to admit the further evidence on the appeal. There had been an unfortunate oversight of evidence that had already been used in court to obtain the administration order. Sunberry was not taken by surprise nor was it prejudiced by the admission of the two witness statements. In truth, the crucial statement was not fresh evidence at all. It was evidence that had already been used in the same case two weeks earlier. It had been overlooked at a subsequent hearing. Its absence led the judge to make unfounded criticisms of the administrators’ conduct and that influenced the exercise of his discretion in granting permission to bring the proceedings.

The Company was lessee of the Property under a lease dated 18 December 1998. The term was 30 years from that date at a current basic annual rent of £1,225,530. The Property was used by the Company to store customers’ goods, pending distribution, in frozen, chilled or other conditions. At the date of the administration order £20m worth of frozen food was stored on 25,000 pallets at the Property.

Sunberry is the current landlord of the Property. The rent is payable quarterly in advance on the usual quarter days. Clause 3.18.1 of the Lease contains a covenant against assignment and parting with possession or occupation of the whole or any part of the Property. There is a proviso for re-entry for breach of covenant, non-payment of rent and on the passing of a resolution of the Company’s directors to present a petition for an administration order in respect of the Company.

On 25 June 2008 an administration petition was presented to the court. On 30 June 2008 the administrators were appointed. The Company was in severe financial difficulties. It was insolvent on a cash flow and balance sheet basis. A petition to wind up the Company had been presented on 20 June 2008. That petition was dismissed on the making of the administration order. The Company had no funds with which to meet the quarterly basic rent instalment of £306, 382.50 payable to Sunberry on 24 June 2008.

Further, if the Company went into liquidation, it would be unable to fulfil its outstanding contracts for customers who owed it substantial debts. If, however, the Company’s business could be sold as a going concern, it was considered that it would gain a better price for its assets than through a forced sale. Its significant book debts, which would not be included in the sale, could be recovered at full value. There should then be a surplus for unsecured creditors.

Also on 30 June 2008 the Administrators entered into a Sale Agreement with YHL for the sale of the frozen food warehousing and distribution business of the Company at Holmewood Industrial Park as a going concern. YHL is part of a group of companies that operates the largest cold storage business in the United Kingdom. The purpose of the sale was to ensure the continuity of the business and the orderly collection of debts. YHL undertook to perform the customer contracts. The Lease was excluded from the sale. YHL was not interested in taking an assignment of the Lease. The sale was on terms that purported to grant an occupational licence or lease of the Property to YHL for 6 months with monthly payments equal to one month’s passing rent under the Lease by YHL to the Company, subject to earlier forfeiture by Sunberry, or on notice from the Company or from YHL to terminate at an earlier date. It is not disputed that this was a breach of clause 3.18.1. of the Lease. The administrators agreed to pass on to Sunberry the sums paid by YHL in respect of its occupation of the Property.

The licence was granted so that YHL could continue trading from the Property for a limited period and enable the administrators through the agency of YHL to collect the Company’s book debts. It was considered to be commercially necessary for YHL to have a short period of occupation of the Property in order to distribute and re-locate customers’ stock held there. As the Company lacked funds, it was not possible for it to remain in occupation of the Property to distribute the stock.

On 7 July 2008 Sunberry’s solicitors requested the administrators to terminate immediately any licence or other arrangements by which the Company had granted YHL rights of access to, or use of, the Property. The administrators refused to do that, or to consent to the commencement of the proposed proceedings by Sunberry. Hence Sunberry’s application to the court under Schedule B1 paragraph 43(6) of the 1986 Act for permission to commence proceedings against the Company and YHL alleging that the licence was in breach of clause 3.18.1 of the Lease.

On 11 July 2008 YHL gave notice to the administrators to terminate the licence to occupy the Property on 10 October 2008.

The 1986 Act, as amended, provides for a statutory moratorium on the making of an administration order by postponing the enforcement of substantive rights. It derives from, and is in similar terms to, section 11(3) (d) of the 1986 Act, which was construed by this court in Atlantic Computer Systems. Paragraph 43 of Schedule B1 provides that

“(6)

No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except (a) with the consent of the administrator, or (b) with the permission of the court”

The relevant purpose of the administration is to achieve “a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration)” and to do so “in the interests of the company’s creditors as a whole”: paragraph 3 Schedule B1.

The administrators are officers of the court. They have power to do anything necessary or expedient for the management of the affairs, business and property of the Company. In exercising their functions they act as agents of the Company. The wide powers include sale of the property of the Company: see paragraphs 59 and 60 of Schedule B1.

According to Atlantic Computer Systems the burden is on Sunberry to make out its case and to satisfy the court that it is inequitable for it to be prevented from commencing the intended proceedings. The administrators accept that the Company acted in breach of clause 3.18.1 of the Lease in granting YHL a licence to occupy the Property and that Sunberry has a seriously arguable case for the relief claimed in the intended proceedings, though they would dispute whether a mandatory injunction should be granted.

The guidance in Atlantic Computer Systems also states that the court, in seeking to give effect to the statutory purpose of the administration, has to conduct a balancing exercise of the legitimate interests of the lessor and the legitimate interests of other creditors of the Company. The court has to compare the financial loss suffered by the landlord, if permission to commence proceedings is refused and he is temporarily denied the relief sought, with the loss suffered by the other creditors, if permission to issue proceedings is granted. The court must take into account money paid by the administrators to compensate the landlord. The court attaches great importance to the proprietary interests of a landlord, who should not be prejudiced by the way in which the administration is conducted “save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent”: see page 542G-H.

In considering the loss suffered by the other creditors of the Company the guidance states that

“If substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal”: see page 543A-B.

I also note that this is not a case like Atlantic Computer Systems, where the lessor is seeking to re-possess his property because of non-payment of rent. Sunberry wants YHL to remain in possession as its tenant under an assigned or new lease, rather than being in occupation under a licence from the Company.

The judge correctly noted that the purpose of the administration in this case was to achieve a better result for the Company’s creditors as a whole than would be likely if the Company were wound up. The administrators were given a moratorium or breathing space so that they could deal with the Company and its property. Leave to bring proceedings should normally be given to a lessor to exercise his proprietary rights, if this is unlikely to impede the purpose of the administration.

In this case the judge concluded that the purpose of the administration had been achieved “extremely quickly” on the very first day (30 June 2008) by the sale of the Company’s business as a going concern. This purpose had been achieved by what the judge regarded as a “form of subterfuge” by the administrators. Sunberry was not notified of the sale. The administrators were not entitled to give YHL an advantageous licence. The judge took the view that it was unnecessary to conduct the balancing exercise between the creditors of the Company and Sunberry by following the guidance in Re Atlantic Computers. He said that the case did not fit very easily within the guidelines.

The judge relied on a number of factors to justify this approach: the purpose of the administration had already been achieved on the very day of the administration order by selling the Company as a going concern; the administrators had caused a “flagrant breach” of clause 3.18.1; the administrators could only sell the business conducted at the Property, if they sold it to a person willing to take an assignment of the Lease; and the administrators had acted in a reprehensible manner in the way they obtained the administration order and dealt with Sunberry in “illegally” granting a licence of the Property without telling them or the court. They had not told Sunberry of the fait accompli or “done deal.” They had not informed the court of the circumstances when the administration order was granted. The judge described the conduct of the administrators as “astonishing”, “quite reprehensible” and “a rather odd way from the word go.” They had altered the bargaining position of the parties to the disadvantage of Sunberry by hoisting it with the burden of an occupational licence of its Property without prior notice, and to the advantage of YHL. The way out of the situation was for YHL to take an assignment of the Lease.

Mr Simon Mortimore QC, on behalf of the Company, contended that the judge’s approach was legally wrong. It was, he said, necessary for this court to exercise the discretion afresh by refusing Sunberry’s application for permission to institute proceedings.

His first criticism of the judge’s decision was that he had taken the wrong approach to the key question whether the intended proceedings would impede the achievement of the purpose of the Company’s administration. The judge thought not, because he concluded that the purpose of the administration had been achieved when the Company sold the Holmewood business to YHL on 30 June 2008. Mr Mortimore submitted that this was wrong, as the purpose of the administration would not be achieved until the Company has got in the £8.9m book debts. For that to be achieved it was essential that YHL occupied the Property in order to perform and take over the Company’s contracts by storing and delivering goods to the Company’s customers, who owed money to the Company. The intended proceedings would impede the administration and the achievement of that purpose. If successful, the mandatory injunction sought by Sunberry would terminate the ability of YHL to get in the book debts for the Company.

Mr Mortimore’s next point was that the judge did not carry out the balancing exercise described in Re Atlantic Computers. The judge concluded that he was not required to carry out the balancing exercise, because the purpose of the administration had been achieved and the administrators had caused the Company to breach clause 3.18.1 of the Lease. He wrongly took the view that they could only sell the business conducted at the Property, if they sold to a person willing to take an assignment of the Lease. He also wrongly criticised the conduct of the administrators and treated it as another reason for not carrying out the balancing exercise. He had misunderstood the facts as a result of relevant evidence in the witness statement of 30 June not being brought to his notice at the hearing on 15 July.

Mr Mortimore submitted that the judge ought to have carried out the balancing exercise in accordance with the guidelines in Atlantic Computers. He ought to have done soin the context of the rescue of the Company’s failing business and the administrators’ attempts to maximise recoveries of book debts for the benefit of the Company’s creditors. The immediate termination of YHL’s occupational licence, as sought by Sunberry in the intended proceedings, would put in jeopardy the ability of the administrators to collect book debts of £8.9m. The collection was through the agency of YHL in performing or taking over the Company’s contracts. As a matter of commercial necessity and urgency the administrators had no option but to grant a temporary occupational licence of the Property when making a going-concern sale of the business of an insolvent company where, as is usual, book debts are excluded from the sale.

Mr Mortimore explained that it may sometimes be necessary for administrators to repudiate contracts and breach obligations in the proper performance of their functions. Although breach of clause 3.18.1 of the Lease was a factor for the court to consider in conducting the balancing exercise, it did not displace the discretion of the court, or require it to grant permission to commence proceedings. The judge did not carry out the appropriate balancing exercise. There was no good reason for failing to do so.

Mr Mortmore emphasised that it was for Sunberry to satisfy the court that it is inequitable for it to be denied the mandatory order that it seeks from the court. It could not do so in the circumstances of this case. Any temporary loss that Sunberry would suffer by not being allowed to commence proceedings had to be balanced against the loss that would be suffered by other creditors of the Company if proceedings were commenced. Sunberry was unable to identify any substantial loss that it would suffer if not allowed to commence proceedings against YHL. Sunberry had nothing in the way of loss of income or damage to weigh in the balance against the other creditors of the Company.

The financial position was that the Company did not have the funds to continue its operations. It could not pay Sunberry the next quarter’s rent due under the Lease. Under the arrangements made by the administrators with YHL Sunberry would receive monthly payments for the period of its occupation during which it would otherwise have received nothing from the Company. The only potential loss of income that Sunberry could suffer during the period of YHL’s occupation would be the interest that could have been earned on the quarterly rent payments payable in advance. In the exercise of its discretion the court can impose a term to ensure that Sunberry will be compensated for that loss. As for a possible diminution in the capital value of Sunberry’s reversion, there was no satisfactory evidence on that point.

Some interference with Sunberry’s proprietary rights was unavoidable. The breach of the prohibition against assignment in the Lease was technical. It had only temporary effect and was necessary in order to carry out the proper purposes of the administration. During its occupation YHL would be using the Property for the same business that the Company had used it. The occupation was for a strictly limited period, which would end on 10 October 2008 in accordance with the notice to that effect already given by YHL to the Sunberry. The creditors of the Company will not be receiving any windfall from the breach of the covenant.

Mr Mortimore strongly submitted that there were no grounds for the judge’s criticisms of the administrators’ conduct. They had acted properly and for the benefit of the creditors. This was clear from the evidence before the court, now supplemented by the fresh evidence adduced on the appeal. In any event, he added, their conduct was irrelevant to whether the court should exercise its discretion to grant Sunberry permission to commence proceedings.

Sunberry was not, he observed, proposing to take any proceedings against the Company to forfeit the Lease and re-possess the Property. The unusual feature of the case was that, for the present, Sunberry wanted the Lease to remain in being. The purpose of the intended proceedings to terminate YHL’s temporary occupation of the Property and to exclude it was to exert pressure on YHL to take an assignment of the Lease, but YHL was unwilling to take an assignment and intended to vacate the Property on 10 October 2008. YHL would, however, pay for its occupation and when it went out of occupation Sunberry could seek to forfeit the Lease. In these circumstances Sunberry would obtain no additional benefit from obtaining permission to commence proceedings now, whereas the other creditors stood to benefit by the collection of the book debts of the Company during YHL’s period of occupation of the Property.

Mr Gabriel Moss QC forcefully submitted on behalf of Sunberry that the administration order did not entitle the administrators to breach the terms of the Lease in such a way that Sunberry had no remedy. A party, like Sunberry, with proprietary or other specifically enforceable rights should normally be given permission to commence proceedings for breach of its rights: Astor Chemical Ltd v. Syntec [1990] BCC 97 and Re P & C and R & T (Stockport) Ltd [1991] BCLC 366 at 374c. It was not the primary purpose of the moratorium to prevent a property owner, such as Sunberry, from enforcing its claims. The primary purpose of the moratorium was to protect the tenant company in administration from creditors seeking to establish or enforce their claims: Environment Agency v. Clark [2000] BCC 653 at para 52. Sunberry was not seeking to establish or enforce rights as a creditor. It was enforcing its rights as owner of the Property.

Further, administration is an interim or temporary regime, which is designed to give the Company a breathing space whilst proposals are put to creditors. In this case the moratorium was being used to deprive Sunberry of its proprietary rights and its bargaining position in negotiations with YHL, which was put in an unfairly advantageous position to attempt to force Sunberry to reduce the rent or sell the Property at a lower price.

It was also the purpose of the moratorium to protect the interests of the general body of creditors and, in particular the unsecured, non-preferential creditors against owners of property or security interests. On the evidence of the administrators the primary beneficiaries of the stay are YHL, the purchaser, the assignee of the book debts and the secured creditor.

The statutory moratorium was imposed on creditors to assist the administrators achieve the statutory purpose for which they were appointed by preventing the creditors from depriving the administrators of possession of the property required for the purposes of the administration. Sunberry’s intended proceedings would not deprive the administrators of such property. They were directed against a third party unlawful occupant of the Property. The proceedings would leave the Lease in place. The ability of the administrators to grant an unlawful licence to a third party was not “property” of the Company, which was protected by the statutory stay.

The recurring theme of the submissions made on Sunberry’s behalf was that it should be permitted to commence proceedings against the Company in order to protect its “bargaining position” as against YHL. The refusal of permission would lead to a serious confiscation of Sunberry’s proprietary rights to enforce the terms of the Lease and the right to negotiate with the unlawful occupier for the regularisation of its unlawful occupation.

Sunberry’s contractual rights under the Lease had been deliberately breached by the letting of YHL, a complete stranger, into occupation of the Property for the purpose of protecting YHL, assignees of the Company’s book debts and its secured and preferential creditors. This purpose was effected under a “pre-packaged” arrangement with the administrators immediately after the Company had entered administration. It presented the creditors with a “fait accompli.” There was no longer any relevant business of the Company to be continued by the administrators and protected by the moratorium. YHL had no right to be protected by the moratorium. The actions of the administrators in allowing unlawful occupation of the Property contrary to the terms of the Lease would ordinarily entitle Sunberry to an order for immediate termination of the occupational licence.

The bargaining position which Sunberry wished to protect and exploit was its ability to negotiate with and persuade YHL, by means of the proceedings or the threat of them, to regularise its unlawful occupation of the Property either by taking an assignment of the Lease or by entering into a new arrangement with Sunberry. That was preferable to proceedings for the forfeiture of the Lease or being faced with a disclaimer in the liquidation of the Company. In this context it was wrong for the administrators to withhold permission for the proposed proceedings as a way of giving YHL a bargaining counter against Sunberry and to protect it from the consequences of its unlawful act.

Mr Moss contended that the instant situation fell outside the balancing exercise described in the guidance in Atlantic Computers. The interests of the general body of creditors did not fall to be considered as part of a balancing exercise against Sunberry’s rights. The guidance wasdirected to a case in which a landlord (or owner of goods) was seeking to exercise its existing proprietary rights against a company in administration, such as by re-possessing the Property because of non-payment of rent or rental payments. In this case Sunberry was not seeking to enforce its proprietary rights against the Company or its property by forfeiting the Lease and regaining possession of the Property for itself. Its legitimate aim was to use its bargaining position to negotiate with YHL, which had no right to be in the Property at all.

Alternatively, in any balancing exercise the court must pay due regard to the proprietary interests of Sunberry. The refusal of permission to commence the proceedings would lead to a confiscation of Sunberry’s proprietary rights to enforce material terms of the Lease. Sunberry had no “automatic” right to be paid contractual rent due or the contractual amounts falling due during the occupation of the Company in administration as an expense of the administration. That was a powerful factor in favour of granting permission to enforce proprietary rights.

Further, the grant of permission to commence proceedings would not cause prejudicial effects in the collection of book debts. Sunberry and YHL were commercial parties, who could negotiate for a fair basis for the presently unlawful occupation of the Property.

As mentioned above (paragraph 4) this court decided at the beginning of August 2008 that it would allow the appeal, set aside the order made by the judge and dismiss Sunberry’s application. In exercising the discretion afresh this court declined to grant permission for proceedings to be commenced against the Company in order to require the Company to terminate the occupational licence or lease before 10 October 2008.

In my judgment, the judge’s decision was shown to be wrong in the following respects.

First, the judge had an incomplete picture on 15 July 2008 of the circumstances in which the Company went into administration and concluded the sale of its business to YHL as a going concern. Unfortunately his attention was not drawn to the relevant evidence on these matters. As a result he made criticisms of the conduct of the administrators, which I do not think he would have made, had he been alerted to the relevant evidence. Initially Sunberry made no criticism of the administrators’ conduct other than that there had been a breach of covenant and a refusal to terminate the licence granted to YHL. The statement of Mr Richards dated 25 July 2008, for which the court has granted permission to adduce on the appeal, explains the situation and removes the basis of the judge’s criticisms.

Secondly, the judge wrongly concluded that the purpose of the administration would not be impeded by the commencement of proceedings. He considered that the purpose had already been achieved on the sale of the business of the Company to YHL. He failed, however, to appreciate that one of the main purposes of the administration was a continuation of the collection of the book debts for the benefit of the creditors of the Company in administration. In order to achieve that it was essential for YHL to occupy the Property and so take over and perform the Company’s contracts by storage and distribution of the goods of the customers, many of whom owed money to the company. The mandatory injunction sought by Sunberry would, if granted, terminate the ability of YHL to carry out the contracts and to assist in getting in the book debts owed by the customers. Just as in the case of forfeiture of the Lease, termination of YHL’s occupation of the Property would mean that it was not possible to use the Property for the purposes of the administration. The goods stored there would have to be re-located instead of being delivered in an orderly fashion.

The Company enjoyed a continuing benefit from YHL’s occupation of the Property. Sunberry would also benefit. The Company did not have the funds to pay the rent under the Lease. For its occupation of the Property YHL would pay Sunberry a monthly payment equal to the passing rent.

Thirdly, the judge ought to have carried out the balancing exercise in accordance with the Atlantic Computers guidance. The balancing of the legitimate interests of Sunberry, on the one hand, and the legitimate interests of the Company’s creditors, on the other hand, is necessary. Occupation of the Property is required for the purposes of the administration. The judge ought to have asked himself whether Sunberry had shown that it was inequitable to prevent it from commencing the proceedings for a mandatory injunction. Instead, he relied on a range of inadequate reasons for not carrying out the balancing exercise: the achievement of the purpose of the administration; the breach of clause 3.18.1; the need for the administrators to find someone willing to take an assignment of the Lease; and the reprehensible manner in which the administrators had dealt with Sunberry.

For the above reasons I was in favour of the decision to allow the administrators’ appeal and to dismiss Sunberry’s application for permission to commence the intended legal proceedings against the Company.

After the hearing the court received written submissions relating to Sunberry’s contentions that-

As for the payments for occupation of the Property, it was accepted that Sunberry had no automatic right to be paid the contractual amounts during the occupation of the Company in administration. But, if it were not granted permission to bring proceedings, Sunberry submitted that it was wrong in principle for the occupation of the Property to be for the benefit of past creditors at the expense of the landlord of the Property. The full rent should be paid, not just the monthly sums received from YHL: see Thomas v. Ken Thomas Ltd [2006] EWCA Civ 1504. Sunberry should be paid as an expense of the administration the apportioned part of the June quarter’s rent relating to the period after the administration order and the payment of all post administration rent as and when such sums fall due under the Lease, in particular the September quarterly payment.

The Court considered the administrators’ supplemental written submissions dated 6 August 2008 and Sunberry’s supplemental written submissions received on 11 August 2008.

The court notified the parties in writing of its decision that-

Sunberry does not have an absolute legal entitlement to be paid contractual rent and interest as an administration expense. On this point the court has a wide discretion exercisable according to the circumstances of the case. The facts are that YHL does not wish to take an assignment of the Lease; the Company, which is unable to perform its obligations under the Lease, does not wish to continue trading from the Property; and, but for the licence for YHL to occupy, the Company would be unable to pay Sunberry anything in respect of the Property .

In my judgment, Sunberry should be in no better position as regards rent and interest than it would have been in had it wished to forfeit the Lease. As regards rent falling due after the administration order Sunberry is an unsecured creditor of the Company, and will benefit from the collection of the Company’s book debts .

I have had the advantage of reading in draft the judgments prepared by Mummery and Stanley Burnton LJJ . I agree with both, and, like them, would allow this appeal.

I agree, and add a few words of my own in deference to the powerful submissions we have heard.

First, as to the admission of the additional evidence sought to be adduced by the Company, it is no answer to point out that it was available and should have been put before the judge by those representing it. It was the duty of those appearing for the Company on the application before the judge to correct his misapprehension of undisputed facts. Furthermore, it would have been quite wrong for this court to have determined the appeal on the same mistake as to the facts concerning the conduct of the Administrators as he had been under.

It may well be that the Company could have sought to correct the judge’s misapprehension by applying to him to review his decision under Rule 7.47 of the Insolvency Rules. But he had decided that the purpose of the administration had been achieved, and that he therefore should not refuse to make the order sought by Sunberry. The appropriate means of challenging that decision was by way of appeal to this court.

Turning to the substance of the appeal, the purpose of the administration had not been achieved. The company had outstanding book debts, and one of the objects of the administration was to collect them for the benefit of the creditors. The administrators reasonably feared that if it failed to perform its existing contracts with its customers they would seek to set off their resulting losses from those debts. Indeed, it seems to me to be obvious that if the company’s customers lost the food stored at the Property, they would be bound to deduct their losses from the sums they owed the company. The retention of the Property to enable those contracts to be completed was, therefore, in the interests of the creditors and promoted the achievement of the purpose of the administration.

As to the exercise by the Court of its discretion under paragraph 43 of Schedule B1 to the Insolvency Act 1986, it is inherent in the provisions of subparagraphs (4) and (6) that administration may preclude a landlord from enforcing the terms of his lease. He can enforce them only with the consent of the administrator or the permission of the court. When considering whether to grant or to refuse leave, the court has regard to the consequences of the administration and of the order sought for the persons affected by them: in other words, it follows the guidance given in Atlantic Computers.

In this case, it was obvious from the fact that Sunberry was not seeking to forfeit the lease of the Property that the rent payable under the lease was higher than the current market rent. If the rent that would be obtained by Sunberry by re-letting the Property were higher than the lease rent, there would be no reason for Sunberry not to seek forfeiture. It follows that Sunberry had benefited from the making of the administration order, together with the agreement entered by the administrators with YHL and the administrators’ agreement to pay to Sunberry the sums paid by YHL for the occupation of the Property at the same rate as the rent payable under the lease, as against what it would have received if the company had gone into liquidation. Apart from its so-called bargaining position, all that Sunberry would lose if the court refused permission to it to enforce the terms of the lease by the grant of the mandatory injunction it sought would be the difference between interest on the lease rent if it were paid quarterly in advance, as required by the lease, and interest on the lease rent paid monthly in arrears. As against that, if Sunberry were permitted to bring proceedings for a mandatory injunction that would, if granted, prevent the Company and YHL from continuing to perform the Company’s outstanding contracts. The likelihood was that the collection of the Company’s debts would be substantially prejudiced, with consequential loss to the creditors. When weighing the loss relied upon by Sunberry as against the potential loss to the creditors of the Company the result was obviously in favour of refusing permission.

As Mummery LJ has said, Sunberry complained of the loss of its bargaining position if it were refused permission to bring proceedings. Its complaint reinforced the inference that the lease rent was greater than the market rent. It would not need a bargaining position if it could re-let the Property on the market at the same or a higher rent at the expiration of the relatively short period required by YHL to complete the performance of the Company’s outstanding contracts. The bargaining position consisted of the threat of the mandatory injunction requiring the Company to terminate YHL’s licence, and it was clear that Sunberry’s object was to obtain an agreement under which YHL would take an assignment or a new lease of the Property on terms that would be more beneficial to Sunberry than could be obtained on the open market. I am doubtful whether the loss of such a bargaining position is a relevant consideration for the court to take into account on an application under paragraph 43; I certainly do not think that the court should view an application by a lessor in such circumstances sympathetically. In a case such as this, where Sunberry contends that it is indisputably entitled to an injunction if it is permitted to bring proceedings, the court’s principal, if not only, focus must be on the consequences of the grant of that injunction rather than on what Sunberry might obtain by the threat of those proceedings. As I have already stated, when weighing the loss to Sunberry resulting from refusing permission as against the potential or likely loss to the Company’s creditors if permission was given and an injunction granted, the result was obviously in favour of refusing permission.