No: 9267/2008
Neutral Citation Number: [2008] EWHC 2450 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham Civil Justice Centre
33 Bull Street
Birmingham

15th July 2008

Before

HIS HONOUR JUDGE SIMON BROWN QC
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SUNBERRY PROPERTIES LIMITED
(Applicant)

-v-

INNOVATE LOGISTICS LIMITED  (In Administration)
(First Respondent)
YEARSLEY IS LIMITED, YEARSLEY NEWARK LIMITED
YEARSLEY BRISTOL LIMITED, YEARSLEY HOLMEWOOD LIMITED
YEARSLEY SCUNTHORPE LIMITED
(Second Respondents)

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From the tape transcription of
J.L. Harpham Limited
Official Court Reporters and Tape Transcribers
55 Queen Street, Sheffield S1 2DX
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APPEARANCES:

Miss Holland For the Applicant:

Mr McGhee QC For the First Respondent:
Mr Berragan For the Second Respondents:
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JUDGMENT
15th July 2008

JUDGMENT
JUDGE SIMON BROWN QC:
1.	This is an application made by Sunberry Properties Limited, pursuant to Section 43(6) of Schedule B1 to the Insolvency Act for leave to commence proceedings for an order for the Respondents to effect an immediate termination of an occupational licence of some cold store premises in Holmewood Enterprise Zone in Derbyshire, which has been granted by the First Respondent to the Second Respondents.  
2.	Underlying this is a 20 year lease dated 18 December 1998 containing an alienation covenant under Clause 3.18.1.
3.	On 30th June 2008 this court ordered that the First Respondents be placed in administration under Mr Bannon and Mr Nygate of BDO Stoy Hayward LLP. Mr Evans, who was the sole director of Innovate Logistics Limited at that time, had given notice of intention to appoint administrators lodged with the court on 23 June. In his signed statement he indicated that the company was insolvent and unable to pay its debts, it was coming under serious credit pressure and a winding-up petition had been issued. He said that something needed to be done and gave reasons for an administration order.  The company had retained the services of Mr Bannon and Mr Nygate of BDO Haywood and he said:

(1)	"I am able to confirm their view of the company's position as they believe an administration order would be a significant advantage for the company's creditors.  It is their opinion that it is reasonably likely that the purposes of administration would be achieved."

4.	He went on:

(1)	"The protection of an administration order will, at the very least, prevent any of the company's creditors to take steps to wind up the company."

5.	He then went on to make plain that: 

(1)	"It would be impossible for the company to service these ongoing contracts.  The effect would be threefold:  

(2)	the company would be rendered in breach of contract with its customers;

(3)	any profit would be lost for the benefit of creditors;

(4)	the potential for onward transmission of the contract in some form or other  would be lost.

(5)	It will also improve the chances of making significant book debt realisations and preserve the value of the company's assets."

6.	He then indicated that  the company currently occupied a number of premises under leases:

(1)	"The ability of the group to trade from these premises is integral to the possibility of selling the groups business on a going concern basis.  The protection of an administration order is required to prevent the various landlords taking any steps to forfeit the leases relating to these premises, or levying distress over these premises."

7.	He continued: 

(1)	"If the company is forced to cease trading in an uncontrolled and haphazard way, the company could only be sold on a forced sale break-up basis. However, the company can be kept alive for a short period of time with the benefit of an administration order, it will provide the administrators with an opportunity to facilitate a sale as a going concern which would result in a significant increase in the sums realised compared to a forced sale."
8.	Normally one has a schedule of comparators, but one was not in mind at that stage.  
9.	On the basis of that evidence the court placed the company into administration with the current administrators.
10.	It is said here that the purpose of the administration is to under 3.1(b) of the Insolvency Act Schedule B1:

(1)	"The administrator of a company must perform his functions with the objective of ...

(b)	achieving a better result for the company's creditors as a whole and would be likely if the company were wound up."
11.	The court was not however presented with other evidence of what was concurrently happening. On the same day as the administration order, the company was actually being sold to the 2nd Respondent who were being given as part of the transaction a licence to occupy the leased premises upon payment of only monthly rather than quarterly payments of tent, rather than any assignment of the terms of the lease in flagrant breach of the alienation clause and with0ut the knowledge of the Landlords i.e. the Applicants. Now before the court and the claimants isa heavily redacted this is an administrator's sale agreement which reveals that the Final draft of 30th June 2008 by Mr Baigent of Freeth Cartwright. One can only surmise that this must have been contemplated and negotiated for some time.  The court was not told about this on that particular date, which is a serious omission and nor were the interested Landlords. 
12.	Although heavily redacted, blanked out, although it has been photocopied, what is quite apparent from this is that what has been also sold under Schedule 5 is a licence to occupy the leasehold properties, and a licence has been granted for: 

(1)	"A period commencing on the date hereof, expiring on the date which is six months from, including the date of, during the buyer may occupy and use the premises on the terms of the schedule" 
13.	It identifies NEWCO as the Holmewood (b) Property.  And it details what has happened that a licence, and the licence fee arrangement, and the terms have all been set out.  Well none of this was related to the court, but, more significantly, none of this was related to the landlord, because that particular licence was in clear breach of the lease agreement, which I read out earlier. 
14.	Miss Holland says this was presented as a “fait accomplish” or a “done deal” by the administrators to the landlords. In a letter of 3 July 2008, Mr Bannon wrote:

(1)	"As you may already be aware, I was appointed joint administrator of the above company on the 30th June 2008.  I enclose a copy of the appointment for information.  I would advise that the part of the business which occupied your property was sold on the 30th June to G D CO ( part of Harry Yearsley Limited), who may (emphasis added) wish to continue trading from the premises. … I confirm that the rents for the period of the Administrators’ occupation , from 30th June 2008, will until I notify you otherwise, be accrued on a daily basis as an expense of the Administration. The purchaser is required to pay the rent monthly and upon receipt of funds these will be forwarded to you.” "
(2)	Well I have to say that is extremely borderline language because the licence had been granted in the document and a Third Party had already been illegally granted a licence and there is no mention of any licence. Far from discussing this at all with the landlords before deciding to flagrantly breach an alienation covenant, the administrator stated “I would suggest that, unless you have already heard from the purchaser, you contact the purchaser to ascertain their intention”.  I find it quite astonishing that the liquidator should not have actually contacted the landlord before this went through, because it was in the landlord's interest to know about this and decide what to do. By doing so, he put effectively the landlord in a new contractual arrangement with a new occupant not of his choosing and direct bargaining tenant over the terms of occupancy. It altered the bargaining positions of them to the landlord’s detriment and the great advantage of the third party. 
15.	What Miss Holland says is that at the very least what can be done is an arrangement, whereby the parties are put in contact with each other and say, "Well, do you want to take an assignment off the interest of Innovate Logistics, or otherwise?"  Instead of being hoisted with this particular licence arrangement, which is obviously as a matter of principle is a new burden concerning the rights and interests in the property that the landlord is immediately concerned with as opposed to the rights and interest in the administration that were exclusively assumed by the Respondents without reference to the landlords. 
16.	So this is quite an unusual case in this particular context of insolvency and property  law . There has been some guidance as to approach given in the Re: Atlantic Computer Systems Plc [1992] 1AER 476 by the Court of Appeal and useful dicta in Environment Agency v. Clark (administrator) [2007] 1 EGLR 113.  It is supposed to be helpful guidance for people having to do the tricky job that I am being placed into in dealing with an hours application that has lasted a day, where they set out what they say is not an exhaustive list, they say:

(1)	"However much we emphasise that any observations are only guidelines, there is a danger they may be treated as more."  
17.	So Parliament has left a wide discretion to the court and it is relies heavily upon the experience and expertise of Judges in commercial and corporate matters as well with property, as in this particular case.
18.	The key thing is that the purpose of  administration in this case was is to give the administrators a moratorium – a breathing space only  ie. a time when they can deal with the company and its property with the objects that are in mind so that the best result is gained for everybody with an interest in the company, not a final conclusion..
19.	In my judgment, the administrators have acted in a rather odd way from the word go. What we have here is that an indication under the second guideline in re Atlantic: an indication that the provision in Sections 3(c) and (d) is intended to assist the company under the management of the administrator to achieve the purpose for which the administration order was made.  I have already averted to what I was told was the purpose of the administration order, it was effectively to trade and also sell the property as a going concern, but it must have been on the basis of selling the property with the assets that it had, one of  which was the property with no licence over it.  If granting leave to a lessor of land, or the hirer of goods, to exercise his proprietary rights and repossess his land or goods is “unlikely to impede the achievement of that purpose, leave should normally be given”.  Well here the purpose has already been achieved on the very day of the administration order by selling the company as a going concern. .  The purpose was actually achieved extremely quickly, but it was only achieved by effectively some form of subterfuge by the administrators on the landlord, because the landlord was not told that his interest in the property had been impugned by “a done deal”, as Miss Holland puts it.  So this case does not fit very easily within these guidelines and we do not move on to guidelines 3 and 4 of “balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company”..  
1.	
20.	These are concerned with “other cases” beyond the guideline 2 situation where competing “legitimate” interests have to be balanced.
21.	This “balancing exercise” has been pressed on me by the Respondents. They say, "well, by this deal , actually at the end of the day when one looks at it, the applicants are still going to get their rent until October time and the companies and creditors on the other hand will benefit from being able to save £25m worth of frozen food on the premises and we have a reputable company called Yearsley's which will actually deal with that”. However, what Yearsley's , a third party, are actually getting out of this, as the purchasers of the premises, is those benefits plus also the advantageous licence, which they really were not entitled to, and the administrators were not entitled to give..  So in my judgment we do not get to that sort of balancing exercise under 3 and 4 of the guidelines. We are actually at the stage where Miss Holland, quite rightly, says that this is a matter where on the 30th June on the very day of administration the company with the lease was sold and it was done so before the landlords knew. The purpose of the administration was concluded at that time. 
22.	Once one gets into the “balancing exercise”, great importance and weight is normally given to the proprietary interests of the lessor. There is an indication that, under guideline 5, there would normally be a sufficient ground for the grant of leave if “significant” loss would be caused to the lessor by a refusal.  In this particular case the problems for the lessor are quite difficult to determine.  There is obviously the effect of a licence being granted on the value of the reversion,. I have got something evidence about that, but frankly I do not think that that is of any great significance in this particular case, because the licence is only going to be granted until October.  So I do not see that much difficulty, or problem with that one, and on the other aspect there is the mortgagee.  He is breathing down the neck of the landlord in this particular case and, obviously, in circumstances like this it may take action, or it may not.  It is difficult to know what the consequences will be.  So, when looking through all the consequences, it is difficult to gauge the real downside for the applicant with any degree of certainty; obviously the downside for the respondents is more likely to be significant.  But there is a way out of this, as Miss Holland says.  It may be that Yearsley's do not wish to take out an assignment, particularly bearing in mind the length of the lease.  But that is what I am afraid I think they ought to have done and if they wish to take the benefit of this, this particular deal by the administrators,  that is what they will have to do.
1.	
23.	So, in my judgment, Miss Holland is right in this if one follows through the guidelines. 

24.	There is also another further matter which I take into consideration, I do not particularly wish to go down this particular line, but under guideline 8, it indicates it is not an exhaustive list as with all discretionary matters, but the conduct of the parties may also be of material consideration. I think this is a case where it is highly material.  The conduct here of the administrators in doing what they have done: in actually doing a deal without engaging the landlords or notifying the court of the circumstances when the administration order was granted, is quite reprehensible conduct. I take this into account in granting the application.