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Insolvency

Tenant administration – FAQs for landlords

What is it?

An arrangement entered into with the purpose of rescuing the company. In theory, the objective should, in order of priority, be to:

  • rescue the company as a going concern, or
  • achieve a better result for creditors than if the company were wound up, or
  • realise property for the benefit of creditors.

The company continues to exist, and any leasehold property remains vested in the company. However, in many cases, a sale of the business is agreed very quickly – sometimes even before the administration officially takes effect (known as a “pre-pack administration” – see below).

What is the process?

Administrators may be appointed:

  • by the court on the application of the company, its directors and/or any of one or more of its creditors;
  • by the holders of a qualifying floating charge; or
  • by the company or its directors.
How does the landlord become aware of an administration?

How does the landlord become aware of an administration?

The administrators must notify creditors as soon as reasonably practicable after their appointment.

What happens after the appointment?

Upon administrators being appointed, they take control of the company and the directors' powers are suspended.

An administrator is an officer of the court and has an overriding duty to act in the interests of the company's creditors.

If the property is being occupied, should the administrators be paying rent?

If the administrators retain the property and continue to occupy it for the benefit of the administration, the administrators are liable to pay rent falling due after their appointment on a daily basis as an expense of the administration. Any unpaid rent which pre-dates the administration will be an unsecured debt, which the landlord is often unlikely to recover.

If administrators decide against keeping the company’s leased premises for the benefit of the administration (either by occupying them, or by licensing them to another entity), they will often try to surrender the lease. Landlords need to be alive to this, as administrators will sometimes simply return the keys to the premises and/or ask a landlord to sign and return written confirmation of the surrender.

What options are available to landlords for the recovery of rent arrears or possession?

A landlord’s recovery options are severely limited by an administration and a landlord will require the consent of the administrators or of the Court to forfeit the lease of the property or take action to recover arrears or in respect of any other breach of lease. See also Corporate Insolvency – implications on forfeiture/CRAR and on Rental Liability.

What is a pre-pack sale?

A pre-pack sale of the business may occur in an administration. A pre-pack is a sale of the company's business and assets that has been negotiated and agreed with the proposed buyer, any secured creditors and the intended administrator before the company is placed in administration. The agreement is then entered into as soon as possible following the appointment of the administrator.

A pre-pack sale can only take place when the administrator is satisfied that it will not be possible to achieve the primary objective of rescuing the company as a going concern. This is likely to be the case with any business that would be significantly damaged by any delay in completing a sale (e.g. through the loss of key employees) or where it would be difficult to fund any period of administration.

Such sales often involve a “phoenix” company as the proposed new tenant, run by many of the same individuals as the existing tenant but without the continuing liabilities for the business.

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