Vol 10 (2013) - Issue 3

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Lazari GP Ltd v Jervis, the Rights of Landlords in Administration

Introduction
On 11 May 2012 judgment was handed down in Lazari GP Ltd v Jervis.1 Mr Justice Briggs ('Briggs J'), sitting in the Chancery Division of the High Court granted the landlords of a property, of which the tenant was in administration, permission to forfeit a lease provided that it did not affect or impede the administration of the tenant company. Paragraph 43, Schedule B1 of the Insolvency Act 1986 ('Paragraph 43') protects a company in administration by way of a 'moratorium' that prevents creditors or other third parties from taking action against the company or its assets including exercising forfeiture by peaceable re-entry without the leave of the court.2

Circumstances in which the court will grant leave
The courts have traditionally been reluctant to allow the moratorium to be pierced unless the effect on the administration is minimal. There have been several previous cases in this area, most notably Re Atlantic Computer Systems Plc,3 and Innovative Logistics Limited v Sunberry Properties Limited.
In Re Atlantic Computer Systems the court held that there were several factors to be considered by the courts in determining whether or not to give leave for proceedings to be brought even though the company was in administration. The court emphasised that the administrators should respond quickly and reasonably to applications for leave to bring proceedings and where possible these issues should be settled out of court. The court stated that if the granting of leave does not impede the process of administration then it should normally be given, and in other cases the courts must carry out a balancing exercise to determine whether it would be inequitable for leave to be denied. In the case of a lease, if significant loss would be caused to a lessor if it could not bring proceedings due to the moratorium, then this will normally be sufficient grounds for the court or the administrator to grant leave.
The Sunberry case set out that the moratorium also applied to restrict the landlord’s remedies where an administrator of a tenant company had breached a lease by licensing occupation of premises to another company, without seeking or obtaining the landlords’ consent. The landlords were unsuccessful in this case because the Court of Appeal decided that based on the balancing exercise established in Re Atlantic Computer Systems, the process of administration would be impeded by the landlords’ request.
These cases provide guidance on the circumstances under which a creditor or third party will be given leave to bring proceedings against a company in administration despite the statutory moratorium. The decisions make it clear that if a landlord wishes to commence proceedings during the statutory moratorium, the landlord must show that the exercise of its rights will not impede the purpose and course of the administration.