A landmark case due to start this week in the Court of Appeal could have far-reaching implications for both the insolvency and property industries.
Electronics and gaming retailer GAME entered administration in March 2012, prompting approximately 300 store closures, and leaving landlords unpaid on millions of pounds worth of rent claims.
The resolution of the ensuing case, Game Station Ltd (Jervis v Pillar Denton Ltd and others) (2013), in which a consortium of landlords have brought action against GAME, could lead to a change in the law regarding the treatment of rent as an administration expense.
If this happened, the implications for insolvency practitioners, landlords and other creditors would be considerable.
Under current insolvency law, administrators can legally trade business in administration from the rented premises for as long as three months, protected from landlord enforcement action.
The outcome of the case could see this rule amended in favour of giving greater priority to property companies.
Alastair Lomax, legal director at Pinsent Masons, believes the court decision cannot come soon enough.
He explained: “It is corrosive and counter-productive for the law in this area to encourage debtors, the insolvency profession and landlords to engage in a ‘winner takes all’ game of poker over when a corporate rescue procedure will be implemented.
“The insolvency expenses regime is there to provide a measure of protection to third parties who continue to be affected by the formal process post-appointment; it should not be a tool to be used by any party to gain advantage through the timing of the appointment.
“Many will feel that the fairest solution lies in reverting to the proportionate ‘pay as you go’ approach which many had assumed to apply in the years preceding that decision.”
GAME, which was bought out of administration by OpCapita in 2012, recorded a 90% increase in sales over the Christmas period, boosted by the release of next-generation gaming consoles.
The company is now reportedly on the verge of a £300m IPO.