England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand London WC2A 2LL
		12 November 2010

1. MR JUSTICE RICHARDS: There is before the court an application by the joint administrators of WW Realisation 1 Limited, formerly Woolworths PLC, by way of petition, seeking a number of orders and directions from the court.
2. The administrators seek an order that their appointment as administrators shall cease to have effect and that the company should be wound up, and further that two of the three administrators should become the joint liquidators of the company.
3. The company remains insolvent, and the purposes of the administration having been secured so far as possible, it is therefore appropriate that the company should now go into liquidation.
4. The slightly unusual feature of the application are the particular directions which are sought by the administrators, to be given to them both as administrators under paragraph 63 of schedule B1 to the Insolvency Act 1986, and as joint liquidators under section 168(3) of the Insolvency Act.
5. Before the company went into administration, its principal business was as a general retailer and it operated some 807 High Street stores around the country, together with four distribution centres. At the time of the appointment of administrators it employed approximately 27,000 staff.
6. The administrators decided following their appointment by an order of Norris J made on 27 November 2003, to pursue a strategy of continuing to trade in stores for a limited period and seeking a sale of the business or parts of it. They continued to trade the business so as to take advantage of the Christmas trading period.
7. The administrators were unable to find a purchaser for the business or part of it as a going concern on acceptable terms, and as that became increasingly apparent, the administrators embarked on a discount sale of stock at the company's stores starting on 5 December 2008.
8. There followed a phased programme of closing the stores, which was announced on 17 December 2008. The first stores were closed on 27 December 2008, the distribution centres on 29 December and all stores were closed by 6 January 2009.
9. There were, at the date of administration, two principal secured creditors comprising a £350 million syndicated asset-backed revolving facility and a £35 million second lien term loan made to a finance subsidiary of the company but which had been guaranteed by the company.
10. Following the closure of the stores the administrators gathered in the assets of the company. They have made distributions to secured creditors and they have investigated potential claims. To enable them to continue that process, their appointment has twice been extended by order of the court, most recently until midnight on 26 November this year.
11. The senior lenders under the £350 million senior facility have been repaid in full and a total of £3.5 million has been distributed to the security trustee in respect of the second lien term loan.
12. All preferential claims have been agreed in a total sum approximately £4.5 million. Most of the preferential creditors have been paid in full and the remaining claims will be paid shortly. There remains in the hands of the administrators a sum of approximately £3.8 million.
13. The directions which are sought by the administrators are to the effect that they should be free to apply that remaining sum, having made a provision for claims which they have already received, in making a distribution to the second tier loan creditor.
14. There are, in fact, claims that could be made by some of the landlords of some of the stores which were occupied over the Christmas trading period of 2008, and also by some local authorities for business rates in respect of those stores.
15. The position as I understand it is that some landlords and local authorities have claimed payment of the rent and rates due to them and have been paid the amount which the administrators, on advice, consider they are due, but somewhat surprisingly there are nonetheless a considerable number of landlords and local authorities who, notwithstanding the receipt of a number of letters sent to them by administrators inviting them to submit claims, have to date failed to do so.
16. There is in the background to this an issue as to the amount which may be claimed as an expense of the administration.
17. The position of the administrators is that landlords are entitled to be paid, pursuant to an exercise of the court's discretion, a sum equivalent to the rent reserved under the respective leases for the period or periods during which the company in administration actually occupied the relevant premises.
18. The alternative view, which is supported by the decision in Goldacre (Offices) Limited v Nortel Networks UK Limited [2010] BCC 299, is that landlords are entitled to receive as an expense in the administration the rent reserved under the respective leases for the quarter during which the administrators were in occupation, even if they were in occupation for only a short part of the quarter.
19. It would be a matter for landlords to decide whether they sought payment of the amount due in respect of the period of actual occupation, or in respect of the entire quarter. If the first claim were made, then I anticipate the administrators would pay it. If the second claim were made, then the administrators, more properly now the liquidators, would reserve for it and either seek to negotiate a settlement of the matter or, if necessary, seek the court's directions on the issue. That pre-supposes that landlords in fact lodge claims which, as I say, a significant number have not yet done.
20. It is in those circumstances that the administrators apply for directions to enable them to distribute the surplus to the second secured creditor, without any provision for claims for liabilities to be paid or expenses unless such claims have been made by a particular date.
21. Mr Moss, who appears for the administrators with Mr Bayfield, tells me that he is not aware of a case in which the court has given such a direction in respect of administration expenses.
22. The jurisdiction is well founded in relation to claims in liquidations. It is sufficient for these purposes simply to refer to Re Armstrong Whitworth Securities Company Limited [1947] Ch 673, where, having considered very fully the matter and in the light of argument from interested parties, Jenkins J made a detailed order providing for distribution to members without providing for claims except for those lodged by a particular date. The terms of the order are set out in full at p.p. 694-5. The jurisdiction, which had no doubt been exercised before that decision, has been exercised on many occasions since then, and is discussed in the judgment of Megarry J in Re RR Realisations Limited [1980] WLR 325.
23. The jurisdiction is derived so far as liquidations are concerned, from the statutory power of the court to give directions to liquidators, now contained in s.168(3) of the Insolvency Act 1986. The equivalent power to give directions to administrators is contained in paragraph 63 of Schedule B1 to the Insolvency Act, and I can see no reason why it should not be exercised in a similar way. Equally, I see no reason why it should not be exercised in relation to expense claims, as well as provable debts.
24. Mr Moss has taken me to the letters which have been written by or on behalf of the administrators to the relevant creditors and I am satisfied that the circumstances of this case are such as to make it appropriate for the court to give directions along the lines sought by the administrators.
25. Of course, the interests of expense claimants must be properly protected, but equally there must be a limit to the time in which the proper working out of administration and liquidation is delayed while those claimants decide whether to lodge claims. In my judgment, in this case they have already had good opportunity to lodge their claims, and provided that they are notified of the effect of my order and provided that the final cut off date for claims is not less than 28 days after a further letter is sent, it seems to me that the proper balance will be struck between the interests of the proper working out of the administration and liquidation on the one hand and the protection of these creditors on the other.
26. In reaching my decision as to the further time to be allowed for lodging claims, I have borne in mind that the creditors in this case are either commercial landlords or local authorities who can be expected to have a proper regard to their own commercial interests and knowledge of insolvency procedures.
27. Accordingly, I am satisfied that there is jurisdiction under the provisions I have mentioned to give these directions, and for the reasons I have given, I think it is appropriate to do so.