Lazari Investments Ltd v Peter Mark Saville (administrator) and Others
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 14 September 2015 |
| Neutral Citation | [2015] EWHC 2590 (Ch) |
| Date | 14 September 2015 |
| Court | Chancery Division |
| Docket Number | Case No: 6861 of 2014 |
[2015] EWHC 2590 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF SSRL REALISATIONS LIMITED (IN ADMINISTRATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C.
(sitting as a Deputy Judge of the Chancery Division)
Case No: 6861 of 2014
Blair Leahy (instructed by Charles Russell Speechlys LLP) for the Applicant
Katharine Holland QC (instructed by Taylor Wessing LLP) for the Respondents
Hearing dates: 17 and 24 June 2015
Richard Spearman Q.C.:
Introduction
This is an application by Lazari Investments Limited ("the Landlord") for permission to forfeit a lease dated 30 January 2007 ("the Lease") made between (1) Allied London (Brunswick) Limited and (2) Signature and Strada Restaurants Limited ("the Tenant") and other relief. Under the terms of the Lease, the premises comprising Units 15/17 The Brunswick Centre, Bloomsbury, London WC1 ("the Property") were demised for a term of 25 years from 25 December 2006.
The Landlord purchased The Brunswick Centre, including the Property, on 21 November 2014, and thereby became the Tenant's landlord under the Lease. The Tenant changed its name to SSRL Realisations Limited on 9 October 2013 and is the Fourth Respondent.
The First to Third Respondents ("the Administrators") are partners in Zolfo Cooper LLP and, on 29 September 2014, were appointed administrators of (a) SRL Realisations Limited (formerly Signature Restaurants Limited) ("SRL") and (b) the Tenant.
Permission to forfeit the Lease is required pursuant to the provisions of paragraph 43 of Schedule B1 to the Insolvency Act 1986 ("the IA"). There is a dispute between the parties as to which part of that paragraph is material for present purposes, which is tied up with the question of whether the wording of the application notice is appropriate to seek to exercise a right of forfeiture by peaceable re-entry. However, that does not affect the proper approach to the present application. If, as the Landlord contends, paragraph 43(4) applies, it has the effect that the Landlord may not exercise a right of forfeiture by peaceable re-entry to the Property except with the consent of the Administrators or the permission of the court. If, as the Administrators contend, paragraph 43(6) applies, it has the effect that the current legal process against the Tenant may not be instituted or progressed except with the consent of the Administrators or the permission of the court.
The application involves applying the principles and guidance concerning applications for leave to commence or continue legal proceedings against companies in administration which are to be found in Re Atlantic Computer Systems plc [1992] Ch 505 ( "Atlantic Computers"). Atlantic Computers itself concerned section 11(3)(d) of the IA, but it is common ground that the guidance which it contains is equally applicable to paragraph 43: see Sunberry Properties Ltd v Innovate Logistics Ltd [2009] BCC 164 at [18]–[22].
In accordance with paragraph 111(1) of Schedule B1 to the IA "the purpose of the administration" means an objective specified in paragraph 3 of that Schedule. Paragraph 3(1) of that Schedule provides that "The administrator of a company must perform his functions with the objective of (a) rescuing the company as a going concern, or (b) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or (c) realising property in order to make a distribution to one or more secured or preferential creditors".
In the present case, the Administrators say that it has not been possible to achieve objective (a), and the purpose which they claim would be impeded by the grant of permission is the attainment of objective (b). However, there is a secured creditor in this case, and the Administrators estimate that there will be a shortfall of approximately £11m to that creditor. Further, the Administrators have neither identified unsecured creditors nor ascertained the value of any claims that such creditors may have. In these circumstances, it may be that the case really engages objective (c) rather than objective (b). However, that, also, does not affect the proper approach to the present application. Whether the objective involves acting in the interests of the company's creditors as a whole or realising property for the benefit of one or more secured or preferential creditors affects neither (i) whether the objective will be impeded by the grant of permission nor (ii) if the grant of permission will impede the objective, whether the balance should be stuck in favour of refusing permission (to the detriment of the Landlord and the benefit of the purpose of the administration) or granting it (with the reverse consequences).
The Applicant was represented by Ms Blair Leahy and the Respondents by Ms Katharine Holland QC. I am grateful to both of them for their clear and helpful submissions.
Background and outline of the dispute
The administration is a complex pre-pack administration, where a purchaser for certain of the assets of the Tenant, namely Strada Trading Limited ("STL"), was already in place. On 22 September 2014, an Asset Purchase Agreement had been entered into between (1) the Tenant (2) SRL (3) Tragus Group Limited and (4) STL ("the APA"). SRL and the Tenant together operated the Strada chain of restaurants. They formed part of the Tragus group of companies, which also operates the Café Rouge and Bella Italia chains. STL was a subsidiary of SRL and the Tenant, which had been incorporated on 21 August 2014, and which, accordingly, had no trading history and no independent financial strength.
Also on 22 September 2014, a Licence to Occupy dated 22 September 2014 was entered into between the Tenant and STL, by which STL was permitted to occupy the Property, and which (according to the Administrators) was intended to apply while consent to a formal assignment of the Lease to STL was obtained. It is common ground that this was in breach of Clause 4.16(b) of the Lease, which contains the following covenant on the part of the Tenant: "(b) Not to assign underlet or otherwise part with possession of or hold on trust for another the whole of the Premises or agree to do so except that the Tenant may at any time after the third anniversary of the commencement of the Contractual Term assign or underlet the whole of the Premises if it obtains the Landlord's consent before completion of the assignment or underletting which consent shall not be unreasonably withheld or delayed but which may be granted in the case of assignment subject to any one or more of the conditions referred to un sub-clause 4.16(c) and which may be withheld if any one or more of the circumstances referred to in sub-clause 4.16(d) exist and in the case of underletting subject to the provisions of clause 4.16(e)."
On 29 September 2014, the same day as they were appointed, the Administrators completed a sale of the shares in STL to SCP Sugar Limited, a company within the Sun Capital Partners Group. The sale included the sale of 43 leasehold premises (among which was the Property) from which Strada restaurants were operated. It appears from the Administrators' Disclosure Report made pursuant to Statement of Insolvency Practice 16 dated 30 September 2014 that the sale of the Strada business was part of a much broader agreement between the Tragus Group and its secured lenders in respect of a proposed restructuring of the capital structure of the Tragus Group.
Also on 29 September 2014, SRL, the Tenant, the Administrators and STL entered into a Vendor Loan Note ("VLN"), which, in essence, enables STL to defer payment of up to £18.5m due under the APA. Pursuant to section 176A of the IA, the Administrators are required to make a prescribed part of the Tenant's net property available for the satisfaction of unsecured debts. As part of this series of transactions, US Bank, as Security Agent, agreed that the full amount that could be payable pursuant to section 176A, namely £600,000, should be set aside and made available to unsecured creditors.
Clause 4.17 of the Lease contains a pre-emption provision which, in sum, provides that, before assigning the Lease, the Tenant must offer to surrender it to the Landlord, and that in the event that the Landlord decides to exercise the right of pre-emption it must pay a premium equal to the value of any consideration to be paid by the proposed assignee. The maximum consideration payable pursuant to the APA is £37m. This has been apportioned by the parties to the APA in such a way that the total premium that STL has agreed to pay in respect of an assignment of the Lease is £1,376,953. In the result, according to the Administrators and the Tenant, in the event that consent to an assignment to STL could not reasonably be refused by the Landlord, this is the amount that the Landlord would be required to pay in order to exercise its rights of pre-emption contained in clause 4.17.
By letter from the solicitors for the Administrators, Taylor Wessing LLP ("TW"), dated 24 October 2014, a request was made to the previous landlord of the Property, BIS (Postal Services Act 2011) Company Limited, for consent to assign the Lease to STL, or, in the alternative, to accept a surrender of the Lease in return for payment of a premium of £1,376,953 (exclusive of VAT). The letter stated that, due to their position, the Administrators were unable to comply with the strict terms of the pre-emption...
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