GAME loses landmark cases for insolvency law

A fortnight ago we reported on an upcoming insolvency and property case involving the high street video game retailer GAME. In essence it was a battle between struggling businesses and property companies, and the case’s verdict this week has certainly advantaged the latter with a ruling that will change insolvency law in favour of UK landlords.

The case, which took place in the Court of Appeal this month, was always going to have far-reaching ramifications for businesses in administration and the court’s decision has, unsurprisingly, been met with a flurry of debate.

The case came about when GAME entered administration in March 2012; the result at the time was that the company was forced to close approximately 300 stores and, more importantly, it left £3 million of unpaid rent. In the conclusion to the landmark case on Monday, GAME was ordered to pay the outstanding rent to the consortium of landlords.

GAME had accumulated the rental debt intentionally by taking advantage of a legal loophole that allows a company to avoid paying rent for up to three months if it had appointed administrators soon after the quarterly rent day. It was an insolvency law that had been heavily criticised by landlords for years, with many stating that it enabled or even encouraged faltering retailers to exploit property companies.

A spokesperson from GAME said the verdict “will have a significant financial impact on all landlords, tenants and insolvency practitioners involved in current and future business insolvencies in this country”.

Duncan Grubb, head of credit control at Hammerson, one of the property companies that was almost left out of pocket prior to the ruling stated that it was “a workable, common sense resolution to the payment of rent as an administration expense”.

“This judgement,” he continued, “is beneficial to both landlords and insolvency practitioners, as it removes completely the issue of the rent due date.”

Danny Revitt, partner at the Sheffield office of Irwin Mitchell, added: “The ruling has provided vital clarity to this area, closing the loophole and ensuring landlords are on a surer footing when it comes to administrations.”

Naturally, as these quotes clearly illustrate, this case has divided opinion; while being more ruthless on distressed businesses it does help protect landlords – rent will now be classified as an administration expense, meaning that businesses in administration will have to pay rent on a “pay as you use” basis and won't be able to escape a quarterly payment.

This is almost certainly not the last we’ve heard of this story. GAME has already stated that it is “considering the possibility of an appeal to the Supreme Court” meaning that both the debate and the legal battle itself seem poised to continue for some time yet.

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