Once a company goes into administration, a
statutory moratorium will be imposed to allow the company some
breathing space and assist in its rescue as a going concern.

The moratorium prevents lessors from suing for
unpaid rent or repossessing the leased equipment without the
approval of either the administrators or the court.

This can be frustrating for a lessor to
another leasing or hire company which may see its equipment being
sub-leased and the administrators collecting the sub-lease rent
while they pay nothing for the use of the equipment.

Can they be forced to pay or, if the equipment
is not core to the business (such as its accounting system), can
they be forced to give it back to the lessor?

These questions were looked at in 1992 in the
Re Atlantic Computer Systems plc case, in which the court said that
when the administrators are asked to pay rent or give up the
equipment, they are officers of the court and so should make
decisions speedily and responsibly.

They should carry out a “balancing exercise”
between the interests of the unsecured creditors (who benefit from
administration) and the rights of the lessor and adopt a flexible
approach, including tailoring decisions to the individual
circumstances of the case.

When refusing consent, they should state their
reasons succinctly, and at no time should the power to give or
withhold consent be “used as a bargaining counter in a negotiation
in which the administrator has regard only to the interests of
unsecured creditors”.

The court in the case also held that the
administrator should bear in mind what likely decision would be
made were the ruling to be taken at court.

Therefore lessors do not have to assume that
they cannot reasonably expect to be paid rent or get the equipment

However, subsequent cases have shown the
courts to be reluctant, in practice, to intervene in the running of
the administration, choosing to take a supervisory role only in
cases where there is manifest unfairness or wrongful conduct on the
behalf of the administrators.

The recent (2008) Lehman Bros cases (RAB
Capital plc v Lehman Brothers International (Europe) and Re Lehman
Brothers International (Europe) (In Administration) do not relate
to leasing but do demonstrate the court’s current attitude to
creditors seeking special treatment.

In those cases, the applications made were
refused despite the judges’ evident sympathy for the hardship and
serious consequences likely to ensue.

So, notwithstanding the court’s words in
Atlantic, the Lehman cases, along with a slew of cases heard since,
then illustrate the courts’ view that administration and the
day-to-day management of the company is best left to those
appointed, the administrators.

The author is a partner at the
law firm Watson Farley & Williams.