A fashion retailer in administration had unpaid rates of over £2.6 million across its many outlets. The court was asked to consider whether the administrators were liable to pay the accrued rates as "expenses of the administration", meaning that they would take priority over sums due to other unsecured creditors.
The case raised important questions about the parallels between the administration regime and the liquidation regime. Governed by different sets of rules, these two regimes serve completely different purposes, the first aiming to rescue a struggling company and the second simply to facilitate its demise. Despite these differences, the court decided that the "expenses" rule in one should mirror that in the other, meaning that rates were to be classified as expenses of the administration and were therefore prioritised.
The case raises the real possibility of rents, service charges and other sums payable under a lease also being reclassified as expenses in an administration. This, in turn, would mean that landlords' claims could potentially rank in priority and they would not simply be forced to sit out an administration with other unsecured business creditors.
Exeter City Council v Bairstow and others (2007)