The High Court was asked to consider an application under paragraph 71 of Schedule B1 of the Insolvency Act 1986.
Background:
Paragraph 71 of Schedule B1 of the Insolvency Act 1986 allows an administrator to dispose of certain fixed-charge assets belonging to a company. These were issued on 11 November 2024 shortly after the administrators were appointed. The companies form part of a group of companies and are incorporated in both Malta and England.
Fonds Rusnano Capital SA (FRC) is the respondent in all four applications and is the holder of the security over the various assets belonging to the companies. FRC is a Russian State/government-owned société anonyme incorporated and registered under the laws of Luxembourg. FRC is the holder of fixed charges over assets of the English Administration Companies.
Before the four paragraph 71 applications were issued, solicitors acting on behalf of the administrators sent correspondence to FRC to seek a consensual release of the securities held over the four companies. A letter from October 2024 also laid down that applications would be made to the Court for orders under paragraph 71 in case consent is not forthcoming. A follow-up letter was sent and, on 31 October 2024, the Notice of Intention to Appoint Administrators of 31 October 2024 was also served by the Huissier de Justice at the registered office of FRC.
Decision:
The High Court granted the orders sought by the administrators to release fixed-charge assets, as the disposal of such assets was likely to promote the purposes of the administration. Without those sales, the companies would enter liquidation which would cause significant loss of value to FRC.
The Judge was satisfied that the documents and notices were served in accordance with paragraph 71. The Court then turned to paragraph 71 which details a two-stage test. First, the Court must be satisfied that the disposal of the property would be likely to promote the purpose of administration. Second, the property would be sold at market value. Regarding the market value, the principle has been set out in O'Connell v Rollings [2014]. The ‘proper price’ for assets must reflect fair market value, even if such wording does not appear in paragraph 71. Based on all the evidence, the proposed sale amount was reasonable.
The Court also noted that paragraph 71 requires judges to carefully consider all the facts and weigh up all factors before exercising their discretion to make the orders.
Due to the financial condition of the group of companies, it was important for the sale to occur in a timely manner.
Implications:
This decision highlights the power of English Courts to request the disposal of fixed-charge assets for the good of a company. It also underscores the importance of following the procedural requirements but also coming to court with all the required evidence. In this case, the Judge was given spreadsheets on the costs, reports on the valuation of the property and evidence of a ‘teaser’ being sent to a list of potential purchasers
Had FRC acceded to the demand in October when notified through letter, all parties would have saved on costs.