When a company entered into administration, could the administrators sell the freehold property free from security and other charges registered against it?
In Re Fox Street Village Ltd (in administration) , administrators had been appointed over a company which held property for the purposes of development in Liverpool.
The purchasers of part of the land were creditors of the company, and in May 2019 a creditor issued proceedings for the appointment of administrators. However, this application was pre-empted as a company who had helped fund the development (“PHI”) exercised its statutory power to appoint administrators out of court.
One issue was whether the administrators were entitled to an order permitting them to sell the freehold property free from security under para 71 of Sch B1 of the insolvency Act 1986. The order would enable them, provided the whole of the property was disposed of for its full market value, to achieve their statutory objective as administrators in making a distribution to the purchasers and PHI as secured creditors.
The purchasers would be entitled to be paid first from the net proceeds of sale, as they ranked in priority before PHI. However, their security was confined to only specific parts of the property. Therefore, it was necessary to apportion their respective share of the net proceeds of sale.
The High Court granted the order requested by the administrators. The administrators relied on professional advice providing the most reasonable and practical way forward regarding distributing the market value of the company’s estate to the secured creditors within a reasonable time scale.
The court also considered, amongst other issues, the resignation of the administrators, which had been requested by the creditors. The administrators were not under any obligation to resign, nor were they under a duty to make an application for permission to resign. Therefore, they were not required to take any action in response to the creditors’ decision requesting that they resign.
Furthermore, the court found that there were no substantial grounds in this case to support granting an order terminating the administration and the application was refused.
Advice and action for landlords
The High Court found that the professional advice received by the administrators was sufficient in providing a reasonable and practical route forward in the administration and would allow the administrators to achieve a reasonable and timely distribution on satisfactory terms. This was enough for the court to make the order permitting transfer free from security.
This case demonstrates that courts may often favour a decision which enables administrators to proceed in their appointment activities, as the evidence supported the view that PHI, as a creditor, would receive distribution from proceeds of sale. As charge holders, developers may be comforted that their interests are recognised by the court, and as potential buyers of property from administrators, developers may achieve a timelier acquisition as a result of the administrators’ ability to act.
The High Court granted the order requested by the administrators. Independent advice presented a reasonable and practical solution which would enable the administrators to achieve their objectives in a reasonable timescale.