Re Halliwells Llp & Ors (Rev 1)

When approving a pre-packaged administration sale, the court must be satisfied that the statutory purpose and conditions for administration are met and that the process has not been abused to the disadvantage of creditors. A sale directed principally towards distributions to secured or preferential creditors is permissible where rescue or a better outcome on winding up is not reasonably practicable. The court may approve arrangements giving purchasers’ requirements priority, including payments addressing partners’ liabilities, where those arrangements are necessary to secure the sales and do not unnecessarily harm creditors as a whole.

Halliwells LLP applied under paragraph 13 of Schedule B1 to the Insolvency Act 1986 for an administration order, the appointment of proposed administrators and approval of four pre-packaged sales of parts of its legal business. Halliwells was insolvent, could not be rescued as a going concern and faced substantial liabilities, including obligations connected with partners’ practice loans.

The proposed sales required part of the consideration to be applied towards those loan obligations for transferring members. The central issues were whether the statutory conditions for the proposed administration were satisfied and whether the pre-packaged sales, including those payments, unnecessarily harmed creditors as a whole.

1. The application was granted. An administration order was made, the proposed administrators were appointed and the four pre-packaged sales were approved.

2. The purpose of the administration was to realise Halliwells’ property in order to make distributions to secured or preferential creditors under paragraph 3(1)(c) of Schedule B1 to the Insolvency Act 1986. Under paragraph 3(4), that objective could be pursued only if rescue as a going concern and a better result for creditors as a whole on administration were not reasonably practicable, and the creditors’ interests were not unnecessarily harmed.

3. The court applied the concerns identified in Re Kayley Vending Limited [2009] BCC 578. In a pre-pack case, the court must be alert to the risk of abuse and should be assisted by adequate information, including the information contemplated by SIP 16. The evidence demonstrated a proper marketing process, explained why trading the business was unsuitable and disclosed the material terms of the sales. The proposals were SIP 16 compliant and there was no evidence of abuse.

4. The allocation of substantial consideration towards the practice-loan obligations of transferring members amounted to preferences. Nevertheless, the arrangements were required by the purchasers and were necessary to secure the sales. Since the sales maximised recoveries for creditors, the arrangements did not unnecessarily harm the interests of creditors as a whole.