Rubin & Anor (Capitol Films Ltd) v Cobalt Pictures Ltd & 24 Ors

An administrator seeking permission to sell assets subject to fixed charges must satisfy the court that the statutory conditions are met. The court must balance the secured creditor’s enforcement rights against the interests served by the administration. It decides that issue for itself rather than merely deferring to the administrator’s rational commercial judgment. The administrator bears the onus of identifying the assets, establishing a proper price and explaining how secured interests will be protected. Where the proposed sale depends on an unresolved asset-transfer transaction, adequate investigation and evidence are essential. An application pursued without that work may attract personal indemnity costs and loss of the right to recoup the administrator’s costs from assets otherwise available to other creditors. An administrator must also decide promptly and responsibly whether to consent to enforcement of security and explain any refusal or withdrawal.

The joint administrators of Capitol Films Limited applied under paragraph 71 of Schedule B1 to the Insolvency Act 1986 for permission to sell assets subject to fixed charges as if free of those charges. The proposed sale included film rights whose ownership was affected by an uninvestigated pre-administration assignment to Pangea Media Holdings Limited. The administrators later abandoned the paragraph 71 application.

Allied Irish Banks plc separately applied under paragraph 43 for permission to appoint a receiver over the company’s rights in The Edge of Love, after the administrators first consented and then withdrew consent without explanation. The court determined the costs of both applications and whether the administrators could recover their own costs as expenses of the administration.

1. Paragraph 71 application. The administrators were unsuccessful and the secured creditors were the successful parties. An application to sell fixed-charge assets requires the court to balance the prejudice to the fixed-charge holder against the prejudice to those interested in the statutory purposes of the administration. The court resolves that balance itself and does not simply defer to commercial judgment under Re Edennote Ltd; the approach in Re Buckingham International plc (No.2) is applicable. (paras 35–37, 82–85)
2. The administrators bore the onus of persuading the court that the proposed sale was appropriate. They had to identify the assets, establish that the price was proper and provide evidence sufficient to protect the interests of the fixed-charge holders. Their failure to investigate the Pangea Assignment, assess the value of the disputed film rights and claims, or explain the allocation of consideration meant that the application had no realistic prospect of success. The guidance in Coyne and Hardy v DRC Distribution Ltd supported the need for robust investigation and recovery of assets before sale. (paras 48–54, 64, 87–94)
3. The administrators’ conduct was irrational, misconceived and unreasonably persistent. They were ordered personally to pay the secured creditors’ costs of the paragraph 71 application on the indemnity basis. They were also deprived of any right to recoup those liabilities or their own costs from assets subject to a floating charge or available to unsecured creditors. (paras 94–104)
4. Paragraph 43 application. AIB succeeded in obtaining permission to appoint a receiver over the rights in The Edge of Love. The unexplained withdrawal of consent, after delay and while the administrators pursued a conflicting sale, breached the guidance in Re Atlantic Computer Systems plc. AIB was awarded its costs on the indemnity basis, and the administrators could not recoup those costs or their own costs ahead of floating-charge and unsecured claims. (paras 105–111)