Hellas Telecommunications (Luxembourg) II SCA, Re

Where a company in administration has a separately funded costs reserve, administrators must use that reserve for proper administration costs before using the company’s distributable assets. Contractual wording may preserve the reserve for a subsequent liquidation where that gives effect to the fund’s commercial purpose.

A rational decision that administration investigations are complete does not prevent the court ordering compulsory liquidation. Creditors’ wishes carry substantial weight where further investigation may reasonably disclose claims or clarify substantial losses. An administrator may ordinarily be discharged from liability while claims for misfeasance remain subject to statutory safeguards.

The court considered an application by the administrators of Hellas Telecommunications (Luxembourg) II SCA for directions after they concluded that the administration’s purposes had ended. They proposed dissolution under Schedule B1 to the Insolvency Act 1986 and discharge from liability.

The Informal Creditors’ Committee supported termination but sought compulsory liquidation so that a liquidator could investigate potential claims. Weather Finance III SARL and Crystal Almond SARL sought payment of the remaining balance of a €10 million trust fund provided to meet defined costs. The central issues were the priority of the fund over the company’s cash, the scope of recoverable Funded Costs, the fund’s availability for liquidation costs, the appropriate terminal process, and discharge of the administrators.

1. The administrators were obliged to fund their investigations from the Funded Costs Amount before using Hellas II’s own cash. Their functions had to be performed in the interests of creditors as a whole, and the company’s cash was an asset potentially available for distribution. The cash fund was therefore to be treated as retaining its balance of €222,704, with a corresponding reduction in the trust fund.

2. The contractual definition of Funded Costs covered costs and expenses properly incurred in accordance with the insolvency code. It covered the administrators’ remuneration only to that extent. It also covered personal liabilities and legal expenses incurred in defending proper acts performed as administrators, even where the legal expenses arose after their appointment ended. It did not give wider protection for acts outside the proper scope of their statutory functions.

3. The administrators’ notice under clause 3.3.2(a) validly projected post-termination costs. In the circumstances, a projection could explain that continuing contingencies meant that future costs were expected to equal or exceed the fund balance. The fund could therefore remain available after the termination date.

4. The fund also covered costs of a subsequent compulsory liquidation. That interpretation was supported by the commercial purpose of funding investigation and possible claims for unsecured creditors, the wording referring to a subsequent liquidation, and the fact that Hellas II, rather than the individual administrators, held the fund.

5. Although the administrators’ conclusion that their investigations were sufficient was rational and lawful, the court retained discretion to order liquidation. Creditors’ wishes ordinarily carry great weight, and further investigation could reasonably probe the CPEC redemption valuation, the causes of the company’s losses, and matters concerning the former auditor. The company should accordingly enter compulsory liquidation, with the administrators to make the necessary application.

6. The administrators should be discharged from liability under paragraph 98 of Schedule B1, effective 28 days after filing their final report. Any claim for misfeasance or similar improper conduct would remain subject to the permission requirement under paragraph 75. The Part 8 claim for payment of the fund balance was dismissed.

This was a first-instance decision in the Companies Court. The judgment records the earlier administration order made by Lewison J in [2009] EWHC 3199 (Ch), reported at [2010] BCC 295, but that decision formed part of the same litigation and was not an appeal judgment.