Re Hellas Communications (Luxembourg)

The court decided three principal matters. First, under the insolvency code and the terms of the sale agreement (in particular clause 3.3.1 of the SPA) the administrators were obliged to fund investigatory and administration costs from the €10m Funded Costs Amount before having recourse to Hellas II’s own cash assets; accordingly the ICC’s contention that the company’s cash fund (circa 22,704) should be treated as still available for distribution was upheld. Second, the Part 8 claim by Weather III for repayment of the Fund balance was dismissed because the administrators had validly projected future Funded Costs under clause 3.3.2 and the definition of “Funded Costs” (read in context) extended to cover costs of a possible liquidation and to certain post-appointment liabilities properly incurred in the exercise of their functions. Third, the appropriate corporate step was to place Hellas II into compulsory liquidation rather than to dissolve it: a liquidator may pursue further investigations that could benefit unsecured creditors. The court also directed the usual discharge of the administrators under paragraph 98 of Schedule B1 to take effect after the customary period (28 days after filing the final report), subject to any party obtaining leave under paragraph 75 to pursue claims for misfeasance.

This was a first-instance Companies Court hearing dealing with competing proposals as to how to end the administration of Hellas Telecommunications (Luxembourg) II SCA ("Hellas II"). The principal parties were the administrators (Ms Mills and Mr Hudson), an Informal Creditors' Committee representing a subset of subordinated noteholders (the ICC), and Weather Finance III SARL (Weather III), the buyer in the pre-appointment sale of WIND Hellas which had provided 
0m as a Funded Costs Amount to be held on trust under the sale agreement (SPA) for administration costs. The hearing was partly in private because of privileged legal advice, with a short confidential annex.

Nature of applications and claims:

• The administrators sought directions on terminating the administration: in particular whether they could serve a paragraph 84(1) Schedule B1 notice stating there was no property permitting a distribution and seek discharge under paragraph 98.
• The ICC opposed dissolution and urged that the company be put into compulsory liquidation so a liquidator could pursue further investigatory claims for the benefit of unsecured creditors.
• Weather III brought a Part 8 claim for payment of the balance of the Funded Costs Amount, asserting the trust should be carried into effect by payment once the Funded Costs Termination Date had passed.

Issues framed by the court:

• "The cash assets issue": whether the administrators were obliged to use the Funded Costs Amount before spending Hellas II’s own cash assets (circa 22,704).
• Interpretation and operation of clauses 3.3.1, 3.3.2 and 3.3.3 of the SPA and the definition of "Funded Costs", including whether the Fund covered post-administration liabilities or costs of a subsequent liquidation.
• Whether the administrators had complied with clause 3.3.2 by providing sufficient projection of future Funded Costs prior to the Funded Costs Termination Date.
• Whether the company should be dissolved under paragraph 84 or placed into compulsory liquidation, and whether administrators should be discharged under paragraph 98.

Reasoning and conclusions:

• The court held that clause 3.3.1 gave Hellas II and the administrators permission and authority to apply the Funded Costs Amount to pay Funded Costs, and that administrators performing functions under Schedule B1 owe duties to act in the interests of the company's creditors as a whole. Read together, the SPA and the insolvency code created a priority such that the Funded Costs Amount should be used first to fund the administration and investigations before exhausting the company’s cash assets; accordingly the ICC was entitled to have the company’s cash fund reconstituted.
• The court accepted that the administrators’ letter dated 26 October 2010, despite some clumsy drafting, constituted a sufficiently detailed projection under clause 3.3.2 and thus justified retention of the Fund balance pending projected Funded Costs; accordingly Weather III’s Part 8 claim for immediate payment failed.
• On interpretation of the definition of "Funded Costs", the court concluded that recoverable Funded Costs were limited to costs properly incurred within the scope of the insolvency code, but that the definition also encompassed costs of a subsequent liquidation and legal costs incurred defending properly exercised administrator functions even if incurred after the administration ended.
• Given that unsecured creditors wished liquidation and that there remained legitimate scope for further investigation (including documents and valuation material not yet fully examined), the court directed that Hellas II be put into compulsory liquidation rather than be dissolved. The court ordered the usual discharge under paragraph 98 to take effect 28 days after filing of the final report, subject to paragraph 75 permission requirements for misfeasance claims.

This is a first-instance decision. The court held that (i) the ICC was correct that the administrators should have used the Funded Costs Amount before spending Hellas II’s own cash assets and the cash fund should be reconstituted; (ii) Weather III’s Part 8 claim for immediate payment of the Fund balance is dismissed because the administrators had validly projected future Funded Costs and the Fund (by its terms and proper construction) covers future investigatory and possible liquidation costs; and (iii) the appropriate disposal is compulsory liquidation of Hellas II (rather than dissolution), with the administrators to be discharged under paragraph 98 of Schedule B1 28 days after filing their final report, subject to permission requirements for subsequent misfeasance claims. The court’s reasoning balanced the SPA terms with the insolvency code and the legitimate interest of unsecured creditors in further inquiry.