MK Airlines Ltd, Re

A statutory charge under paragraph 99 of Schedule B1 to the Insolvency Act 1986 arises over property to which the former administrator was legally entitled, or over property derived from it, immediately before cessation. The charge does not depend on steps taken by the administrator to obtain physical custody or control. Successive cessations create separate charges, with priority governed by the order of creation and the statutory scheme. The court may confer liquidator-like powers on liquidators, or appoint a receiver, to enforce the charges. Applying the Berkeley Applegate principle, costs reasonably incurred in preserving and realising charged assets may be paid from the charged fund. Remuneration attributable to that work may be assessed on a time-charge basis where the statutory charge is neither fixed nor floating.

The joint liquidators of MK Airlines Limited sought directions concerning two paragraph 99 charges arising when successive administrations ceased. The application concerned the assets subject to those charges, their priorities, the liquidators’ powers, the treatment of provisional-liquidation costs, and remuneration.

The court was required to determine the meaning of property in the former administrators’ custody or control immediately before cessation, whether particular receipts belonged to the charged or free pool, and how the costs and remuneration of insolvency office-holders should be allocated.

1. Meaning of custody or control. The relevant test under paragraph 99 of Schedule B1 to the Insolvency Act 1986 was legal entitlement to the property, or to property from which it was derived, at the relevant cessation. Custody or control is a term of art referring to the transfer of custody or control from the company’s directors to the administrator or liquidator. It does not require a further act of recovery or physical possession.
2. Two charges arose, on the cessation of each administration. The earlier charge had priority over the later charge. Within each charge, liabilities under paragraph 99(4) ranked ahead of remuneration and expenses under paragraph 99(3), subject to the applicable insolvency rules. The exclusivity deposit was commercially and inextricably linked to charged aviation assets and was treated as part of the paragraph 99 pool. The later business-rates refund was to be allocated according to when the legal right to the refund arose; the court could not finally determine that issue on the evidence.
3. The charges were enforceable, if necessary, by appointment of a receiver. The court could confer Schedule 4 powers on the liquidators in relation to charged assets, subject to safeguards where conflicts arose between chargees and unsecured creditors. Claims under the charges could be administered using Chapter 9 of Part 4 of the Insolvency Rules 1986.
4. The principle in Re Berkeley Applegate (Investment Consultants) Ltd No.2 [1989] Ch 32, as applied in Re Sports Betting Media [2008] BCC 177, permitted a reasonable allowance from charged property for work substantially benefiting its preservation, realisation or distribution. The court distinguished Re Regents Canal Ironworks (1875) 3 Ch App 411. Seventy-five per cent of the provisional-liquidation costs was attributed to the charged pool.
5. Rule 4.127B did not apply because paragraph 99 charges were statutory charges, not fixed or floating charges when created. Time-based remuneration could therefore be authorised for work attributable to the charged pool. The liquidators were awarded £75,000 on account, conditional on an undertaking to complete the winding up cheaply and expeditiously. Other allocation questions were referred to the Registrar.