Christophorus 3 Ltd & Anor, Re

A company that becomes an Obligor under an intercreditor agreement by satisfying the accession requirements retains that status unless the agreement clearly provides otherwise. Commercial purpose and the contractual mechanism for assuming the rights and obligations of an original party support that construction.

Where administrators are appointed by the court, the administration may constitute a court approved process for the purposes of a contractual condition governing an asset sale. Separate approval of the sale is not ordinarily required, although the court may give administrators express liberty to enter into a pre-pack sale where the evidence shows that it is a proper and realistic means of preserving value.

The directors of Christophorus 3 Limited applied for an administration order under Schedule B1 to the Insolvency Act 1986 and for liberty for the proposed administrators to enter into a pre-pack sale of the company’s assets to ATU Luxembourg.

The restructuring depended on releases by the security agent under clause 14.2 of an intercreditor agreement. The court had to determine whether the company remained an Obligor after ceasing to be a subsidiary of Handels, and whether the proposed sale by court-appointed administrators would be implemented under a court approved process. In the alternative, the court considered whether it should expressly authorise the sale.

1. The company remained an Obligor. It became a party to the intercreditor agreement as an Obligor when, while a subsidiary of Handels, it executed and delivered the required Obligor Accession Deed. The definition of Obligor required subsidiary status at the point of accession. Clause 18.10(c) and the Accession Deed then gave the company the same obligations and rights as an original party. The agreement contained no continuing requirement that the company remain a subsidiary of Handels.
2. That construction was reinforced by commercial considerations. Requiring a new Obligor to remain a subsidiary would produce an unusual result if it were sold outside the group or moved within the group structure. Clause 14.2 was directed to facilitating dispositions free from existing liabilities and maximising recoveries, particularly in an insolvency or impending insolvency. The company’s pre-planned and artificial incorporation did not invalidate the arrangement, since it served the commercial purpose of facilitating a restructuring and continued trading.
3. The sale would be implemented under a court approved process. An administration ordered by the court was properly described in those terms. The administrators were officers of the court, derived their powers from the Insolvency Act 1986, and were subject to the court’s control and supervision. The court had been given full details of the proposed transaction when deciding whether to make the administration order.
4. It was therefore unnecessary for the court separately to approve the principle and terms of the sale. Alternatively, the court could and should give the administrators liberty to enter into the SPA. The evidence showed that the sale was a proper exercise of their powers and the only realistic prospect of saving the group as a going concern.
5. The company was insolvent, and an administration order was reasonably likely to achieve the statutory purpose of a better result for creditors as a whole than winding up. The administration order and the requested liberty were granted.