Edwards & Anor v Business Environment Ltd & Ors

The court’s jurisdiction to authorise an administrator to dispose of third-party goods depends on the statutory conditions being satisfied. The power to take custody or control of property which the administrator thinks belongs to the company does not itself include a power of sale. Nor does the court’s power to give directions concerning management extend to property belonging to a third party merely because disposal would be commercially desirable. Where the jurisdiction depends on goods being in the company’s possession under a hire-purchase or chattel leasing agreement, the agreement must be construed as a whole. Labels and isolated provisions cannot override the operative contractual arrangements.

Administrators of Business Environment Fleet Street Ltd sought authority to sell equipment located at properties being sold as part of an administration. The equipment was assumed, for the application, to belong to Business Environment Central Services Ltd. The administrators relied principally on paragraph 72 of Schedule B1 to the Insolvency Act 1986, arguing that the equipment was in the company’s possession under a chattel leasing agreement. Alternatively, they relied on paragraphs 67 and 68 of Schedule B1. The central questions were whether the court had jurisdiction to authorise the sale and, if so, whether it should exercise that jurisdiction.

1. Paragraph 72 jurisdiction. Paragraph 72 permits the court to authorise disposal of goods in the company’s possession under a hire-purchase agreement, which includes a chattel leasing agreement. Applying Re David Meek Plant Ltd [1994] 1 BCLC 680, the relevant question was whether the goods came into the company’s possession by virtue of such an agreement.
2. The Central Services Agreement did not give the company possession of the equipment. Construed as a whole, clauses 2.2 and 10.1, the allocation of responsibility for BECSL’s employees, and the absence of a provision making those employees the company’s agents outweighed the recital referring to services being provided on the company’s behalf and the company’s repair obligation. The equipment was either retained by BECSL or possessed by the subtenants. The court therefore had no jurisdiction under paragraph 72. It was unnecessary to decide whether the mental element of bailment was present.
3. Paragraphs 67 and 68 jurisdiction. Paragraph 67 requires an administrator to take custody or control of property which he thinks the company is entitled to, but does not authorise disposal merely because he holds that belief. Paragraph 68 permits management of the company’s property, which may include disposal, but does not extend to property belonging to third parties. Paragraph 68(2) does not enlarge the administrator’s substantive power of disposal.
4. Sections 234(3) and (4) of the Insolvency Act 1986 protect an administrator from certain liability where he reasonably but wrongly believes that he may dispose of property. They do not confer a power to convert third-party goods or enlarge the court’s jurisdiction.
5. The court added that, had jurisdiction existed, the evidence would not have established that the balance of convenience favoured an immediate sale. The application was therefore refused, subject to consequential orders being settled.

First-instance decision. No prior or appellate decision is stated in the judgment.