Gillan v HEC Enterprises Ltd & Ors

An administrator may deal with trust property held by a company where that is necessary or expedient for managing the company’s affairs, but the property is not available to meet ordinary administration expenses. An indemnity from trust assets under the Berkeley Applegate principle is discretionary and should be exercised sparingly. It may cover work necessary to establish, administer or distribute trust property for beneficiaries. It does not ordinarily cover work done in hostile litigation, work advancing unsecured creditors’ interests against beneficiaries, or work undertaken without appropriate directions and contrary to the beneficiaries’ wishes. The court may grant permission to continue proceedings against a company in administration where the proceedings concern trust assets and contractual rights, and will not impede the administration’s purpose.

The claimants were members of Deep Purple and executors of Jon Lord’s estate. They sought to enforce a 2005 settlement agreement concerning copyrights, royalty income and shares in Purpletuity Ltd against HEC Enterprises Ltd, Deep Purple (Overseas) Ltd and representatives of the estates of former managers. Both companies entered administration in January 2016, triggering the statutory moratorium on proceedings.

The administrators initially opposed permission to continue the litigation and sought declarations that their remuneration, costs and expenses concerning trust assets could be paid from those assets. Following directions from the Chief Registrar, proposals resolving the principal disputes were made and accepted. The remaining issue concerned the proper scope of the Berkeley Applegate principle.

1. The administrators’ proposals were approved. The shares in Purpletuity were to be transferred 64% to the claimants, 16% to Mr Blackmore and 20% to the estates of the former managers. The court rejected the argument that the shares were held as beneficial joint tenants. The administrators were directed to transfer the copyrights and other rights identified in the revised schedule, subject to preserving possible claims by other interested persons. Of the approximately £477,000 recovered from Mr Rao, 91.75% was approved as trust money.

2. The claimants therefore did not require permission under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 to continue the 2015 litigation. Their application for permission was disposed of.

3. Had permission remained necessary, the court would have granted it. Applying the principles in In re Atlantic Computer Systems plc [1992] Ch 505, the proceedings concerned assets held on trust and contractual obligations which remained binding and specifically enforceable. Continuing them would not have impeded the purpose of the administrations. The administrators should have consented promptly and should not have attempted to resolve disputes between rival beneficiaries themselves.

4. An administrator is not a trustee of trust property merely because the company holds it. The administrator may nevertheless act in relation to that property where doing so is necessary or expedient for managing the company’s affairs. Trust assets are not “the property of the company” for the purposes of the statutory remuneration provisions.

5. The Berkeley Applegate principle gives the court a discretionary power to require trust property to bear a proper allowance for costs, skill and labour connected with its administration where the beneficiaries require the court’s assistance. It is not a general entitlement to payment. Work concerning ordinary administration may potentially qualify, but work in litigation, work adverse to the beneficiaries, investigations undertaken to advance unsecured creditors’ interests, and unsuccessful brokering between beneficiaries did not fall within the principle on these facts.

6. The administrators’ costs relating to the litigation were to be dealt with under the ordinary jurisdiction as to litigation costs. The court declined to make the general declaration sought because it would have been too uncertain to assist. The administrators were to reconsider and, if appropriate, submit a sufficiently detailed claim for assessment. Costs were reserved for a further hearing.