Williams & Anor v Broadoak Private Finance Ltd & Ors

Under paragraph 71 of Schedule B1 to the Insolvency Act 1986, the court may authorise an administrator to sell property free of security where that disposal is likely to promote the purpose of the administration. Sale proceeds must then be distributed according to the priorities of the affected securities.

Under sections 28 and 29 of the Land Registration Act 2002, a purchaser’s lien may lose priority to a later registered charge if the lien is not protected by notice before registration. Contractual consent to registration does not preserve priority where registration has not occurred. A constructive trust requires the new estate owner’s conscience to be affected by a new obligation to give effect to the prior interest.

Joint administrators of Birchen House Limited applied under paragraph 71 of Schedule B1 to the Insolvency Act 1986 for permission to sell the freehold Pier Hotel development as if it were free from purchasers’ liens, options and the secured charge of Broadoak Private Finance Ltd.

The development was under-funded and incomplete. The administrators considered that a sale free of the relevant security interests was the only realistic option capable of promoting the statutory purpose of the administration. Purchasers objected, principally contending that their liens ranked ahead of Broadoak’s charge because their sale contracts pre-dated it. The issues were whether the proposed sale would promote the administration’s purpose and how the competing interests ranked.

1. The application was granted. On the evidence, completing the development or selling it subject to the existing interests was not realistically viable. A sale free of the relevant security interests was likely to promote one of the statutory purposes of the administration.

2. Under sections 28 and 29 of the Land Registration Act 2002, priority depended on whether the purchasers’ interests were protected by notice when Broadoak’s charge was registered. Category A purchasers, who registered their interests before the charge, ranked ahead of Broadoak. Category B purchasers, whose notices were registered afterwards, and category C purchasers, who had registered no interest, ranked behind it.

3. The purchasers’ liens initially had priority where their sale agreements pre-dated Broadoak’s charge, but that priority was lost when the relevant notices were not registered before the charge. Contractual consent to agreed notices did not alter that result.

4. The constructive-trust argument failed. The principles in Chattey v Farndale Holdings Inc and Lloyd v Dugdale required the conscience of the new estate owner to be affected by a new obligation to give effect to the prior interest. No such obligation was established.

5. Sale proceeds were to be distributed first to category A purchasers, including their deposits, 5% interest and costs connected with their sale agreements. Broadoak ranked next, up to £4,409,593. Proper costs, charges and expenses reasonably incurred in preserving and realising the property were deductible before distribution.