Tailby & Anor v Hutchinson Telecom FZCO

In an administration, the court must assess the statutory purpose by reference to the administration as a whole. It is not required to consider each asset in isolation when deciding whether administrators should control a sale under Schedule B1 to the Insolvency Act 1986.

On an application to enforce security, substantial weight normally attaches to the secured creditor’s proprietary rights. The court must nevertheless balance those rights against the likely effect on the administration and other creditors.

An actual conflict between common administrators of related companies does not automatically require removal. The court must consider the conflict’s nature and stage, whether it can be managed, and the consequences in time and cost.

The applicants were the joint administrators of TPS Investments (UK) Limited and related companies. The respondent held security over commercial properties owned by TPS and sought permission to enforce it under paragraph 43 of Schedule B1 to the Insolvency Act 1986. The administrators sought permission under paragraph 71 to dispose of secured property themselves.

The respondent also sought removal of the administrators under paragraph 88, alleging an irreconcilable conflict between their duties to TPS and their roles in the administrations of related companies. One permission application had been compromised, but costs remained in issue. The court had to determine the live permission issue concerning Turnhouse Road and the removal application.

1. Administration purposes. The purposes in paragraph 3 of Schedule B1 form a descending hierarchy. The administrators were entitled, on the information available when TPS entered administration, to consider that selling the properties might produce a better result for creditors as a whole.
2. Paragraph 71 application. The court was not required to examine Lighthouse View and Turnhouse Road in isolation. It could consider whether control of one sale formed part of a broader prospect of improving the result for creditors. In relation to Turnhouse Road, however, the administrators had no worked-up realisation strategy, no identified funding, and no evidential basis for concluding that they could achieve more than the secured creditor. The statutory requirement to apply the net proceeds towards the secured debt also prevented the proposed use of proceeds to fund development work.
3. Paragraph 43 application. Applying the principles in Re Atlantic Computer Systems plc [1992] Ch 505, substantial weight was given to Hutchinson’s proprietary security rights. There were no sufficiently strong countervailing considerations in relation to Turnhouse Road. Hutchinson was therefore entitled to enforce its security over that property. The position concerning Lighthouse View was materially less clear because the administrators had a buyer, a valuation and a real risk of losing the sale.
4. Removal application. An actual conflict between common administrators of related companies did not inevitably require removal. The court considered the nature and extent of the conflict, the stage reached, whether effective management was possible, and the consequences of removal. The investigation of the alleged transactions at an undervalue remained incomplete, and appropriate measures included independent legal advice, further investigation and an application for directions. Removal would cause duplication, delay and expense.
5. The removal application was dismissed as precipitate and unmeritorious. No substantive order was required on the administrators’ permission application. Hutchinson obtained permission to enforce its security over Turnhouse Road. The judge expressed provisional costs views, subject to further submissions.