Duffy & Anor v MJF Pension Trustees Ltd & Ors

Under paragraph 71 of Schedule B1 to the Insolvency Act 1986, the court may authorise administrators to sell property subject to security as if it were not subject to that security where disposal is likely to promote the purpose of the administration. Distribution to a secured creditor may satisfy that requirement where the administrators have determined that it is the only achievable purpose and their decision is unchallenged. The court must impose the statutory condition that the net proceeds, together with any required additional sum, be applied towards the secured debt. Proper costs, charges and expenses reasonably incurred in preserving and realising the property are payable first. The court may adjourn the quantification of those costs with permission to restore.

The applicants were joint administrators of MBI Clifton Moor Limited, a company in administration. The company owned a nursing-home property acquired partly with a loan secured by a registered legal charge in favour of pension trustees. Investors also claimed equitable charges arising from contracts for the proposed grant of room leases, while a later charge was granted to other respondents.

The administrators applied under paragraph 71 of Schedule B1 to the Insolvency Act 1986 for authority to sell the property as if it were not subject to security. The property had been marketed, a cash offer had been received at market value, and the administrators considered that sale would achieve the only available administration purpose. The central issue was whether disposal was likely to promote that purpose and how sale costs should be dealt with.

1. The application was granted. The administrators were authorised to dispose of the property as if it were not subject to security.
2. Paragraph 71(2)(b) of Schedule B1 to the Insolvency Act 1986 requires the court to consider whether disposal would be likely to promote the purpose of the administration. Distribution to a secured creditor was sufficient in this case. The administrators had decided that this was the only purpose capable of being achieved, and that decision was not challenged.
3. The court did not need to determine priority between individual investors or whether the Rockbridge charge secured any debt. The registered charge had priority under sections 28 and 29 of the Land Registration Act 2002, and there was no challenge to its validity.
4. The statutory condition under paragraph 71 required the net proceeds, and any additional sum ordered by the court where applicable, to be applied towards the secured debt. On the evidence, the market had been tested, expert advice obtained and the offer represented market value, so only paragraph 71(3)(a) was engaged.
5. Proper costs, charges and expenses reasonably incurred in preserving and realising the property were payable before distribution of the net proceeds. The issue of quantum was adjourned with permission to restore if agreement was not reached. The administrators could decide what amount to distribute in the meantime.

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