Re VTB CAPITAL PLC

For the purposes of administration, a company may be unable to pay its debts as they fall due despite having substantial net assets where banking facilities are unavailable. The objective of achieving a better result for creditors as a whole may include earlier payment, an orderly wind-down and the reduced risk of delay or shortfall, not merely the eventual dividend. Where that objective is likely to be achieved, the court may exercise its discretion to appoint administrators. The appointment may be made conditional on regulatory or sanctions licences where, without them, the administration would be pointless.

The directors of an investment bank subject to sanctions applied for the appointment of three administrators under the Insolvency Act 1986. The company was solvent on a net asset basis but could not access its frozen bank account and was unable to pay debts as they fell due.

A general licence had been issued by the UK Office of Financial Sanctions Implementation, but a corresponding licence from the United States Office of Foreign Asset Control remained outstanding. The application therefore sought an appointment which would take effect only when both licences were in place. The central issues were whether the statutory conditions and an administration objective were satisfied, and whether the court should exercise its discretion to make the appointment.

1. Jurisdiction and insolvency. The statutory conditions for an administration order were satisfied. The company was unable to pay its debts as they fell due within section 123(1)(e) of the Insolvency Act 1986, because its banking facilities were unavailable, notwithstanding its positive net asset position.
2. Administration objective. Rescue as a going concern was not realistically available, although changing sanctions could not be ruled out entirely. The application was properly advanced under the objective of achieving a better result for creditors as a whole than a winding-up.
3. Meaning of a better result. The comparison was not confined to the amount ultimately distributed. Earlier payment to creditors was a relevant consideration. An orderly wind-down by administrators was strongly likely to secure earlier payment and payment in full, whereas liquidation could be disorderly, prolonged and carry an outside risk of shortfall. The objective was therefore likely to be achieved.
4. Discretion and conditions. The court exercised its discretion in favour of appointing the proposed administrators. The terms of the OFSI licence and the non-objection of the Bank of England and Prudential Regulation Authority supported that conclusion. Questions of sanctions circumvention did not arise on the evidence.
5. Operative order. The appointment was not made or sealed immediately. It would take effect only upon filing evidence that both the OFSI and OFAC licences were in place, provided the OFSI licence remained in force and there was no material change in circumstances. Otherwise, the matter was to be restored for a further hearing.