In the Matter of Hawkwing Plc

The court appointed joint administrators to Hawkwing Plc after finding that the applicant creditor had established the threshold and discretionary requirements for administration under Schedule B1 to the Insolvency Act 1986. Key legal principles applied included the Schedule B1 tests (paragraph 11), the section 123 cashflow and balance-sheet insolvency tests, and the requirement that an administration is reasonably likely to achieve a statutory purpose. The judge found two Events of Default under the CULS Instrument: (i) the unauthorised advance of the IFG loan to IFG SPP contrary to clause 2.3(a), and (ii) failure to obtain shareholder approvals by 31 March 2022. The court held that those Events of Default had not been waived by a Noteholder Majority at the time of Hanover’s redemption notice of 16 November 2022, that the redemption notice was valid, and that the company was both cashflow and balance-sheet insolvent. In the exercise of discretion the court gave little weight to the views of connected noteholders and shareholders and concluded that administration was appropriate to investigate the company’s affairs and to achieve a better result for creditors.

Background and parties. Hawkwing Plc, a London-listed cash shell, issued Convertible Unsecured Loan Notes in August 2021 under a CULS Instrument. Hanover Investors Management LLP (on behalf of Hanover Catalyst Fund) subscribed for part of the notes and applied for the appointment of administrators after events surrounding a proposed reverse takeover and loans to companies in the IFG group.

Nature of the application. Hanover applied for administration under Schedule B1 to the Insolvency Act 1986; it sought the appointment of administrators on grounds that the company was or likely to become unable to pay its debts and that administration was reasonably likely to achieve a statutory purpose.

Key facts and procedural posture. The company had announced that an IFG loan had been made to IFG (defined in the CULS Instrument) but in fact had lent £13.7m to IFG SPP (a Guernsey company not in the defined IFG Group). IFG SPP later entered liquidation; Shade Station and Northcore (security assets) were put into administration; the company circulated an amendment and waiver request letter (the AW Letter) to some but not all noteholders seeking written consents to amendments and waivers. Hanover only learned of the AW Letter in mid-November 2022 and served a redemption demand on 16 November 2022 under Condition 3.4 of the CULS Instrument. The company argued that waivers had been obtained and the redemption demand was invalid; Hanover argued the opposite.

Issues framed by the court. The court considered (i) standing, (ii) whether Events of Default had occurred, (iii) whether those events had been remedied or waived by a Noteholder Majority at the relevant time, (iv) whether the Hanover redemption notice was valid, (v) whether the company was cashflow and/or balance-sheet insolvent, and (vi) whether administration was reasonably likely to achieve a statutory purpose and whether the court should exercise its discretion to make the order.

Court reasoning and findings.

• Standing: Hanover was a creditor (holder of notes) with standing to apply.
• Events of Default: the unauthorised lending to IFG SPP breached clause 2.3(a) (Event of Default under Condition 3.1(g)) and the failure to obtain shareholder approvals by 31 March 2022 was an Event of Default under Condition 3.1(j).
• Remedy/waiver: the court found the company’s evidence of an oral waiver unsatisfactory and held that waivers under the CULS Instrument had to be in writing (Clause 7.1). A Noteholder Majority was not reached before Hanover’s redemption notice; written Noteholder Majority consent was attained on 30 November 2022, after the redemption notice.
• Validity of redemption notice: the court treated the demand and its covering dated email together and held the redemption notice dated 16 November 2022 to be valid.
• Insolvency: Hanover’s debt was due; the company lacked funds to pay it and to meet other near-term obligations, and the value of the IFG loan was doubtful given IFG SPP’s liquidation and IFG Limited’s weak balance sheet. The judge found both cashflow and balance-sheet insolvency.
• Purpose and discretion: administration was reasonably likely to achieve a statutory purpose (particularly to achieve a better result for creditors) and independent investigation was necessary into the company’s conduct. The court gave little weight to opposition from connected creditors and exercised its discretion to appoint administrators.

Relief granted. The court ordered the appointment of joint administrators (Kroll Advisory Limited nominees) to manage the company and investigate its affairs.

This was a first-instance application and the court granted the application for administration. The judge concluded that Hawkwing Plc was unable, or likely to become unable, to pay its debts (cashflow and balance-sheet insolvency) and that administration was reasonably likely to achieve a statutory purpose (notably a better result for creditors). The court also held that Hanover’s redemption notice of 16 November 2022 was valid and that Events of Default had not been waived by a Noteholder Majority at that date. In exercise of its discretion the court appointed joint administrators to investigate and manage the company’s affairs.