VTB Capital plc (in administration), Re

The court granted the administrators permission under paragraph 65(3) of Schedule B1 to give notice of intention to distribute. The principal legal considerations were the automatic operation of insolvency set-off once notice of intention to distribute is given (as explained with reference to Stein v Blake) and the application of the pari passu rule from the time distribution is permitted (as explained with reference to HMRC v Football League Ltd and Insolvency Rule 14.24(1)).

The court concluded that the administrators were in a distribution phase, that a near-term distribution was likely, and that permitting distribution now would protect the general body of creditors (including by enabling hotchpot and set-off to operate) in the face of active enforcement and restructuring steps being taken in Russia. The discretion under paragraph 65(3) was exercised in favour of the administrators, the order was made in the terms sought and the judgment was to remain private until notice of intention to distribute is served, subject to a liberty to apply for the benefit of any creditor wishing to challenge the permission.

Background and parties: The Company, VTB Capital plc (in administration), owned ultimately by a Russian entity, entered administration after sanctions were imposed. The administrators sought an order under paragraph 65(3) of Schedule B1 of the Insolvency Act permitting them to give notice of intention to distribute. The administrators were concerned about enforcement action and a proposed restructuring by VTB Bank in Russia that risked depriving the estate of value.

Nature of application: The administrators applied for permission to distribute so that insolvency set-off and the pari passu distribution principle would crystallise on service of the notice of intention to distribute, thereby preserving estate value and enabling hotchpot to operate against creditors who had appropriated company assets abroad.

Issues for decision:

• whether it was appropriate to exercise the court's wide discretion under paragraph 65(3) to permit distribution at this stage,
• the legal effect and timing of insolvency set-off and pari passu distribution in administration (including the effect of Insolvency Rule 14.24(1)), and
• whether privacy and other ancillary orders should be made to prevent prejudice to the estate.

Reasoning and findings: The court accepted the administrators' evidence that a distribution was imminent because the administrators were promoting a scheme of arrangement as the distribution mechanism, had previously proposed distribution in their proposals, and a court had already recognised the administration as "in distribution mode". The judge reiterated that insolvency set-off is automatic and self-executing once notice of intention to distribute is given (Stein v Blake) and that the pari passu principle applies from the time the court permits distribution and notice is given (HMRC v Football League Ltd and Insolvency Rule 14.24(1)). The discretion under paragraph 65(3) is at large (Re MG Rover Belux). The court considered that enabling set-off and hotchpot would better protect the general body of creditors in circumstances where enforcement and a counterparty restructuring in Russia threatened the estate. Privacy of the judgment until notice of intention to distribute was justified to avoid precipitating further enforcement, and a liberty to apply was preserved so any creditor may challenge the permission prior to distribution.

The court granted the administrators' application for permission to give notice of intention to distribute under paragraph 65(3) of Schedule B1 of the Insolvency Act 1986. The judge held that insolvency set-off operates automatically on service of notice and that permitting distribution now would protect the general body of creditors in light of active enforcement and proposed restructuring in Russia. The order was made in the terms sought, the judgment is to remain private until notice of intention to distribute is given, and a liberty to apply was included for creditors wishing to challenge the permission.