VTB Capital plc (in administration), Re

The court may permit an administrator to distribute under paragraph 65(3) of Schedule B1 even where distribution cannot begin immediately, provided distribution is intended and will occur within a relatively short period. The discretion is entirely at large, but should be exercised with regard to creditors’ interests as a whole. The prospective benefit to the general estate from insolvency set-off and the hotchpot principle may favour permission, even where a particular creditor is disadvantaged. Insolvency set-off becomes automatic and self-executing when notice of intention to distribute is given.

VTB Capital plc was in administration following sanctions against Russia. Its administrators sought permission to distribute while the company promoted a scheme of arrangement and faced the risk that creditors in Russia would enforce against trapped Russian assets or restructure their liabilities.

The application required the court to decide whether permission under paragraph 65(3) of Schedule B1 to the Insolvency Act 1986 could properly be granted before an immediate distribution was possible, and whether the anticipated benefits of insolvency set-off, pari passu distribution and the hotchpot principle justified granting permission.

1. The application was granted. The administrators could proceed on the terms sought, subject to the judgment remaining private until notice of intention to distribute had been given.

2. The discretion under paragraph 65(3) of Schedule B1 to the Insolvency Act 1986 is entirely at large. The guidance in Re MG Rover Belux SA/NV (in administration) was relevant, but the court had to assess all the circumstances.

3. Although no distribution could be made immediately, the evidence showed that distribution would occur in the near future, either after sanction of the proposed scheme or, if the scheme failed, under the Insolvency Rules 2016. The administration was already effectively in distribution mode.

4. Under rule 14.24(1) of the Insolvency Rules 2016, insolvency set-off in an administration takes place when the administrator gives notice of intention to distribute. Once triggered, set-off is automatic and self-executing, even if the calculation of the mutual debts remains disputed.

5. The pari passu principle likewise applies from the point at which distribution is permitted and notice is issued. Its operation, together with the hotchpot principle, could protect the general body of creditors against the effects of enforcement by a creditor against company assets in Russia.

6. Insolvency set-off is a matter of substantive justice. The application therefore had to be assessed from the perspective of creditors as a whole. Improving the general estate through set-off, even at the expense of a particular creditor, and maximising the hotchpot principle were factors favouring permission.

7. A liberty to apply was included so that a creditor could challenge the permission before distribution without appealing out of time. That structure fairly balanced the interests of creditors generally and any individual creditor wishing to challenge the order.