Clare Kennedy & Ors v Fonds Rusnano Capital SA

The administrators applied under paragraph 71 of Schedule B1 to the Insolvency Act 1986 for permission to dispose of fixed charge assets free of the security. The court applied the two-stage paragraph 71 test: (1) whether the disposal would be likely to promote the purpose of the administrations and (2) whether the condition in paragraph 71(3) (application of net proceeds and any additional sum so as to produce market value) was satisfied.

The court accepted the administrators evidence of urgency, a compressed marketing process, valuation reports (Gordon Brothers) and a Maltese opinion (Mamo) assessing the probability of achieving a marriage value with Maltese assets. The Russia (Sanctions) (EU Exit) Regulations 2019 (RSR 2019) and fragmented asset ownership limited funding and marketability. Applying OConnell v Rollings and related authorities, the judge balanced prejudice to the secured creditor against prejudice to those seeking to promote the administrations and concluded the sale represented a proper price and was likely to promote the administrations. The paragraph 71 orders were made (4 December 2024), with recognised deductions from proceeds for proper costs and expenses.

Background and parties: The applicants were the joint administrators of four Ascension group companies in English administration. Fonds Rusnano Capital SA (Fonds) held fixed charge security over certain intellectual property and related assets. The administrators sought orders under paragraph 71, Schedule B1, Insolvency Act 1986 permitting disposal of fixed charge assets free of the charges to complete a pre-pack sale.

Nature of the application: Orders under paragraph 71 Schedule B1 IA 1986 to permit sale of fixed charge assets free of security; abridgement of time for service and an urgent hearing were also sought.

Issues before the court:

• whether disposal was likely to promote the purposes of the administrations;
• whether the condition in paragraph 71(3) was satisfied (net proceeds and additional money equating to market value as defined by paragraph 111 Schedule B1);
• whether service and abridgement of time were appropriate given urgency;
• quantification of deductions from sale proceeds (costs, fees, expenses).

Key facts and procedural posture: The Ascension group operated pharmaceutical and medical device businesses. Asset ownership was fragmented between English and Maltese companies; Maltese companies owned key patents. The administrators ran an accelerated marketing process and received one offer from a buyer connected to the companies. The total sale consideration was allocated between floating and fixed charge assets: initial total consideration and allocations meant £720,000 was attributable to fixed charge assets, with an initial payment and deferred consideration of £50,000 contingent on licences. Fonds did not consent to release of security and did not participate at the urgent hearing; service steps and service-out permission were found to be properly carried out.

Evidence relied upon: evaluators report under the connected-party regulations (concluding reasonableness), a Gordon Brothers valuation report (probability-based valuation given fragmentation and need to marry Maltese assets), and a Maltese law opinion by Mamo finding no more than a 10% probability of acquiring Maltese assets or concluding a collaboration agreement. The RSR 2019 (regulations 16 and 17) restricted new lending/investment and contributed to urgency and limited bidder interest.

Courts reasoning and disposition: The court applied established authorities (notably OConnell v Rollings) and conducted the required balancing exercise: although Fonds would be prejudiced by losing autonomy to realise its security, the court accepted the administrators process, the valuation evidence and the consequences of the sanctions regime. The court concluded the sale was likely to promote the administrations (including preserving a going concern sale and employee transfers) and that the paragraph 71(3) condition was satisfied because the realisation reflected market value in the factual circumstances. Proper costs, fees and expenses incurred in realising the fixed assets (including pre- and post-appointment fees of administrators and their advisers) were allowed as deductions; the administrators identified net proceeds payable to Fonds of £202,079 (plus deferred £50,000 when payable) from the allocation of the sale consideration. The paragraph 71 orders sought were made on 4 December 2024.

Subsidiary findings: service in accordance with the courts service-out order was valid; abridgement of time was justified; connected-party evaluators report and expert valuations were treated as admissible and persuasive in the circumstances despite known conflicts; costs were permitted as proper realisation expenses (Townsend v Biscoe principles invoked).

First instance: the court made the paragraph 71 orders sought (orders made 4 December 2024) permitting disposal of the fixed charge assets free of the security. Rationale: having found service and abridgement of time appropriate and having weighed the competing prejudice under the two-stage paragraph 71 test (and applying O'Connell v Rollings and related authorities), the court concluded the sale was likely to promote the purposes of the administrations and that the paragraph 71(3) condition was satisfied because the administrators obtained a proper price on the facts, taking into account the fragmented asset ownership and the restrictions imposed by the Russia (Sanctions) (EU Exit) Regulations 2019. The court also allowed the administrators' reasonable costs and expenses to be deducted from realisation proceeds.