Milltom Builders Limited v Waterfield Developments Blackburn Limited & Anor

In an administration, the court must balance protection for secured creditors against the wider purpose of the administration. A secured creditor is not automatically entitled to conduct the sale of charged property merely because it began enforcement proceedings before the administration.

Where several creditors may benefit, and the administrator’s sale is likely to promote the administration’s purpose, the court may authorise a sale under paragraph 71 of Schedule B1 to the Insolvency Act 1986. The net proceeds must preserve security priorities. The court may also regulate the administration and direct a proof and appeal process for disputed secured claims.

Milltom held a charging order over the Company’s remaining development property and had begun order-for-sale proceedings before the Company entered administration. The administration imposed the moratorium under paragraph 43 of Schedule B1 to the Insolvency Act 1986.

Milltom sought permission to continue those proceedings and conduct the sale. The administrator sought an order under paragraph 71 of Schedule B1 enabling him to sell the property free of the securities, with the proceeds preserved according to priority and disputed claims resolved through the administration. The central issues were who should conduct the sale, how priorities should be treated, and how the amount due to Milltom should be determined.

1. Applications. The Milltom Application was refused. The court granted relief under paragraph 71 of Schedule B1 to the Insolvency Act 1986, enabling the administrator to sell the Property free of Milltom’s ICO/FCO and Supahome’s charges.
2. Secured-creditor protection. The court applied the principle stated in Bristol Airport Plc v Powdrill [1990] Ch 744 and Re Atlantic Computer Systems [1992] Ch 505 that administration should not, so far as possible, prejudice creditors secured when the administration began. Re UK Housing Alliance (North West) Limited [2013] EWHC 2553 (Ch) was distinguished because there the enforcing secured creditor was the only party likely to benefit. Here, Supahome and potentially unsecured creditors also had an interest.
3. Paragraph 71. Disposal was likely to promote the administration’s third purpose under paragraph 3(1) of Schedule B1, namely realising property to distribute to secured or preferential creditors. Paragraph 71 required a market-value sale and application of the net proceeds in the order of priority of the securities. Milltom’s security under the ICO and FCO ranked ahead of Supahome’s security, subject to Supahome’s opportunity to challenge that declaration.
4. Choice of sale process. The risks associated with entrusting the sale to Milltom outweighed the risks concerning the administrator’s independence. The administrator was an officer of the court and could be held to account, including under paragraph 74 of Schedule B1. A paragraph 71 sale also provided a quicker and clearer framework for resolving competing claims.
5. Accounting issues. Milltom was entitled, subject to final determination, to interest at 8 per cent under the judgment and charging orders. The alleged 5 per cent cap on the receiver’s remuneration could not be assumed to apply: sections 109(6) and 101(3) of the Law of Property Act 1925 required consideration of the relevant charges and appointment. Legal costs also required supporting information. Any possible relevance of the earlier sale at an undervalue was left open.
6. Directions. Net sale proceeds were to be held pending agreement or court determination. The court directed a proof process under rules 14.3, 14.4, 14.7 and 14.8 of the Insolvency (England and Wales) Rules 2016, including provision for Milltom to appeal any rejection of its proof.

First-instance decision. The judgment records earlier order-for-sale proceedings and the administration moratorium, but no prior appellate decision.