Baltic House Developments Ltd v Wing Keung Cheung & Po Shing Patrick
| Jurisdiction | England & Wales |
| Judge | Eyre |
| Judgment Date | 17 May 2018 |
| Neutral Citation | [2018] EWHC 1525 (Ch) |
| Docket Number | Case No: 2207 of 2018 |
| Court | Chancery Division |
| Date | 17 May 2018 |
[2018] EWHC 1525 (Ch)
IN THE HIGH COURT REGISTRY
BUSINESS & PROPERTY COURTS IN MANCHESTER
COMPANIES INSOLVENCY LIST
(CHANCERY DIVISION)
Manchester County Court and Family Court Hearing Centre
Manchester Civil and Family Justice Centre
1 Bridge Street West
Manchester
Greater Manchester
M60 9DJ
HIS HONOUR JUDGE Eyre, QC
(Sitting as a High court Judge)
Case No: 2207 of 2018
Mr J Morgan QC, (instructed by Freeths LLP) appeared on behalf of the Applicant
Mr S Passfield (instructed by Mishcon de Reya LLP) appeared on behalf of the Respondents
JUDGMENT (Approved transcript)
JUDGE Eyre QC: I have to rule on an application to appoint Mr Woolridge and Mr Rowley as administrators of Baltic House Developments Ltd (“the Company”). The Company was engaged in development of a property in Liverpool.
In very short form, the history is this. Funds for the development of that property were obtained from investors, many of whom are resident in the Far East. The structure was in essence for funding to be upfront. The development of the building came to a halt, and it is apparent there is no prospect of completing that development without further funding going in.
In a little more detail, taking the history in large part from the summary of the facts in the skeleton argument of James Morgan QC who appears for the Applicant, and who has been opposed by Mr Passfield of counsel, the position was this. There was incorporation on August 2015. The Company was a single-purpose vehicle acquiring, as I said, a site in Liverpool at Norfolk Street in that city. Units were sold off plan to investors, many of whom are in the Far East. The investors were to pay 70 per cent of the purchase price upfront, the balance being paid on completion. On completion there were to be 250-year leases. There were over a hundred potential purchasers or purchasers/investors, and sums in excess of £12 million were received by the Company. A charge was granted to Baltic House Buyers Ltd acting as nominee for the purchasers. There were also charges in favour of Lancashire Mortgage Corporation, and the Schemes (effectively sundry pension schemes). The exhaustion of the Company's funds came in about January 2017, and it was in June of that year that the Company wrote to the solicitors on behalf of the purchasers saying that there was no prospect of completion by the relevant longstop dates and that funding of a further £11 million was needed.
That is the background, and it is against that background that two of the investors have petitioned for the Company's liquidation, and that the administration application is made. Originally the applicants sought the appointment of Mr Lord of Bridgestones and Mr Hancock as administrators, butthey now seek the appointment of Mr Rowley and Mr Woolridge of FRP Advisory. There have been detailed witness statements from Mr Griffiths, director of the Company; rather shorter witness statements from Mr Lai and Mr Cheung, the petitioning creditors; but substantial and detailed witness statements from Mr Lynch, a solicitor for the petitioning creditors. Mr Lynch goes into considerable detail in his witness statement about the timetable and the stages at which the applicant and its solicitors have taken various steps. It suffices to say that a lot of what has been done has been at the eleventh hour.
Originally Mr Lord, one of the two initially proposed administrators, took the view that administration was an appropriate course and that he was happy to be appointed as administrator. I should say that the application was initially made without having annexed to it the report from Mr Lord, although a draft report had been prepared. Mr. Lord's initial assessment set out in an estimated outcome statement of the position as at 15 March 2018, which appears at page 305 in the bundle before me, envisaged there being a better recovery in administration and in liquidation. This was at a comparatively modest level, being the difference between a dividend to unsecured creditors of 23.3 pence in the pound in administration as opposed to 20.3 pence in the pound in liquidation. A report was prepared by Mr Lord, and that appears at page 511 and following in the bundle. At that stage the thrust of that report was to say that the way forward was to be the sale of the property in its current incomplete state. I should say that a conditional contract for the sale of the property in the sum of £2 million has been agreed. At paragraph 12.4 of that report, Mr Lord said this:
“If the sale of the main asset is rescinded, it is highly unlikely the joint administrators will seek to find finance to complete the project in the Company's name. The nature of the work done and the insolvent situation with the contractors who have carried the work make it very difficult to provide the warranties needed, to pass building inspections, to obtain the required insurances and generally comply with the health and safety requirements in continuing with such a project.”
There is before me now a revised estimated outcome statement setting out the position as at 28 March 2018. That shows a very much more marginal potential benefit in administration. The difference in very short terms relates to the funds which Mr Lord had hoped might be achieved from realisation of other debts. The view is now taken (or was taken at the time of preparation of the estimated outcome statement) that such realisation will not be practicable or achievable. I will deal in a little more detail with what Mr Lord says about that in a moment. The revised estimated outcome statement at page 551 of the bundle shows a dividend to unsecured creditors in administration of 14.5 pence in the pound and to unsecured creditors in liquidation of 13.2 pence in the pound. That difference is not very substantial. The difference is the result of the increased fees which that document predicts will be incurred in liquidation as opposed to the costs of administration. The document proceeds on the basis that in liquidation there will be liquidator's fees of a touch over £300,000 being 15% of realisations.
I said that Mr Lord was initially prepared to act as administrator. He changed his mind and indicated he was no longer prepared to accept appointment. The reasons for that are set out to some extent in his letter of 28 March 2018 at page 546 and following of the bundle. He explains matters at page 548. He identifies there what he says are materially significant matters which had come to light since the issue of the administration application. One of those he says is the reduction in realisable debts. He said this:
“My initial understanding was that the Company had realisable debts of approximately £5 million. That no longer appears to be the case, which has detrimentally impacted on the estimated outcome to the extent I now see little difference in outcome between administration and liquidation. A number of the debts which were listed in the Company's accounts filed at Companies House for the period ending 31 December 2016 have proved to be irrecoverable. In addition I am not certain that the Company have the funds with which to generate the debts. They are not trade debts, they are in the main intercompany loans, but my investigation showed that it would have been difficult for the Company to have had such large sums to loan other companies within the group. Other companies within the group appear to be facing financial difficulty, and of the six debts originally considered as due and payable, I now consider that only two may have a chance of significant recovery.”
He mentions concerns as to the change in position in respect of the charge in respect of Baltic House Buyers Ltd and then says this:
“Lack of support from creditors
At the outset I was aware of the petition presented by two unsecured creditors of the Company. The petitioner has subsequently filed a witness statement dated 20 March 2018 setting out he is the representative of a number of unsecured creditors of the Company when the value of unsecured creditors opposing the application totals a touch over £5 million. Although I am of the view that the Company property could be realised in order to make a distribution to one or more secured or preferential creditors, therefore satisfying one of the statutory purposes for administration, I consider that it would be difficult for me to proceed with the administration appointment and in particular to get the administrator's proposals agreed without the support of the ‘investor’ creditors, who may or may not be unsecured. The petitioners have indicated they wish to see a liquidator of their choice appointed, and they say that this is the wish of a very significant proportion of those creditors.”
I should say that the investors were protected by a number of unilateral notices in addition to the protection they had by way of the charge in favour of Baltic House buyers Ltd.
So, Mr Lord and Mr Hancock have dropped out of the picture, and Mr Rowley and Mr Woolridge are put forward. The secured creditors, LMC and the Schemes have no objection to the application for appointment of the administrators. There is a significant question mark over the position of Baltic House Buyers Ltd. There is before me an indication signed by Mr McNally as a director of that company that the Company resists and objects to the application, but...
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