Bank of Scotland Plc v Targetfollow Properties Holdings Ltd

Approved Judgment

MR JUSTICE RICHARDS: There is before the court an application by Bank of Scotland plc (the bank), for the appointment of administrators, under schedule B1 of the Insolvency Act 1986 in relation to a company called Targetfollow Property Holdings Limited.

The bank is a present creditor of the company in a total sum of some £233 million, comprising just a little under £190 million due under a three-year term loan agreement and a sum slightly in excess of £43 million under a guarantee of the liability of an associated company of Targetfollow Property Holdings Limited.

The company is part of a substantial property investment and development group. The group structure, so far as relevant, is that the company is the wholly owned subsidiary of a holding company called Targetfollow Group Limited, which in turn is owned by companies which are owned and/or controlled by Mr Ardeshir Naghshineh. Mr Naghshineh is the effective management of the group, as it appears from the evidence.

There are a substantial number of property owning companies which are subsidiaries of Targetfollow Property Holdings Limited, the company with which this application is concerned, and those companies own properties both in London and in other parts of England with a total value, as per a valuation carried out as at 31 March 2010, of £252 million.

There is also, under the ultimate control of Mr Naghshineh, a separate group of companies, the holding company of which is Targetfollow Property Investment and Development Limited. That group also owns a substantial number of property holding companies with properties in London and elsewhere in England to which a total value of some £427 million was attached by the same valuation as at 31 March 2010. Those properties include Centre Point in London.

That group is indebted to the bank in a substantially larger sum than the amount due from the company with which I am concerned today. The bank has made clear that if an administration order is made in relation to the company today it proposes to appoint administrators of Targetfollow Property Investment and Development Limited under its powers as a qualifying floating charge holder.

The term facility which the bank had granted to the company matured on 22 July 2010, at which point a sum of £89 million-odd became due. It was not paid by the company. This failure constituted an immediate event of default under the terms of the term loan agreement. The whole sum as due from the company subsequently became due on demand.

The company had granted to the claimant a debenture which conferred a number of forms of security in favour of the bank. In particular, they include a fixed charge over the company's shareholding in its immediate subsidiary, Targetfollow Investments Limited, which itself is an intermediate holding company for all the property holding companies that lie in that part of the subject group. The debenture conferred upon the bank an express right to appoint a receiver of the shareholding. There is also security over accounts with the bank to which all payments have to be made. The bank is given direct rights over those accounts, enabling it to appropriate the sums standing to their credit directly in reduction of liabilities to it.

In addition there is a floating charge over the company's undertaking and assets in favour of the bank. The debenture, being a debenture created after the Enterprise Act 2002 came into force and introduced schedule B1 into the Insolvency Act 1986, expressly confers upon the bank the right to appoint an administrator pursuant to paragraph 14 of schedule B1.

The bank could have taken the step of itself appointing administrators of the company, pursuant to the powers to which I have just referred, and it continues to be entitled to do so, save that it may not do so while this application for appointment of administrators is pending before the court.

The reason why it has not taken that straightforward step is because another, and so far as I know the only other, secured creditor of the company, a company called CI Limited, had in correspondence claimed that under the terms of an inter-creditor deed which it entered into with the bank and the company, primarily to agree priorities between those secured creditors, it had a contractual right to consultation before the bank took any step to appoint administrators. It threatened to challenge the appointment of administrators and, in the course of correspondence, asserted that not only did it have a contractual right to consultation but that such consultation was itself contractually a pre-condition to the appointment of administrators.

The bank disputed the position taken by CI Limited, but decided that the best way of dealing with it was to issue the application for the appointment of administrators so that the arguments being advanced by CI Limited could then be litigated and decided in that application, rather than have an out-of-court appointment disrupted by proceedings brought by CI Limited. It seems to me that this was an entirely sensible course for the bank to adopt in these particular circumstances. In the event, it appears to have been unnecessary because CI Limited has not appeared on this application to raise its arguments or to oppose the appointment of administrators. There is, however, no doubt that CI Limited is aware of these proceedings because its solicitors acted also for the company and are on the record for the company on the present application.

I will return later to the bearing, if any, that the entitlement of the bank to appoint administrators out of court has on the decision of the court on this application, for the appointment of administrators.

The application is therefore made for an administration order under paragraph 10 of schedule B1 by the bank, in its capacity as a creditor of the company, pursuant to paragraph 12.1(c).

Under paragraph 11 of schedule B1 the court may make an administration order in relation to the company only if it is satisfied of two matters. The first is the company is, or is likely to become, unable to pay its debts. There is again, no issue as to this. The company is and has since 22 July 2010, been unable to pay a sum in excess of £189 million to the bank.

The second precondition is that the administration order is reasonably likely to achieve the purpose of administration. That refers back to paragraph 3 of schedule B1, which sets out the purposes or objectives of administration, which are: (a) rescuing the company as a going concern, or (b) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up without first being in administration, or (c) realising property in order to make a distribution to one or more secured, or preferential, creditors.

The subsequent provisions of paragraph 3 make it clear that that is a set of objectives and purposes in, as it were, diminishing importance. That is to say the administrator must first seek to achieve (a) unless it is not reasonably practicable or would not achieve as good a result as (b) for the creditors as a whole. If (b) is also not reasonably practicable, he may seek to achieve (c).

The evidence filed on behalf of the bank, in the form of the first witness statement of Mr Harrington, focused attention on the second and third of those purposes, that is to say achieving a better result for the company's creditors as a whole than would be likely if the company were wound up, or realising property in order to make a distribution to one or more secured or preferential creditors.

In the course of his submissions on behalf of the bank, Mr Isaacs has said that the bank does not rule out the possibility of an administrator being able to achieve the rescue of the company as a going...