Capitol Films Ltd ((in Administration)), Re; Rubin (joint administrators of Capitol Films Ltd) v Cobalt Pictures Ltd

JurisdictionEngland & Wales
Judgment Date09 December 2010
Neutral Citation[2010] EWHC 3223 (Ch),[2010] EWHC 2240 (Ch)
Docket NumberCase No: 407 of 2010
CourtChancery Division
Date09 December 2010

In the Matter of Capitol Films Limited (in administration)

David Rubin and Henry Lan (Joint Administrators of Capitol Films Limited)
Cobalt Pictures Limited and 24 others

[2010] EWHC 2240 (Ch)

Before: Mr. Richard Snowden QC

(Sitting as a Deputy Judge of the High Court)

Case No: 407 of 2010




Niall McCulloch and Timothy Calland (instructed by Wallace LLP) for the Applicants

Marcus Haywood (instructed by Field Fisher Waterhouse LLP) for the Allied Irish Banks plc, Aramid Entertainment Fund Limited and Aramid Entertainment BV

Alex Barden (instructed by Seddons) for Directors' Guild of America, Screen Actors' Guild and Guild of America West

Georgina Peters (instructed by O'Melveny & Myers LLP) for Fortress Value Recovery Fund LLC, Hemlock (Lux) SÀRL and Bernard National Loan Investors Limited

James Bailey (instructed by Davenport Lyons) for Exodus Film Company Limited

Hearing dates: 25 and 26 August 2010

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.





Mr. Rubin and Mr. Lan are the Joint Administrators of Capitol Films Limited (“the Administrators” and “the Company” respectively). By an Application Notice dated 16 June 2010 they seek various relief. At present I am only concerned with their application pursuant to paragraph 71 of Schedule B1 to the Insolvency Act 1986 (as amended) that they be permitted to dispose of property of the Company which is subject to a security (other than a floating charge) as if it were not subject to that security.


The Company is a film-distribution company which is part of a group of associated companies incorporated in the UK and the USA. The Company was placed into administration by the order of Mr Justice Briggs on 2 February 2010. The stated purposes of the administration were to achieve a better result for the Company's creditors as a whole than would be likely to be achieved were the Company to be wound up, and/or the realisation of property to make a distribution to secured creditors (see paragraphs 3(1)(b) and (c) of Schedule B1).


The overwhelming majority of the Company's assets are contractual rights to distribute and exploit films which have been granted by the owners of those rights. Many of those contracts are claimed by various creditors to be the subject of fixed security. Those secured creditors have been joined to this application and a number of them have appeared at the hearing of the Application. Mr. Haywood appeared for a number of creditors who I shall refer to collectively as “AIB”, Mr. Barden appeared for a number of creditors who I shall refer to collectively as “the Guilds”, and Miss Peters appeared for a number of creditors who I shall refer to collectively as “the Fortress Creditors”. I have not been asked to determine whether or not the claims by these parties that they hold fixed security are valid or effective: I have been asked to proceed on an assumption that they are.


After the Application Notice had been issued in June, on 13 July 2010 the Administrators entered into a conditional contract (“the Sale Contract”) for the sale of the assets of the Company, including those which are the subject of fixed charges, to a company called Exodus Film Company Limited (“Exodus”).


The Sale Contract provided for completion to be conditional upon the Administrators obtaining the permission of the Court to dispose of those assets of the Company which are subject to fixed charges. The Sale Contract further provided that this condition had to be satisfied by 23.59 hours on Monday, 30 August 2010, or such other date as the parties might agree in writing. Exodus has stated that it imposed such deadline out of commercial concerns about the decline in value of the Company's film rights and attempts to terminate them by counterparties on the basis of the Company's insolvency. In light of this deadline, the Application was ordered to be heard on an expedited basis by Mr. Justice Arnold.

The Sale Contract


The Sale Contract provides for the purchase by Exodus of all of the rights, title and/or interest of any nature as the Company may have at completion in relation to any motion picture film. The films to which it was thought that the Company might have rights are set out in a schedule to the Sale Contract. These films divide into two categories. The first includes 44 films with titles ranging from “American Buffalo” to “You Kill Me” (“the Retained Films”). Subject to any termination notices which might validly have been served on the Company by the grantors of the rights, it is not disputed that the rights to the Retained Films are owned by the Company.


The second category of films listed in the schedule to the Sale Contract includes some 82 films with titles ranging from “0.45” to “Winter Guest”. All but one of these films were the subject of a transaction which purportedly took place on 3 August 2009 between the Company and a company called Pangea Media Holdings Limited (“Pangea”). Under that transaction (“the Pangea Assignment”) the Company's rights in relation to the 81 films were purportedly assigned to Pangea. The Pangea Assignment is a transaction which is the subject of complaint by a number of creditors and I shall return to it in greater detail below. I shall refer to the 81 films which were ostensibly the subject of the Pangea Assigment as “the Disputed Films”. Although the Disputed Films are included in the schedule to the Sale Contract and hence any rights in respect of them would be transferred to Exodus, it is expressly stated in the contract that neither the Administrators nor the Company make any admissions or denials about whether the Company owns any rights to any of the Disputed Films.


In addition to sale of such rights as the Company might have in relation to the Retained Films and the Disputed Films, the Sale Contract also provides for the sale and purchase of any and all claims which the Company might have against any person in relation to its business and assets (including the Retained Films and the Disputed Films).


The consideration payable by Exodus under the Sale Contract is US$2.35 million. This is stated in the contract to be apportioned as to US$500,000 for assets subject to fixed charges and US$1,850,000 for the remaining assets, but no further information is given of any specific assets that are included in either category. Exodus has paid a non-refundable deposit of US$100,000 towards the purchase price.

The Issue


At the start of the hearing on 25 August 2010, Mr. McCulloch, who appeared for the Administrators, indicated that, so far as the Administrators were concerned, the Application was based upon the premise that the Pangea Assignment had operated to pass the Company's rights and entitlements in relation to the Disputed Films to Pangea. He explained that this would have the consequence that (notwithstanding the listing of the Disputed Films in the Schedule to the Sale Contract) those rights and entitlements did not in fact form part of the assets of the Company subject to fixed charges at completion of the Sale Contract. He indicated that this would mean that the Disputed Films could be ignored for the purposes of the Application and the apportionment of the consideration to be received among the holders of fixed charges. Mr. McCulloch indicated that were this not the case, the “landscape” would alter dramatically in relation to the question of whether appropriate value was being received under the Sale Contract for the assets subject to fixed charges, and also as to the Administrators' proposed distribution of the monies to be received among the various holders of fixed charges.


The point can be graphically illustrated by the respective positions of AIB on the one hand, and the Fortress Creditors on the other hand.


AIB has a first fixed charge over the Company's rights in a film called “The Edge of Love” starring Keira Knightley and Sienna Miller. AIB says that there are clauses in its charge documentation which required its consent to be sought before any assignment of such rights by the Company and that such consent has never been sought or given. AIB has produced a valuation which estimates that the Company's rights in relation to the film might be worth between about US$483,000 and US$982,000. Mr. Haywood submits that if the Sale Contract would operate to transfer the Company's rights to the film to Exodus, then on the basis of the decision of Knox J. in Re ARV Aviation Limited [1989] BCLC 664, the Court should refuse to grant consent under paragraph 71 unless it could at least be satisfied that AIB would be paid approximately what it could expect to receive if it were to exercise its right as fixed chargee to sell the Company's rights to “The Edge of Love” on the open market for itself.


“The Edge of Love” is, however, one of the Disputed Films and was not attributed any value in the evidence filed by Exodus which explained how it formulated its offer for the Company's assets. Moreover, on the premise that the Company disposed of its rights to “The Edge of Love” to Pangea by the Pangea Assignment, the Administrators are not proposing that any part of the consideration payable by Exodus under the Sale Contract should be paid to AIB.


The Fortress Creditors are in a different position. They claim priority under their fixed charges to the majority of the Retained Films which have not been the subject of purported terminations by counterparties. Some value was attributed to such films by Exodus in formulating its...

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