Joint administrators of Station Properties, petitioners
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2013] CSOH 120 |
| Year | 2013 |
| Date | 12 July 2013 |
| Docket Number | P394/13 |
| Published date | 12 July 2013 |
| Court | Court of Session (Outer House) |
| OUTER HOUSE, COURT OF SESSION | |
| [2013] CSOH 120 | |
| P394/13 | OPINION OF LORD HODGE in the petition of BLAIR C NIMMO AND GARY S FRASER, JOINT ADMINISTRATORS OF STATION PROPERTIES (in administration) for directions Petitioners; ________________ |
Petitioners: Sellar QC; Dundas & Wilson CS LLP
Station Properties Ltd: Summers QC; DWF Biggart Baillie LLP
Dunedin Building Co Ltd: Ower; Pinsent Masons LLP
12 July 2013
[1] This is an application by the joint administrators of Station Properties Ltd ("SPL") for directions in relation to the administrators' exercise of their power under para 80 of Schedule B1 to the Insolvency Act 1986 ("Schedule B1") to bring to an end an administration where its purpose had been achieved.
[2] The administrators were appointed by the directors of SPL under para 22 of Schedule B1 on 22 April 2010. SPL owned properties at Advocates' Close, Edinburgh, which it sought to develop. It also owned and rented out retail premises at 48 George IV Bridge, Edinburgh and a hotel at 9-13 Market Street, Edinburgh. SPL encountered financial difficulties in its development of a retail unit and flats at Advocates Close. At the date of the administration SPL owed Clydesdale Bank plc ("the bank") about £7.8 million, which was secured by a first ranking floating charge and standard securities over its heritable properties.
[3] Dunedin Building Co Ltd ("DB") carried out construction work for SPL on the Advocates Close development. DB claimed £491,414 on a quantum meruit basis for its work on that development in addition to the sums which SPL had paid it. SPL contested DB's entitlement to any further sums. DB therefore raised legal proceedings in July 2008 and obtained an inhibition on the dependence of its action. In July 2008 Lord Glennie remitted to Mr John Hunter BSc, FRCS to provide an expert report on DB's claim. In April 2010 Mr Hunter produced a draft report. On the basis of the draft report and also advice from their solicitors, the administrators aver that the principal sum which may be due by SPL to DB is about £20,000. DB contests that assessment and asserts that its claim is worth in excess of £400,000.
[4] At the outset of the administration the objective which the administrators undertook, and which they advanced in their proposals to SPL's creditors, was that of para 3(1)(c) of Schedule B1, namely "realising property in order to make a distribution to one or more secured or preferential creditors". In their statement of proposals to creditors under para 49 of Schedule B1 dated 14 June 2010, the administrators referred to the three objectives set out in para 3 of Schedule B1 and stated:
"It is considered that the protection of administration would allow the assets of the company to be realised in order to make a distribution to the secured creditors. Consequently, the primary objective of the administration is objective (c).
Dependent on the level of realisations from the company's assets and the outcome of the legal actions, it is possible that the company could be solvent. In that case it may be possible to rescue the company as a going concern. However, this is currently uncertain and has not therefore been set as the objective of the administration."
At the initial meeting of creditors on 20 June 2010 the creditors approved the administrators' proposals.
[5] In subsequent progress reports until that of 23 May 2013, the administrators reported in varied verbal formulations that they proposed that all creditors should receive full repayment of their debt before the administration would end. The administrators stated that either (i) the directors would obtain funding to enable the administrators to pay off the creditors and thereafter the company would return to their control or (ii) the administrators would pay creditors out of the sale of the company's remaining properties.
[6] The administrators sold the properties which comprised the Advocates Close development in 2011 for approximately £7.8 million. The free proceeds of that sale and the proceeds of other securities have reduced the sums due to the bank to approximately £157,000. Other than DB, which Mr Sellar initially submitted was not a creditor but eventually recognised as a creditor, the amount of whose debt had not yet been ascertained, there are only six unsecured creditors of SPL. The aggregate of the sums due to those six creditors is £127,368.77 and there is also due statutory interest of £59,704. DB has lodged a statement of claim in the administration for £426,691 93 and judicial expenses. The total costs of the administration exceed £700,000.
[7] The administrators aver, based on valuations by Jones Lang LaSalle in July 2011, that the estimated value of SPL's two remaining properties at 48 George IV Bridge and 9-13 Market Street, Edinburgh is £2,285,000. The retail unit is let at an annual rental of £17,160 and the hotel at an annual rental of £210,000.
[8] After discussions with the directors of SPL, the administrators are considering bringing to an end their appointment. In their progress report dated 23 May 2013, which post-dated the presentation of this petition, they explained to creditors that they had discussed the possibility that the directors would secure funding to allow SPL:
"to repay its agreed creditors in full, have sufficient assets to meet disputed creditor claims in full, exit administration and continue as a going concern. The directors have been offered funding which would allow the company to achieve these aims."
The administrators informed creditors that the amount due to DB had not yet been determined and that they intended that the legal action would continue once SPL had "exited administration". They continued:
"In the meantime, the Joint Administrators are liaising with Dunedin to re-engage with John Hunter of Hunter Consulting, an independent expert, to attempt to progress the determination of the sums due to Dunedin.
If the company is unable to exit administration, the Joint Administrators will most likely require to continue with the Dunedin action and then sell part or all of the remaining assets in order to settle creditors' claims."
[9] DB objects to the administrators' new proposals. It is concerned from past dealings with SPL and in particular its director and principal shareholder, Mr Angelis, that, if SPL reverts to the control of its directors, steps will be taken to obstruct the payment of sums found due to it. Ms Ower argues that it is appropriate that the administrators should adjudicate upon DB's claim after Mr Hunter determines what is due. DB's directors and the administrators have bound DB and SPL to abide by Mr Hunter's expert determination of the quantum meruit claim. Under an agreed timetable, he is due to make that determination in the week commencing 7 October 2013. Ms Ower submits that until then and until the administrators adjudicate on DB's claim, they should not bring their appointment to an end.
[10] It is not clear how the directors of SPL are to obtain funding to pay off the bank when SPL's two remaining properties are affected by DB's inhibition. If the bank is paid off, those properties will be unencumbered, except by the effect of that inhibition. Mr Sellar submitted that the continuance of the administration harmed SPL's ability to obtain funding. But Mr Summers for SPL did not found on that consideration. He relied on the continuing high cost of administration as the reason why it was important to end the administration as soon as possible. As the administrators' information about SPL's efforts to obtain funding is likely to have come from SPL and SPL does not support their assertion, I infer that the continuing administration is not the principal obstacle to the directors' attempts to obtain funds.
[11] The administrators founded on Mr Hunter's draft report of April 2010 in support of their provisional assessment of the value of DB's claim. But Ms Ower intimated to the court that DB was to challenge what it contended were errors in that report in its submissions to Mr Hunter under the joint remit of 14 June 2013. Those submissions are due to be produced in late August and early September 2013.
The sought directions
[12] The administrators seek...
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