Rohl v Bickland Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann |
| Judgment Date | 22 March 2012 |
| Neutral Citation | [2012] EWHC 706 (Ch) |
| Docket Number | Case No: 7901 OF 2011 |
| Court | Chancery Division |
| Date | 22 March 2012 |
[2012] EWHC 706 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane, London EC4A 1NL
Mr Justice Mann
Case No: 7901 OF 2011
In the Matter of Bickland Limited and In the Matter of the Insolvency Act 1986
David Peters (instructed by Charles Russell LLP) for the Applicant
James Barker (instructed by Wedlake Bell) for the Respondent
Hearing date: 6 th March 2012
Introduction
This is the restored application for an administration order which comes back before me on the question of the costs of that application. On 12 th October 2011, at the invitation of the applicant, I dismissed the application for the appointment of an administrator by the Court because there had been an out of court appointment by a floating charge holder. The costs application could not be dealt with in the time, and on the materials available, so I adjourned that particular aspect to be heard on a date to be fixed. It has now been restored, and comes back before me.
The basic facts
The business of the company was running restaurants, and in particular Japanese restaurants. The two shareholders/directors were Mr Rohl (the applicant) and Ms Bennett. Unfortunately they fell into some sort of dispute, the details of which do not matter for my purposes.
The business was also in some difficulty. It is common ground that it is insolvent. Mr Rohl instructed accountants, namely Carter Backer Winter, to advise him. The result was a proposal for a pre-pack administration with a sale to Mr Rohl. A pre-pack is an arrangement under which a sale of the company's business is provisionally arranged before an administration, with a view to an appointment of the arranging accountants as administrators and the more or less immediate sale of the business in accordance with those arrangements. They are a now common occurrence, though they have not been without their critics. Mr Rohl's proposal was that he would buy the business for £140,000 plus extra moneys from an earnout at one of the restaurants, though there were foreseeable problems in relation to that because the lessee of that restaurant was Ms Bennett and the earnout would depend on whether it could be established that Ms Bennett held the lease on trust for the company.
Clydesdale Bank had a floating charge. It is not clear what, if any, contacts there were with Clydesdale about all this before the application was made to this Court. Whatever that position may be, Mr Rohl applied to this Court for an administration order on 9 th September 2011, claiming to be a creditor of the company. No issue has been taken as to his status in that respect.
Notice was given to Clydesdale Bank. Nothing was heard from them until 3 rd October 2011, which was two days before the proposed hearing of the administration application, when Clydesdale indicated that their charge had been satisfied. Very shortly afterwards it was revealed that it had been paid up by Ms Bennett who took an assignment of the charge. She was a guarantor of the bank's debt; that may or may not have been why she apparently paid off the bank. On 4 th October she appointed administrators under the floating charge contained in that charge. Mr Rohl was informed of this on 5 th October just before the hearing of the administration application. It came before David Richards J on that day, and he adjourned it for a week so Mr Rohl could consider his position. Having done so it was restored to me on 19 th October, and Mr Rohl accepted that the appointment of administrators out of court by a floating charge holder, which he was not challenging, meant that he could not pursue his own application for an appointment. In those circumstances the application before me was not pursued and I made no order on that part of it which sought the appointment of an administrator.
However, Mr Rohl made an application that he be paid his costs of the administration application as an expense of the administration. That application was opposed, and it is that aspect of the matter which I adjourned.
The basic financial position in the administration is not promising. The administrators have arranged their own sale of the business, which has not yet been completed. Their sale price is also £140,000, but it is not clear that they have got the equivalent of the earnout provision that Mr Rohl was prepared to submit himself to. A sale will require very significant arrears of rent to be paid to a landlord of one of the premises. As well as the floating charge there is a fixed charge over certain of the assets. That charge will have to be paid first out of the net proceeds of sale (after the landlord has been paid off). If all that happens then it is likely that there will be enough to pay the landlord and to pay off the fixed charge, or some of it. But there will probably not be enough to pay all the fixed charge realisation costs. There have also been some floating charge realisations, which will be available for the payment of general administration expenses (irrespective of the position regarding the fixed charge) but it is clear that there will be a significant shortfall even ignoring Mr Rohl's claim for costs. In the circumstances, and since Mr Rohl does not claim a degree of priority in the administration in respect of his costs which would outrank the fixed charge repayment and costs, his application that he be paid his costs in the administration seems somewhat academic. However, that was not apparent as at the date when he made his application and when it came before me, and the costs point has now been restored. The costs of that exercise have been incurred, and Mr Rohl is anxious that the point should be resolved in any event. Whether this is on a "just in case basis" or not I do not know.
There is, however, one point that I declined to deal with. As well as the costs of the administration application, Mr Rohl also claims his pre-administration costs (in the form of fees paid to CBW in respect of the pre-pack) as an expense of the administration too. These are likely to be even more academic than the costs of the administration application, and in the end the parties did not press me to deal with them. They have hitherto been somewhat muddled up with the costs of the administration application, not least because of the way that figures have been presented by Mr Rohl.
In the circumstances, the hearing before me related to the costs of the administration application only. They were put in the region of £15–20,000, depending on the treatment of certain accountancy costs. I am not concerned with quantum; I am concerned only with principle.
At the hearing before me Mr Rohl was represented by Mr David Peters. The technical respondent to the application was the company, which was not represented. Ms Bennett might also have appeared as a charge holder who might be affected, but she did not appear either. Solicitors acting for her sent a letter which focussed more on the pre-administration costs point than on the costs of the administration application itself. It did not assist me on the points which were taken. The case against Mr Rohl having his costs was advanced by the administrators, who represent the interests of creditors, and doubtless of themselves so far as any result favourable to Mr Rohl might impact on whether they themselves recover any remuneration. Mr James Barker represented them.
The issues on this application
The issues arising out of this application are threefold:
a) Is there jurisdiction to order the costs of an administration application when an administration order is not made to be costs in an out of court administration?
b) If so, what determines the level of priority given to those costs?
c) So far as there is jurisdiction to do so, should the discretion be exercised in favour of Mr Rohl in this case?
Jurisdiction
Mr Peters points to the Insolvency Act 1986 Schedule B1, paragraph 13(1)(f) as being wide enough to give the court jurisdiction to make the order that his client seeks. The whole rule reads:
"13(1). On hearing an administration application the court may –
(a) make the administration order sought;
(b) dismiss the application;
(c) adjourn the hearing conditionally or unconditionally;
(d) make an interim order;
(e) treat the application as a winding-up petition and make any order which the court could make under section 125;
(f) make any other order which the court thinks appropriate."
He accepts that there are no authorities precisely in point, but relies on inferences to be drawn from, and extensions from, three cases referred to below. He also points to anomalies which arise if Mr Rohl is not entitled to his costs. If this had been a winding-up petition which was dismissed on the making of an administration order, the petitioner would be entitled to ask for his costs – see Irish Reel Productions v Capital Films Limited [2010] EWHC 180 (Ch). If a floating charge holder, instead of appointing out of court under Schedule B1 paragraph 14, seeks to intervene in an existing administration application under paragraph 36(1) in order to have his own nominee appointed as administrator, the court may give the applicant for the order his costs under Insolvency Rules Rule 2.10(2). If the court did not have jurisdiction to give Mr Rohl his costs in the present circumstances, where the appointment was out of court, then that would be strange to the point of anomalous. The court ought to have jurisdiction, and paragraph 13(1)(f) provides the route.
If the costs are awarded, then they somehow have to be slotted into the system of priorities for expenses of the administration provided by Insolvency Rules Rule 2.67. None of the...
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