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Jamie Riley, barrister at Littleton Chambers, considers the practical implications of the judgment in Promontoria, which underlines the importance of consulting with secured creditors and the need to obtain reliable evidence of the value of the security assets in assessing whether control of the assets is necessary to achieve the purpose of the administration.
Promontoria (Chestnut) Ltd v Craig and another  EWHC 2405 (Ch)
The practical implications are primarily for administrators of insolvent companies, particularly those appointed by directors.
The decision in this case underlines the importance of consulting with secured creditors and the need to obtain reliable evidence of the value of the security assets in assessing whether control of the assets is necessary to achieve the purpose of the administration. The decision also reaffirms the need for administrators to maintain an independent and objective approach, and not allow their appointment to be used as a pawn in a dispute between the company and its creditors.
The applicant, Promontoria, had acquired the benefit of the rights and remedies of the bank pursuant to an assignment in respect of the bank’s entire property finance portfolio. The rights assigned included the facilities advanced to the Isaacs Partnership and the associated security, primarily mortgages over the partnership’s investment properties.
Promontoria subsequently made demand for repayment under the terms of the facilities and the mortgages following the partnership’s continuing default in providing accounting and valuation information for the property portfolio. When the partnership did not satisfy the demand for repayment, Promontoria appointed receivers over the properties.
In response, the partners appointed the respondent administrators on the basis of a valuation report that they had obtain indicating that there would be a significant surplus for unsecured creditors after satisfaction of the mortgages. Immediately on their appointment, the administrators requested the receivers to vacate office pursuant to paragraph 41(2) of Schedule B1 to the Insolvency Act 1986 (IA 1986). Pursuant to the rule in that paragraph, the receivers were required to step down once requested by the administrators to do so.
The administrators also appointed a property agency business operated by one of the partners to manage the portfolio and collect rental income, but for a percentage commission which was significantly in excess of the fees which the agents appointed by the receivers had charged. Before submitting their proposals to creditors, the administrators obtained their own, independent valuation of the property portfolio. However, this valuation
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Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.
Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.
Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.
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