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What was the registrar’s consideration of a second adjournment of a petition, pending the outcome of a liquidation process in Aabar Block SARL v Maud? John Alderton, partner and Jon Chesman, associate, at Squire Patton Boggs who acted for the respondent, examine the details.
Aabar Block SARL an another v Maud  EWHC 3681 (Ch),  All ER (D) 233 (Dec)
The Bankruptcy Court granted a debtor’s application for a second adjournment to the hearing of a petition for him to be adjudged bankrupt where an immediate bankruptcy order would not—on the balance of probabilities—benefit the general unsecured creditors at the present point in time. Nor would it in circumstances where a liquidation plan in Spanish proceedings could result in the debtor being able to meet all creditor claims and where it was held that the petitioners had had an ulterior object in pursuing the petition.
This was the second hearing of the bankruptcy petition presented by Aabar Block SARL and Edgeworth Capital (Luxembourg) SARL against Glenn Maud, a commercial property investor. Mr Maud’s sole asset—in the context of the size of the petition debt—is his interest in a group of companies that holds a significant piece of commercial real estate in Spain (Santander’s finance city in Madrid which is conservatively valued at €3bn). The group entered into Spanish insolvency proceedings and the court-supervised process of liquidating or refinancing the group’s assets was underway.
At the first hearing of the petition on 7 July 2015, Mr Maud successfully applied to adjourn the petition, pending the outcome of the liquidation process in Spain. Mr Maud argued that the liquidation process should be allowed to run its course prior to any bankruptcy order being made. He argued that, in the event that the group was successfully refinanced, he stood to realise his equity in the real estate asset which would enable him to repay all of his creditors in full. He also argued that, in pursuing his bankruptcy, the petitioning creditors were seeking to obtain the real estate asset at a discount by taking advantage of pre-emption provisions in the finance structure of the group. Mr Maud had previously unsuccessfully applied to set aside the statutory demand that underlies the petition on the basis that the petitioning creditors were bringing it for a collateral purpose.
At the second hearing, Mr Maud made a further application to adjourn the petition. The application was opposed by the petitioning creditors, who sought an immediate bankruptcy order.
Mr Maud continued his arguments from the first hearing—ie that the petition should be adjourned to await the outcome of the Spanish liquidation process—given that one of the potential outcomes of that process was that Mr Maud would realise enough equity to repay his creditors.
Conversely, if a bankruptcy order was made, Mr Maud would be unable to realise that interest, meaning his bankruptcy estate would be detrimentally impacted and his unsecured creditors would be highly unlikely to be repaid anything and almost certainly not in full.
Mr Maud also advanced that the petitioning creditors were not pursuing the petition for the benefit of the creditors as a whole—they were instead pursuing it for their own commercial objectives that would prejudice Mr Maud’s other creditors—and a substantial body of Mr Maud’s creditors opposed the making of a bankruptcy order for those reasons.
The petitioning creditors argued that:
The issue was therefore whether, in exercising his discretion, the registrar should make a bankruptcy order or adjourn the petition.
The registrar adjourned the petition until 14 April 2016. The registrar highlighted the distinction between a collateral purpose and an ulterior object:
The registrar held that the inquiry as to ulterior motive can continue at the hearing of a petition, even where—as in this case—a judge had previously held at the statutory demand set aside stage that the petition was not brought for a collateral purpose. The reason for doing so was that additional evidence may have come to light in the intervening period between the statutory demand set aside stage and the hearing of the petition.
The registrar held that, on the facts, the petitioners had an ulterior object in bringing the petition and as such, the burden of proof shifted to them to show that on the balance of probabilities an immediate bankruptcy order was required in the interests of the general class of creditors, or was otherwise necessary.
On the facts, the petitioners had not satisfied that burden. The registrar held that the creditors (including the petitioners) had a reasonable prospect of being paid in full pending the outcome of the Spanish liquidation process. The registrar also found that, on the facts, there was no requirement for an urgent and independent investigation of Mr Maud’s assets and income.
The judgment assists with drawing the distinction between collateral purpose and ulterior motive and the continuing enquiry as to ulterior motive that the court can consider at each hearing of the petition. The judgment also assists in highlighting that the decision of whether to make a bankruptcy order or to grant an adjournment is necessarily fact sensitive in each case, and while previous authorities may assist a registrar, they do not alter the fact that the decision is a question of discretion based on the facts.
The case has to be seen within its factual context. While it is common for debtors to request adjournments of petitions in order to allow them time to realise an asset, the two adjournments in this case (totalling nine months) relate to the complexity of realising a very substantial piece of commercial real estate that is the subject of overseas insolvency proceedings. It cannot be seen as wide authority that adjournments of nine months will readily be granted by registrars, but it demonstrates that the court is prepared to be pragmatic when it is clear that a debtor is doing all that he can in order to realise an asset that has a reasonable prospect of putting him in enough funds to repay his creditors.
Interviewed by Diana Bentley.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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