Selling assets subject to fixed charge security

Selling assets subject to fixed charge security

How will the court approach determining whether assets subject to fixed charge security can be sold in the context of an insolvency? Chris Laughton, a restructuring and insolvency partner at Mercer & Hole, examines what a recent Court of Appeal decision could mean for lawyers and their clients.

Original news

Rollings (as Joint Administrators of Musion Systems Ltd) v O’Connell [2014] EWCA Civ 639, [2014] All ER (D) 210 (May)

The defendant appealed against the judge’s order that the claimant administrators be permitted to sell the assets of a company, which were subject to a fixed charge security held by the defendant, as if they were not subject to that security. The Court of Appeal, Civil Division, in dismissing the appeal, held that judge had approached the matter correctly, had properly taken into account the matters to which he had been bound to have regard and had come to a conclusion which had fallen well within the bounds of a reasonable exercise of his discretion.

What was the background to the case?

The case was about administrators making an application under the Insolvency Act 1986, Sch B1, para 71 to the court to enable them to sell assets subject to a fixed charge as if they were not subject to that fixed charge. The High Court order that they could do so was appealed, but the appeal was dismissed.

Musion Systems provided holographic illusion services at events. There were three founder directors who seriously fell out and became litigious between 2012 and 2013. One of the founder directors was removed by the others and he precipitated the company’s insolvency by having a related company, which he controlled, present a winding up petition in early July 2013. Another of the directors sought to appoint administrators on 23 July 2013 by powers contained within a debenture. The removed director, who was party to that debenture, objected and the administrators were discharged and reappointed by the High Court. They were reappointed with effect from 23 July 2013. Two additional administrators (I was one of them) were appointed on 9 August 2013. The reason for the additional administrators was to have somebody acceptable to all parties. The situation was one of extreme antagonism. I have never seen such hostility in my 30 years in insolvency.

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