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Privilege Project Finance Ltd v SS Agri Power Ltd (2017)

The High Court recently considered the circumstances in which the appointing creditor’s existing relationship with proposed Administrators could be considered a ‘perceived bias’.

In this case, the lender had no floating charge to appoint Administrators over the company, which had defaulted on its debt to the lender. By the time the Administration application was to be heard, the company had conceded insolvency and the need to appoint Administrators. They objected to the lender’s choice of Administrators, however.

They alleged a pre-existing close relationship between the lender and the firm of IPs; the lender had engaged the firm in other cases, and the firm had advised the lender in relation to the debtor company prior to the Administration application being made. They had also liaised closely with an LPA Receiver appointed by the lender.

The company considered that this constituted grounds to reject the appointment for the following reasons:

  1. The Administration would be likely to involve close scrutiny of potential claims that the company might have against the lender in relation to the finance advanced
  2. The lender had previously expressed an interest in acquiring the company’s assets

No actual bias was alleged. The company claimed that the above factors gave rise to a ‘perception’ of a lack of independence, which justified independent Administrators being appointed which had no previous involvement with either the lender or the company.

The judge summarised the principles that have emerged from a number of previous decisions where one stakeholder or another had proposed alternative Administrators to those proposed by the creditor making the application.

  1. The company itself will not usually have a legitimate interest in the identitiy of the Administrators, unless the company is to be rescued as a going concern
  2.  The creditor’s nominee will usually prevail if there is a contest between that of the directors and the creditor
  3. There is a public interest in officeholders both being perceived to be and acting in the best interests of creditors generally
  4. Will the appointment result in proper operation of the Administration?
  5. It is not generally a consideration that there is a pre-appointment relationship; the officeholder is required to be impartial by statute

The prior relationship with the proposed Administrators and the lender was held to be within the “run of relationships one encounters when commercial lenders seek administration orders”. The judge also held that it was proper that the proposed Administrator take steps to investigate the company’s situation prior to any appointment.

The judge considered the potential claims by the company against the secured creditor to be dubious, and to be viewed with scepticism. The secured creditor would still be the largest creditor even if the claims could be proven.

The judge was also of the opinion that the Administrators were more than capable of securing the best price for the company’s assets, notwithstanding their relationship with the lender as a potential bidder.

This decision is a reassuring one in that it shows the respect of the courts to the integrity of insolvency practitioners and will also give lenders confidence that they can choose their own officeholders, despite potential pre-existing relationships between the two

Posted: 01.03.2018
Tags:  newsletter

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