Thomas & Anor v Frogmore Real Estate Partners GP1 Ltd & Ors [2017] EWHC 25 (Ch)

[2017] EWHC 25 (Ch)Case Nos: 7232, 7233 AND 7234 OF 2016
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF FREP (KNOWLE) LIMITED (in administration)
IN THE MATTER OF FREP (ELLESMERE PORT) LIMITED (in administration)
IN THE MATTER OF FREP (BELLE VALE) LIMITED (in administration)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Venue Royal Courts of JusticeDate Tuesday 17 th January 2017
Strand. London. WC2A 2LL
Before
MR PHILIP MARSHALL QC(sitting as a Deputy Judge of the High Court)
Between
(1) SIMON ROBERT THOMASApplicants(2) ARRON KENDALLApplicant(1) FROGMORE REAL ESTATE PARTNERS GP1 LIMITEDRespondents(2) LINDA NICHOLRespondent(3) CHARLES SPARYRespondent(4) STUART JENKINRespondent(5) NATIONWIDE BUILDING SOCIETYRespondent(1) SIMON ROBERT THOMASRespondents(2) ARRON KENDALLRespondent(3) NATIONWIDE BUILDING SOCIETYRespondent
Marcia Shekerdemian QC and James Goodwin (instructed by IBB Law) for Cross-applicantsDavid Allison QC and Ryan Perkins (instructed by Alien&Overy LLP) for Nationwide Building SocietyRichard Perkoff (instructed by Gateley PLC) for Applicant AdministratorsHearing Hearing dates: 19 th, 20 th and 21 st December 2017JUDGMENTMr Philip Marshall QC:A INTRODUCTION
[1]The court has before it six applications in related administrations but collectively they raise only two issues. The first is as to whether the centre of main interests (“COMI”) of the relevant companies in administration is England and Wales so that the conditions for appointment of the administrators in paragraph 14 of Schedule B1 of the Insolvency Act 1986 were satisfied. The second concerns whether the court should exercise its discretion under paragraph 81 of the same Schedule to the 1986 Act to order that the appointment of the administrators should cease to have effect.[2]There are three relevant companies: FREP (Knowle) Limited. FREP (Ellesmere Port) Limited and FREP (Belle Vale) Limited (the “Companies”) all of which were incorporated in and have their registered office in Jersey. The Companies form part of Frogmore group (of which the ultimate parent is Frogmore Property Company Limited). The Frogmore group specialises in real estate investment and management in the United Kingdom and each of the Companies owns a shopping centre located at Ellesmere Port in Cheshire, Belle Vale in Liverpool and Knowle in Bristol respectively (“the Shopping Centres”). It is common ground that each of these shopping centres is managed by Frogmore Real Estate Investment Managers Limited (“FREPIM”), a company formed in England and Wales with its registered office and base for operations at 11-15 Wigmore Street, London.[3]The joint administrators of the Companies are the same in each case namely, Mr Simon Thomas and Mr Arron Kendall (the “Administrators”), licensed insolvency practitioners of Moorfields Corporate Recovery Limited. They were appointed on 7 November 2016 by Nationwide Building Society (“Nationwide”) under floating charges granted in its favour following the failure of the Companies to repay outstanding loans by 3 October 2016.[4]Of the six applications, three (one in respect of each company) were issued by the Administrators on 18 November 2016 seeking a declaration as to the location of the Companies’ COMI and the validity of their appointments. The remaining applications or cross-applications (one for each company) were issued on 25 November 2016. They are brought by the sole shareholder of the Companies, namely Frogmore Real Estate Partners GP1 Limited (it would appear as the general partner of Frogmore Real Estate Partners LP) (the “Shareholder”) and the Companies’ three directors (who are the same in each case): Linda Nichol, Charles Spary and Stuart Jenkin (the “Directors”). The Shareholder, which is also a creditor of each company and holds a debenture, seeks an order under paragraph 81 of the 1986 Act terminating the Administrators’ appointment on the basis of an alleged improper motive on the part of Nationwide. In addition both the Shareholders and Directors seek a declaration that the Companies’ COMI is in Jersey and that the appointment of the Administrators is invalid for this reason. On 25 November 2016, Mr Justice Norris ordered that all of the applications be determined together on an expedited basis. B BACKGROUND The Companies

B BACKGROUND

[5]As Mr Andrew Rogers, the Group Treasurer of Frogmore, accepted in evidence, the Companies are special purpose vehicles, formed for the acquisition of the Shopping Centres. They are registered as “non-resident landlords” with HM Revenue and Customs and their bank accounts are in Jersey. However, they do not carry on any trading operations in Jersey and have no employees of their own. Their principal assets (namely the Shopping Centres) are situated in England.[6]Each of the Companies has a registered office situated at Windward House, La Route de la Liberation, St. Helier, Jersey, JE4 8SR, the address of STM Fiduciare Secretaries Limited (“STM”). STM provides offshore corporate administration and management services, including company secretary services and the provision of professional service directors. Of the three Directors Ms. Nicol is the managing director of STM, and, according to the Administrators, Mr Spary is its operations manager. The third Director, Mr Jenkin, resides in England. Mr Jenkin is also a director of FREPIM which describes itself as a leading real estate fund manager.[7]The Shareholder is an English company. According to the evidence of Mr Andrew Olins, its solicitor, it is a creditor of each of the Companies for an aggregate sum of £70,504,723 and also holds a debenture over each them which provides it with security ranking behind that of Nationwide.[8]Pursuant to an Investment and Asset Adviser’s Agreement between the Shareholder and FREPIM dated 18 May 2006(the “Advisory Agreement”), FREPIM was appointed to provide a very wide range of services to “Adhering Portfolio Vehicles” in respect of certain investments which included: formulating and recommending a business plan and investment strategy; advising on asset purchasing, property sales, asset development and management, lettings, surrenders and terminations of leases and borrowing; dealing with financial reporting and accounts; preparing valuations; implementing marketing strategy; and providing general business advice. According to the evidence of Mr Rogers, the Companies received the benefit of such services from FREPIM and I therefore infer that they were each “Adhering Portfolio Vehicles”.

Nationwide

[9]Nationwide advanced substantial sums to the Companies under a facility agreement that has been amended and restated from time to time, most recently on 5 April 2012 (the “Facility Agreement”). As at 1 October 2016, the Companies owed £106,276,190 to Nationwide under this facility which, under the terms of the Facility Agreement, they were required to repay in full on that date.[10]Security in respect of this loan was provided by the Companies by a combination of debentures dated 18 December 2006 and 1 May 2009 (the “Nationwide Debentures”). The Nationwide Debentures are very similar in structure and content. Pursuant to clause 3.1(d) of the Nationwide Debentures, each of the Companies granted security by way of a floating charge over “its undertaking and other property, assets and rights”.[11]By clause 6.1 of the Nationwide Debentures, Nationwide’s security became enforceable if the loan was declared to be immediately due and payable in accordance with the terms of the Facility Agreement. Clause 7.1(a)(ii) expressly empowered Nationwide to appoint an administrator at any time after its security had become enforceable.[12]Nationwide was therefore the holder of a “qualifying floating charge” within the meaning of paragraph 14 of Schedule B1 to the 1986 Act, and had a legal right to appoint an administrator to each of the Companies by filing a notice of appointment when its floating charge became enforceable subject to any issues over jurisdiction and the question of COMI to which I will return.[13]It is common ground that the amounts owing under the Facility Agreement substantially exceed the value of the security available. Mr Nicholas Spittal, a Chief Manager in Nationwide’s Commercial Division responsible for this lending, has referred to the fact that the Shopping Centres were valued at only £50.8m as of 31 August 2014.

Promontoria

[14]In late 2014 Nationwide decided to dispose of the loans provided under the Facility Agreement as part of a wider sale process known as “Project Carlisle”. Following on from this process, on 28 January 2015, Nationwide entered into a funded participation agreement with Promontoria 118 Holding BV (the “Participation Agreement”) whose rights (according to the evidence of Mr Spittal) were shortly thereafter transferred to Promontoria (Carlisle) Limited (“Promontoria”). Promontoria is a fund advised by Cerberus Capital Management, a private investment firm based in New York.[15]Pursuant to the Participation Agreement, an equivalent amount to any sums received by Nationwide from the Companies in respect of the loans provided under the Facility Agreement (whether by way of payment, the realisation of security, execution or otherwise) was to be remitted to Promontoria. In return for these rights Promontoria paid £70,176,591 to Nationwide.[16]Under clause 6.2 of the Participation Agreement, Nationwide was required to act promptly in accordance with any reasonable directions given by Promontoria in relation to the Facility Agreement and the Nationwide Debentures (subject to certain exceptions). In particular under clause 6.2(b), Nationwide was obliged to discuss with Promontoria any consensual refinancing or restructuring proposal in respect of the amounts outstanding under the Facility Agreement and the Nationwide Debentures. Also, under clause 6.2(d), Nationwide was not to exercise any right, remedy or discretion in relation to the Facility Agreement or the Nationwide Debentures without the prior written consent of Promontoria.

The Frogmore Litigation

[17]The Companies and FREPIM commenced proceedings against Nationwide in the High Court on 16 December 2014 (the “Frogmore Litigation”), after Nationwide notified the Companies that it intended to transfer its economic interest in the loans governed by the Facility Agreement to Promontoria.[18]In brief, as described by Mr Olins, the solicitor for the Shareholder and Directors, in his evidence, the Companies claim that they had a contractual right of pre-emption under a “side letter” provided by Nationwide on 5 April 2012 which gave them an entitlement to purchase the loans advanced under the Facility Agreement. They allege that Nationwide was obliged to offer to sell its interest in those loans to the Companies at a price not exceeding the “open market value” of Nationwide’s interest. It is claimed that this obligation was triggered by the notification of transfer to Promontoria and that Nationwide acted in breach by only offering the loans for purchase at a price that was above market value and which was extravagantly high and/or not arrived at bona fide. The price offered was the same as that offered by Promontoria but it is claimed that Promontoria allocated a larger proportion of the overall consideration that it provided for a range of Nationwide loans to those governed by the Facility Agreement so as to defeat the Companies' pre-emption rights.[19]Nationwide has strongly refuted the claims made by the Companies and FREPIM, and is actively defending the Frogmore Litigation. Among other things, Nationwide does not accept that any pre-emption right has been triggered and in any event contends that the Promontoria price represented the open market value of the relevant loans. The trial window opens on 23 January 2017

The appointment of the Administrators

[20]On 22 June 2016 Mr Olins on behalf of the Companies sent an email to Nationwide’s solicitors, Allen & Overy LLP, requesting that the repayment date for the loans under the Facility Agreement be deferred for a year until 1 October 2017. On 26 July 2016 that request was declined.[21]On 11 August 2016 and again on 3 October 2016 the Companies contended in correspondence that it would be inappropriate for Nationwide to take enforcement action in respect of the loans, suggested an injunction might be sought to prevent such enforcement and asserted a lack of entitlement to repayment pending the trial of the Frogmore Litigation. On 3 October 2016 the Companies failed to repay. This constituted an event of default under clause 22.1 of the Facility Agreement, By clause 22.19 of the Facility Agreement, Nationwide was empowered to declare the loans to be immediately due and payable.[22]On 25 October 2016, Promontoria directed Nationwide to send a letter to the Companies declaring the loans to be immediately due and payable under clause 22.19 of the Facility Agreement. Promontoria also instructed Nationwide to offer a 6-month extension to the maturity of the loans. The terms of this offer of an extension of time to repay required the Companies to pay a fee of £75,000 and to pay increased interest at the default rate prescribed by the Facility Agreement.[23]Nationwide’s solicitors wrote to the Companies on the same day (25 October 2016) in accordance with Promontoria’s instructions. By virtue of the letters of demand, the floating charge under the Nationwide Debenture became enforceable.[24]The offer of an extension of time was open for acceptance until 5pm on Tuesday, 1 November 2016. This deadline was later extended until 5pm on Friday, 4 November 2016. Following further correspondence between the parties, it became clear that the Companies would not accept the offer on the terms proposed within the required timeframe and sought further time.[25]On Monday, 7 November 2016, Nationwide appointed the Administrators by filing a notice of appointment at court.

C THE ISSUES

[26]I will first address the issue of jurisdiction, which focusses on the COMI of the Companies. Logically this precedes the Issues raised under paragraph 81 of Schedule B1 of the 1986 Act. These can only arise where administrators have been properly appointed under the Act. (1). COMI[27]Paragraph 14 of Schedule B1 of the Insolvency Act sets out the conditions for appointment of administrators and reads: “The holder of a qualifying floating charge in respect of the company's property may appoint an administrator of the company[28]The term "company ” is defined by paragraph 111(1 A) of Schedule B1 to include a company registered under the Companies Act 2006 in England and Wales or Scotland or incorporated in an EEA state other than the United Kingdom or which has “its centre of main interests in a member state other than Denmark29. Paragraph 111(1B) of Schedule B1 deals with the concept of COMI. It reads; “In sub- paragraph (1A), in relation to a company, ‘centre of main interests' has the same meaning as in the EC regulation and, in the absence of proof to the contrary, is presumed to be the place of its registered office (within the meaning of that Regulation).” The EC Regulation referred to is Council Regulation 1346/2000/EC.30. Article 3(1) of the EC Regulations provides: “The courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary[31]In the light of these provisions it was common ground between the parties that for the Administrators to be validly appointed in this case and to permit the opening of the insolvency proceedings in this jurisdiction, the Companies had to have their COMI in England and Wales. There were no other routes by which the appointment could be justified (the Companies were not registered in England and Wales or Scotland, were not incorporated in an EEA state and the only potential member state in which they had their COMI was England and Wales). This analysis follows that adopted by Mr Justice Mann in Mackellar v Griffin [2014] EWHC 2644 (Ch).[32]It was also common ground that paragraph 111(1B) of Schedule B1 and Article 3 of the Regulation created a rebuttable presumption that the registered office of a company would be its COMI.[33]Guidance on what might rebut the presumption can be derived first from the Recitals to the EC Regulation and from the European Court of Justice decisions in Re EurofoodIFSC Ltd (Case 341/04) [2006] Ch 508 and Interedil Srl v Fallimento Interedil Srl (Case C-396/09) [2012] Bus LR 1582.[34]Recital (13) of the EC Regulation states that:
“The ‘centre of main interests’ should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. ” 35. In Re Eurofood , the European Court of Justice explained the COMI concept, by reference to the recital (13), in the following terms: “[31] The concept of the centre of main interests is peculiar to the Regulation. Therefore, it has an autonomous meaning and must therefore be interpreted in a uniform way, independently of national legislation. [32] The scope of that concept is highlighted by the thirteenth recital in the Preamble to the Regulation, which states: ‘The “centre of main interests” should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. ’ [33] That definition shows that the centre of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties. That objectivity and that possibility of ascertainment by third parties are necessary in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open main insolvency proceedings. That legal certainty and that foreseeability are all the more important in that, in accordance with article 4(1) of the Regulation, determination of the court with jurisdiction entails determination of the law which is to apply. [34] It follows that, in determining the centre of the main interests of a debtor company, the simple presumption laid down by the Community legislature in favour of the registered office of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect. [35] That could be so in particular in the case of a ‘letterbox’ company not carrying out any business in the territory of the member state in which its registered office is situated. ”
[36]In Interedil the Court developed this further (after referring to Eurofood) it explained:
“[49] ... the centre of a debtor’s main interests must be identified by reference to criteria that are both objective and ascertainable by third parties, in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open the main insolvency proceedings. That requirement for objectivity and that possibility of ascertainment by third parties may be considered to be met where the material factors taken into account for the purpose of establishing the place in which the debtor company conducts the administration of its interests on a regular basis have been made public or, at the very least, made sufficiently accessible to enable third parties, that is to say in particular the company’s creditors, to be aware of them. [50] It follows that, where the bodies responsible for the management and supervision of a company are in the same place as its registered office and the management decisions of the company are taken, in a manner that is ascertainable by third parties, in that place, the presumption in the second sentence of article 3(1) of the Regulation that the centre of the company’s main interests is located in that place is wholly applicable. In such a case, as the Advocate General observed at point 69 of her opinion, it is not possible that the centre of the debtor company’s main interests is located elsewhere. [51] The presumption in the second sentence of article 3(1) of the Regulation may be rebutted, however, where, from the viewpoint of third parties, the place in which a company‘s central administration is located is not the same as that of its registered office. As the court held in In re Eurofood IFSC (Case C- 341/04) [2006] Ch 508, para 34, the simple presumption laid down by the European Union legislature in favour of the registered office of that company can be rebutted if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect. [52] The factors to be taken into account include, in particular, all the places in which the debtor company pursues economic activities and all those in which it holds assets, in so far as those places are ascertainable by third parties. As the Advocate General observed at point 70 of her opinion, those factors must be assessed in a comprehensive manner, account being taken of the individual circumstances of each particular case. [53] In that context, the location, in a member state other than that in which the registered office is situated, of immovable property owned by the debtor company, in respect of which the company has concluded lease agreements, and the existence in that member state of a contract concluded with a financial institution—circumstances referred to by the referring court—may be regarded as objective factors and, in the light of the fact that they are likely to be matters in the public domain, as factors that are ascertainable by third parties. The fact nevertheless remains that the presence of company assets and the existence of contracts for the financial exploitation of those assets in a member state other than that in which the registered office is situated cannot be regarded as sufficient factors to rebut the presumption laid down by the European Union legislature unless a comprehensive assessment of all the relevant factors makes it possible to establish, in a manner that is ascertainable by third parties, that the company’s actual centre of management and supervision and of the management of its interests is located in that other member state.”
[37]I was referred to some first instance decisions in this jurisdiction which have sought to apply this guidance: the Mackellar decision, Re Northsea Base Investments Ltd [2015] 1 BCLC 539 and Re Stanford International Bank Ltd [2009] BPIR 1157 (affirmed [2011] Ch 33). Although fact specific they illustrate the relative significance of certain factors when considering COMI position and what is needed to rebut the presumption:(1) In Mackellar Mr Justice Mann at [28], after referring to the decision of Mr Justice David Richards in Re ARM Asset Backed Securities S.A. [2013] EWHC 3351 (Ch), accepted that “agents operating in this country and managing head office-type affairs might be material from which it could be inferred that the COMI of the company was in this jurisdiction ” but went on to observe that “it would require the involvement of agents or servants in the sense of those acting for the company to be not just limited commercial activities, but to be the discharge of the sort of functions that one would expect head office to discharge."(2) In Northsea at [19] to [23] Mr Justice Birss placed emphasis on where enquiries and negotiations involving third parties were dealt with and upon where demands for payment and invoices from third parties would be addressed.(3) In Northsea at [25] emphasis was also placed on the point of view of the largest creditors: “I turn now to consider the point of view of banks, who are the largest creditors of the companies. These factors apply not just to the Ship Companies but to all the companies in the group. By far the largest creditors are the syndicate of lenders led by BNP Paribas under two loan facilities which are secured by share pledges over the Ship Companies, guaranteed by both NSBI and Baltic Tankers. The facilities are governed by English law and contain exclusive English jurisdiction clauses. The interest payments to BNP Paribas are always arranged by Marine Cross from the companies' bank accounts. Thus the banks would have dealt with Marine Cross in London in relation to receipt of payments. The two loan agreements also state that Marine Cross is the contact address in respect of the notices to be sent under the facilities and Marine Cross was irrevocably appointed by the Ship Companies as agent for service of process in relation to proceedings under the loan agreements. The individuals with whom the bank dealt mainly in relation to the facilities were Mr Blincow and Mr Kisselev. Both individuals are based in London although I note that at a final meeting on 16 December 2014, Mr Blincow did not attend and the only attendances were by the settlors ”.(4) In Northsea at [27] the court placed little significance on the fact that board meetings were not held in England “as from the point of view of facts ascertainable by a third party, there is no reason why a third party would have any knowledge of the location where directors meetings were held, nor, on the unusual facts of this case, would they regard the directors as being individuals of great significance This appears to follow the same approach as that adopted by Mr Justice Lewison, at first instance, in ReStanford International Bank Ltd at [61] and affirmed in the Court of Appeal at [56] where it was emphasised that simply to look at the place where head office functions are actually carried out, without considering whether the location of those functions was ascertainable by third parties, was the wrong test. They had to be both objective and ascertainable by third parties.[38]The Administrators have provided detailed written evidence regarding the manner in which the business and administration of the Companies was organised and I have heard the oral evidence of Mr Rogers, called on behalf of the Shareholder and Directors, in respect of these matters. In my judgment, the following facts emerge from that evidence that are of particular significance and lead to the clear conclusion that the COMI of each of the Companies is in this jurisdiction:(1) Much as in ARM Asset Backed Securities this is a case in which the day- to-day conduct of the business and activities of the Companies has been in the hands of an agent appointed in England, namely FREPIM. Under the Advisory Agreement (which was itself governed by English law and had an English exclusive jurisdiction clause) FREPIM was to take on full responsibility for providing a very large range of services to the Companies, including day-to-day management of the Shopping Centres and dealing with their financing, accounting, marketing and formulation of their business strategy. Mr Rogers’ evidence showed that these obligations had been fully implemented. He accepted that FREPIM worked on investment strategy and business plans for the Companies; instructed lawyers, surveyors and consultants for them; negotiated the purchase and sale of properties on their behalf; dealt with their borrowing requirements; and attended to the provision of accounting systems and the preparation of management and annual accounts. These actions were not just limited commercial activities but included the types of function that one would expect a head office to discharge.(2) Day to day dealings with third parties are carried out from the offices of FREPIM at Wigmore Street in London. This is confirmed by the evidence of the activity of FREPIM described above but it is also supported by, for example, the Companies’ VAT returns where their business address is stated to be those offices. In their day to day dealings with third parties regarding expenditure these offices are given as the address for invoices, an example being invoices for insurance premiums which are addressed to the Companies care of FREPIM at 11-15 Wigmore Street.(3) If one has regard to the point of view of the largest creditor, Nationwide, the Facility Agreement and the Nationwide Debentures are governed by English law and have an English jurisdiction clause. Under the Facility Agreement the Shareholder is the service agent for the Companies. In the case of the Nationwide Debentures, they have express reference to the power to appoint administrators under the 1986 Act. As Mr Rogers accepted in evidence, from October 2007 he took over the day to day contact with Nationwide as well as providing Nationwide with various pieces of information (such as quarterly compliance packs and accounts for borrowers) and did so from London. He also accepted that the management of the relationship between the Companies and Nationwide had been carried out by himself and the Chairman of the Frogmore group, Mr Paul White, who was also based in London.(4) I also note that under the terms of the debentures securing the advances made by the Shareholder that the governing law is English, there is an English exclusive jurisdiction clause, that FREPIM is appointed the service agent of the Companies and there is express provision for the appointment of administrators under the 1986 Act.[39]In their evidence, both Mr Olins and Mr Rogers placed emphasis on the fact that ultimately decisions were taken at Board meetings and these were held in Jersey. However, as in the North sea case, in my judgment, a third party would not know where each of the Board meetings were taking place and, in this particular case, would not have regarded the individuals who were the directors as of particular significance. I have had regard to all of the various other matters mentioned in Mr Olins witness statements on the topic of COMI, which Mr Rogers adopted in his own witness statement, but they have not persuaded me that the COMI of the Companies was in any other jurisdiction than that of England and Wales. (2). THE CROSS-APPLICATION[40]Paragraph 81 of Schedule B1 of the Insolvency Act provides: “(1) On the application of a creditor of a company the court may provide for the appointment of an administrator of the company to cease to have effect at a specified time. (2) An application under this paragraph must allege an improper motive(a) in the case of an administrator appointed by administration order, on the part of the applicant for the order, or(b) in any other case, on the part of the person who appointed the administrator. (1) On an application under this paragraph the court may - (a) adjourn the hearing conditionally or unconditionally; (b) dismiss the application;(c) make an interim order;(d) make any order it thinks appropriate (whether in addition to, in consequence of or instead of the order applied for)." (a) in the case of an administrator appointed by administration order, on the part of the applicant for the order, or (b) in any other case, on the part of the person who appointed the administrator. (1) On an application under this paragraph the court may - (a) adjourn the hearing conditionally or unconditionally; (b) dismiss the application; (c) make an interim order; (d) make any order it thinks appropriate (whether in addition to, in consequence of or instead of the order applied for)."[41]This provision was introduced as an amendment to the 1986 Act the by the Enterprise Act 2002, Schedule 16, paragraph 1. The researches of counsel (and indeed my own) have produced little in the way of explanation as to what lay behind this amendment. As HH Judge Thornton QC stated in Jackson v Thakrar [2007] EWHC 2173 (TCC) at [807] no guidance is to be found in the material published by the relevant government departments and agencies which sponsored the amendment (principally the White Paper entitled “Insolvency - A Second Chance " published by the Department of Trade and Industry in July 2001 and a paper of the same department following consultation on 14th January 2002, entitled “An update on the Corporate Insolvency Proposals") . Nor is there any debate on the provision recorded in Hansard (perhaps explained by the fact that the Hansard records of the Second Reading of the Enterprise Bill in both Houses reveals that a significantly restricted timetable was placed upon their consideration of the legislation).[42]The only decision in this jurisdiction in which the provision has been reviewed is that of HH Judge Thornton QC but virtually identical legislation has been considered in the High Court of Northern Ireland in Cursitan v Keenan [2011] NICh 23.[43]In Jackson v Thakrar. as part of a very lengthy judgment dealing with a large number of issues, HH Judge Thornton QC ad dressed the question of whether administrators had been appointed by directors over one of the companies in issue for an improper motive and whether the administration should cease under paragraph 81 of Schedule B1 for this reason. Since the court concluded that the necessary statutory preconditions to such an appointment were not satisfied, a decision on the application of paragraph 81 was not in fact strictly necessary. Nevertheless the Judge proceeded, at [808], to deal with the matter on the footing that he should adopt “the approach applicable to any challenge to the exercise by directors of the powers conferred on them generally. This is because no power vested in directors, including the power to appoint administrators may be validly exercised for an improper motive. He then referred to the decision of the Privy Council in Howard Smith v Ampol Petroleum [1974] AC 821 as setting out the correct approach and concluded that in applying it “I must decide whether the primary or substantial motive was improper notwithstanding that the decision to appoint was taken on professional advice and the appointees made a statutory declaration that the intended purpose of rescuing [the company] as a going concern, which was the purpose of appointing administrators for [the company], was likely to be achieved”. He concluded on the facts that the primary or substantial motive was in fact improper because the directors acted at the instigation of another party whose motives did not fall within the statutory purposes of administration.[44]In my judgment, the decision is of limited assistance in the present case. The HowardSmith line of approach is focused upon the fiduciary obligation of directors to exercise the powers conferred upon them (usually by the Articles of Association) for a proper purpose; an obligation now reflected in the Companies Act 2006, section 171. It seems to me inapplicable in the context of the interpretation and application of a statutory provision concerning the appointment of administrators by persons who are not directors and not otherwise exercising a power granted as a result of holding a fiduciary position.[45]In the Cursitan case the court was concerned with the appointment of an administrator by a bank creditor. It was alleged that the bank had been motivated by an improper purpose, namely that of frustrating litigation against the bank and seeking to benefit from certain distribution and control provisions. The legislation under consideration was the Insolvency (Northern Ireland) Order 2005 and in particular Article 82, which, as mentioned above, largely mirrors paragraph 81 of Schedule B1 of the 1986 Act. McCloskey J. concluded that a concession, that the appointment of administrators could be vitiated if motivated by an improper purpose, was rightly made. The court also concluded that a reasonable and objective evaluation of the evidence confirmed that frustrating and obstructing litigation formed part of the bank’s thinking. Nevertheless the administration provisions had been formulated “against a background of commercial realities and permissible commercial tactics of aggression ” and the bank’s motivation and conduct fell to be evaluated accordingly and were unobjectionable. The court also concluded that there was no disharmony between bank’s motivation and conduct and the statutory purpose of administration.[46]At [48] McCloskey J. stated: “This analysis and conclusion may also be reached by a somewhat different route. I have already concluded that the (proposed) Administrator was sufficiently informed to form the requisite statutory opinion. Thus the purpose of the administration was capable of being fulfilled from the outset, in harmony with the statutory regime. It seems to me that this will normally be the main touchstone for the court. In the abstract, it is unclear whether a conclusion and finding of this kind in any case could be undermined by evidence that the appointor was motivated by a purpose incompatible with the statutory objective enshrined in paragraph 4(1). Such a conclusion would not, in my view, follow as a matter of course. Thus, again in the abstract, an aggressive and, indeed, malevolent motivation would not, per se, undermine the (proposed) Administrator's statutory statement of opinion. While I find that there was some hard commercial motivation in the Bank’s conduct in the present case, I am of the opinion that this falls short of either constituting an improper purpose of a sufficiently vitiating nature or leading to the conclusion that the Administrator had insufficient grounds for making his statutory statement of opinion ”.[47]In my judgment, the approach adopted in Cursitan has much to commend it and provides a proper approach to the interpretation and exercise of the discretion granted to the court under paragraph 81 of Schedule B1:(1) It is important to note that the statute does not provide that establishing an improper motive on the part of the appointor of an administrator will ordinarily lead to an order requiring the administration to cease. Rather the legislation requires improper motive on the part of appointor to feature simply for the jurisdiction to be engaged. Thereafter the court has a wide discretion (as reflected in the variety of the forms of relief possible).(2) It also seems to me invidious to attempt to pinpoint precisely what form the motivation must take for the statutory jurisdiction to be invoked. It will be sufficient that there was a motive that is not in harmony with the statutory purpose of administration and was causative of the decision to appoint. Whether it was primary or secondary will be immaterial so long as it was causative of the decision. However, if there is no disharmony (even if the motive is not actually the achievement of a statutory purpose) it is difficult to see why the motive then must be treated as improper or as a material matter militating towards termination of the administration.(3) Most importantly, whilst it is conceivable that establishing an improper motive on the part of the appointor might lead to the court terminating the administration the court will, before doing so, have regard to the nature of administration as a process which potentially affects other parties. If the statutory purpose of administration would be likely to be achieved, notwithstanding the motives of the appointor, like McCloskey J. in Cursitan it seems to me that this would normally be the main touchstone for the court. The existence of an improper motive may become of relative insignificance in such circumstances, particularly where the appointor’s improper objective was not actually achieved.[48]In arriving at these conclusions I have noted the observations in the principal textbooks on the provision, including the commentary in Lightman & Moss, The Law of Administrators and Receivers of Companies (5th edition) at 27-028 (note 193) where it is stated that:
“It may seem that the ‘improper motive ’ test is a charter for any disaffected party to impugn the administrator’s appointment: but one would hope and expect that the courts would take a robust view and confine this remedy to those situations where there is clear impropriety on the part of the appointor. In particular, it is submitted that it should be confined to cases of abuse of the administration procedure rather than used as a means of trying to frustrate those cases where the purpose of administration is reasonably likely to be achieved. ”
[49]For the reasons set out above, in my judgment, where paragraph 81 of Schedule B1 is invoked it is unlikely to lead to an order that the administration cease where the statutory purposes could properly be achieved irrespective of the appointor’s motivations. For this reason I do not envisage that it could in practice be used for the purpose of frustrating administration in the manner feared.[50]In the skeleton arguments and oral submissions I was taken to a number of authorities on abuse of process including the decision in Re Dianoor Jewels Ltd [2001] 1 BCLC 450. In my judgment the statutory jurisdiction under paragraph 81 of Schedule B1 must be interpreted and applied separately from the previous common law doctrine. Nevertheless, it would appear that Re Dianoor was a case, where, if the statutory provisions had been applied, the court could have properly concluded that the administration should continue notwithstanding a relevant improper motive because the statutory purpose of administration was likely to be achieved.[51]Turning to the specific allegations in the present case. The central claim is that Nationwide acted with an improper motive in that the purpose of appointing the Administrators was to stifle or at least impede the progress of the Frogmore Litigation. As Ms. Shekerdemian QC for the Shareholder and Directors, put it in her skeleton argument; “Simply put, the Appointments were a “spoiler ” A number of matters were referred to in support of a contention that the court should infer that this was the motive of Nationwide including the significance of the Frogmore Litigation; the proximity of the trial as at the date of appointment; the allegedly unfair manner in which the Companies were not afforded a very short period of further time to respond to the proposals made by Nationwide for deferral of enforcement; the fact that there was no need to appoint administrators since the assets of the Companies were being properly managed and interest was being paid; and the fact that if enforcement of the Nationwide security was required then it could have been done by a Law of Property Act receivership.[52]Having considered all of the evidence and heard the cross-examination of Mr Spittal, the Nationwide officer principally responsible for the loans to the Companies, I have arrived at the firm conclusion that there was no improper motive on the part of Nationwide. Mr Spittal firmly denied any wish to stifle or obstruct the progress of the Frogmore Litigation. His evidence was that Nationwide principally had regard to the requirements of Promontoria and, as I interpret it, he understood it to be motivated by a desire simply to protect its position in respect of the loan. I accept that evidence and do not consider that it was undermined by the points raised by the Shareholder and Directors:(1) The existence of the Frogmore Litigation and timing of the appointment is in my judgment of little assistance to the Shareholder and Directors where (a) the date for repayment of the loans of Nationwide had been set as 1 October 2016 for some years; and (b) Nationwide offered to extend the date for repayment by six months, subject to terms that have not been suggested to be known to be either commercially unreasonable or impossible for the Companies to comply with. Indeed such matters point powerfully against any improper motive of the type alleged.(2) Having regard to the well-known date for repayment and the terms of the extensions offered I do not regard the deadlines set by Nationwide for a response as in any way unreasonable. On the contrary I regard the failure of the Companies to respond on the grounds that a decision maker was on holiday as difficult to understand. Given the importance of the matter one might expect that person to be contacted, despite their holiday, to address these urgent and important issues if their input was really needed.(3) The fact that the Shopping Centres were being properly managed and interest was being paid did not mean that Nationwide must have had an improper motive in seeking to ensure a greater level of protection after the loans fell due for repayment.(4) The fact that a lesser form of enforcement (by a receivership) was available also does not mean that Nationwide could not conclude that it would be better to protect its interests by having the greater form of intervention that administration would involve.[53]I should add that I do not accept that Nationwide could be said to have had an improper motive by deferring to the views and requests of Promontoria when making the appointment. If Promontoria had some improper motive and this had been known to Nationwide, who had nevertheless gone along with their instructions, it might have been argued that that motive should be attributed to Nationwide. But no such allegation has been made. In particular Ms. Shekerdemian did not ultimately suggest Promontoria had an improper motive. In the absence of any such circumstances I do not consider that Nationwide can be said to have an improper motive by taking account of the views of another party with whom it was contractually bound to consult and where their motivation betrayed no disharmony with the statutory purposes of administration.[55]It was also suggested on this issue that the evidence of Mr Spittal was unsatisfactory because he was not the ultimate decision maker at Nationwide and that adverse inferences should be drawn from the failure to call some or all of the actual decision makers or produce more documentation properly to address the issue. However, considering Mr Spittal's position and the evidence he gave as a whole, I have concluded that he did have a good understanding of what lay behind the appointment - in particular he had a good understanding of what formed the basis for the decision making within Nationwide and he liaised with Promontoria. He was therefore in a position to address the issues on this area. In these circumstances there does not appear to me to be a proper basis for drawing adverse inferences of the type suggested.[56]I should add in addition that, even if I had concluded that there was any improper motive in this instance that would not have led to an order under paragraph 81 terminating the administration in the absence of satisfactory evidence that the statutory purposes of administration were not likely to be achieved. On the evidence before the court I am far from satisfied that this is the case.

D CONCLUSION

[57]For the above reasons I will grant the substantive relief sought by the Administrators and will refuse the relief sought under the cross-applications brought by the Shareholder and Directors. I will invite counsel to seek to agree a minute of order in the light of this judgment and hear further argument on the precise form of the minute of order if such agreement is not possible.

Cited in 2 later judgments