Administration – Insolvency practitioners’ proposals – Law firms – Pre-pack administrations

In the matter of Halliwells LLP sub nom Halliwells LLP v (1) Shay Bannon (2) Dermot Power (administrators): Ch D (Mr Justice Kitchin): 30 July 2010

The applicant national law firm (H) and licensed insolvency practitioners (X) applied for an administration order in respect of H, the appointment of X as administrators, and for the court’s approval of four pre-packaged sales of parts of H’s business.

H had entered into a number of historic occupational leases which left it with onerous payment obligations to landlords. The burden of those payments, a fall in revenue caused by the departure of a number of partners, and the fall in turnover occasioned by the economic climate left H in financial difficulty. H applied for an administration order under paragraph 13 of schedule B1 to the Insolvency Act 1986 on the basis that it was, or was likely to become, unable to pay its debts as they fell due. It engaged X to assist in the management of the sale of its business, and sought its appointment as administrators. X contended that H could not be rescued as a going concern and that it was not reasonably practicable to achieve the objective of a better result for H’s creditors... without first being in administration. X submitted that the only way forward was to realise H’s assets by means of various sales in order to make a distribution to creditors, and they proposed four asset sales agreements for the court’s approval in which the purchase price consisted of the proceeds of H’s own debtors and works in progress, which the purchaser would endeavour to collect and pay over to the administrators.

Held: the evidence established that the purpose of the administration was to realise H’s assets by means of the proposed sales in order to make a distribution to one or more secured or preferential creditors pursuant to paragraph 3(1)(c) of schedule B1 to the act. Further, X plainly considered that it was not reasonably practicable to rescue H as a going concern or to achieve a better result for creditors without winding it up. While concerns might be raised about the use of pre-pack agreements in that they might too easily lead directors and an insolvency practitioner to arrive at a solution which was convenient for both of them and their interests, but which might harm the interests of the general creditors, there was no evidence of any such abuse of process in the instant case, and X’s proposals were compliant with the Statement of Insolvency Practice 16, Re Kayley Vending Ltd, [2009] EWHC 904 (Ch), [2009] BCC 578 considered. The pre-packs were the only way forward: they would maximise the returns available in the administration and not unnecessarily harm the interests of the creditors as a whole. Accordingly, in the circumstances, it was appropriate to make the orders and give the approval sought.

Applications granted.

David Chivers QC, Martha Maher (instructed by CMS Cameron McKenna) for the applicants.