Re Business Environment Fleet Street Ltd (in administration); Edwards and another (as administrators) v Business Environment Ltd and others

Property – Assets – Company – Administration – Company owning long leases of properties and subletting units as serviced offices – Properties being mortgaged as security for debt – Company entering into administration – Administrators applying for permission to dispose of company’s assets – Whether assets coming into company’s possession under chattel leasing agreement – Whether court having jurisdiction to grant application – Application dismissed The company owned long leases of properties in London and was in the business of granting short-term subleases of units within the properties as serviced offices. The company mortgaged the properties as security for debts said to exceed £40 million. The lenders appointed the claimants as administrators of the company. The claimants agreed to sell the properties together with the assets and subject to, and with the benefit of, the subleases, for £29.6 million, subject to the court deciding that they were entitled to sell the assets. The second defendant, which was in the same group of companies as the company, claimed to own the equipment at the properties which formed part of the proposed sale. The third defendant transferred its interest to the other respondents. The administrators applied for permission under paragraph 72, or alternatively under paragraph 68, of Schedule B1 to the Insolvency Act 1986 to dispose of the assets. An issue arose whether the court had jurisdiction to grant the application. In particular, the question was raised whether the assets had come into the company’s possession pursuant to a chattel leasing agreement. Held: The application was dismissed. (1) Paragraph 72(1) empowered the court to authorise the administrators to dispose of “goods which are in the possession of the company under a hire-purchase agreement” as if all the rights of the owner were vested in the company.  Paragraph 111 defined “hire-purchase agreement” as including, inter alia, a chattel leasing agreement.  Section 251 of the 1996 Act defined “chattel leasing agreement” as meaning an agreement for the bailment of goods which was capable of subsisting for more than three months. In the present commercial context, the court had not been taken to any of the subleases, nor to any authority, textbook or evidence as to any industry norm relating to sublettings of serviced offices. In the absence of any evidence, the court took judicial notice of the fact that a subletting of serviced offices usually involved: (i) a lease of an office within a larger building owned by, or let to, the landlord; (2) the use of equipment, which or might not amount to a fixture, the likelihood being that the equipment would form part of the subletting if it was situated within the demised premises and that it would be the subject of a licence if it was outside the demised premises; and (3) the provision of services, some of which would be provided for all the subtenants (e.g. a reception desk and cleaning services) and some of which might be bespoke services provided at an additional cost (e.g. secretarial). The fact that the subleases might require the company to provide to the subtenant both the assets and certain services was not determinative of the question whether the respondents’ agreement with the company amounted to a contract of bailment.  Ideally, the court would have wanted more time to consider the issue, to hear evidence about the industry norm and to read the subleases. However, as it was necessary to make a decision at short notice, the court was not persuaded on the balance of probabilities that the agreement gave possession of the assets to the company. On the assumption that the assets belonged to the defendants, either they had retained possession or had transferred possession to the subtenants. That made it unnecessary to consider whether the necessary mental element was present.  (2) Paragraph 67 required administrators to take custody or control of all property to which they thought the company was entitled. There was no requirement that they should have reasonable grounds for so thinking, still less that the property should actually belong to the company. However, it was important to emphasise that paragraph 67 did not itself permit the administrators to dispose of assets; it was merely concerned with safeguarding assets which the administrator thought belong to the company. If his thinking proved to be wrong, he would have no basis for continuing to maintain custody or control.  Paragraph 68(1) required the administrators to manage the company’s property which might include disposal. There was nothing in the literal wording of paragraph 68(2) which extended it to property that did not belong to the company, albeit that the administrator thought that it did. Secondly, there was no warrant for reading the paragraph purposively in that way. It would confer an exorbitant jurisdiction on the administrator to convert property belonging to third parties, simply because that happened to be desirable on the balance of convenience. Had it been necessary to reach a conclusion as to whether the claimants genuinely thought that the assets belonged to the company, the court would not have been satisfied on the balance of probabilities. The original application had been made under paragraph 72 on the basis that the assets were in the company’s possession under an agreement for bailment which was inconsistent with the claimants thinking that the company was entitled to the assets.  (3) In all the circumstances, the court had no jurisdiction to grant the application sought. Felicity Toube QC (instructed by Eversheds LLP) appeared for the claimants; Stephen Atherton QC (instructed by Mishcon de Reya LLP) appeared for the first and second respondents; The third respondent did not appear and was not represented. Eileen O’Grady, barrister Click here to read the transcript: Re Business Environment Fleet Street Ltd (in administration); Edwards and another (as administrators) v Business Environment Ltd and others