When deciding whether to grant an order that administrators may sell secured assets as if they are not subject to security the court will:
- carry out a balancing exercise as between the prejudice to the secured creditor and the prejudice which would be suffered in the administration; and
- protect the secured creditors' rights by ensuring that the assets subject to security were valued appropriately taking into account the circumstances of the administration.
The case was an appeal to the Court of Appeal against an order made by the lower court under paragraph 71 of Schedule B1 of the Insolvency Act 1986, giving the administrators of Musion Systems Limited permission to sell assets subject to fixed charge security. The appellant secured creditor raised 7 grounds of appeal, including that the administrators had had conducted an "unfair" contract race and not properly valued the assets as they had not accepted the highest offer available.
The judge had exercised his discretion correctly by carrying out a balancing exercise between the prospective prejudice which would be suffered by the secured creditor against that which would be suffered by those with an interest in furthering the administration. Thereafter, statutory safeguards had properly been applied as the judge had satisfied himself that the assets had been valued properly, following a marketing exercise and competitive sales process.
The Court of Appeal has set the bar high for secured creditors wishing to oppose an application by an administrator to sell assets subject to fixed security.