Pillar Securitisation SARL & Ors v Spicer & Anor (Court Administrators)

Several urgent applications have been made. I am giving my decision relatively briefly on the principal issues so that the parties know where they stand. I have not gone into the underlying facts in the detail they deserve, but I should make it clear that I've read the extensive evidence in the case and have endeavoured to take it all into account.

Kaupthing Capital Partners II Master LP Inc, ("Master”) is a limited partnership established in Guernsey. It has legal personality pursuant to an election under the Limited Partnership (Guernsey) Law 1995 ("the 1995 Law"). The general partner is KCP II (GP) Limited ("KCP"). Master was a special-purpose vehicle used in connection with an investment fund known as Kaupthing Capital Partners II. There are four limited partners, comprising four feeder fund entities, themselves vehicles for investment by different classes of investor. The investment fund was created in order for employees and others involved in the Kaupthing group of companies to invest alongside the ultimate parent of the group, the Icelandic bank Kaupthing Bank hf("the Bank"), which was the single largest investor in the fund. Unconnected third parties were also able to invest in the fund through the feeder fund known as the Main Fund.

The fund comprised four limited partnerships; investors' money went to Master and equity investments were made in Master's name in various UK registered companies, both private and public.

Master was managed by its operator, Singer & Friedlander Asset Management Limited, which initially delegated certain administrative functions to Kaupthing Bank Luxembourg SA (“BankLux”) and delegated investment management to Kaupthing, Singer & Friedlander Limited (“KSF”) an English registered investment bank. All three companies were part of the Kaupthing Group.

On 7 October 2008, the Bank entered into insolvency proceedings in Iceland. On the following day KSF was placed into administration by Her Majesty's Government. Also on 8 October 2008, BankLux, Master's largest creditor, made a demand against Master for repayment of its £67 million credit facility by 10 October 2008. On 9 October 2008 BankLux was placed into insolvency proceedings in Luxembourg. Master was unable to comply with the demand, and therefore was insolvent on the basis it could not pay its debts as they fell due.

On 9 October 2008 the joint administrators were appointed, or purportedly appointed, by KCP. On the same day, they were also appointed as joint administrators of KCP.

The administration of KCP and KSF potentially triggered termination of the fund. The joint administrators decided to restructure Master's management. A new subsidiary of KCP was incorporated to act as Master's new general partner and a new operator and a new investment manager were appointed. There were difficulties with funding from BankLux. The applicant Pillar Securitisation was created as a result of restructuring BankLux, and Pillar took over Master's debt to BankLux standing at some £63 million, which represents 99.4 per cent of Master's aggregated unsecured indebtedness. Another 0.4 per cent is owed to the other two applicants, Candesic Limited and Redgrave Partners LLP. The applicants' total share of Master's indebtedness is therefore 99.8 per cent.

There are currently five applications before the court relating to the administration. First, there is the applicants' application. That raises the following issues:

The first issue, therefore, is as to the validity or otherwise of the appointment.

The first ground on which the applicants say that the appointment was bad relates to Master’s COMI. The English Court may assert jurisdiction to open insolvency proceedings in respect of an entity outside England and Wales where the EC Council Regulation on Insolvency Proceedings (1346/2000/EC) applies and the entity's COMI is within England and Wales. The applicants assert that Master's COMI was Guernsey, which is not an EU Member State, so that the English Court has no jurisdiction in relation to the insolvency.

The English Court also has jurisdiction where it would, apart from the EC Regulation, have jurisdiction under domestic legislation. The applicable provision is Section 117 of the Insolvency Act 1986, as amended and applied to partnerships by the Insolvent Partnerships Order 1994. There is jurisdiction if Master has, or at any time has had, a principal place of business in England and Wales: section 117(1). Mr Todd QC asserted on behalf of the administrators that Master had "a” principal place of business in London, notwithstanding that it had another principal place of business elsewhere. This was to get round the fact that, in order to obtain registration as a limited partnership in Guernsey, Master had declared for the purposes of section 8(2)(d)(ii) of the 1995 Law, that its principal place of business was at an address in St Peter Port, Guernsey.

Mr Todd QC did not really pursue the argument under Section 117. The argument before me centered on Master's COMI. COMI is a separate matter from principal place of business, and in considering COMI, Mr Todd submitted that the court need not grapple with the inconsistency between the statement as to principal place of business under the 1995 Law and the contention that a principal place of business was in England.

The test for establishing COMI under the EC regulation was authoritatively stated by the ECJ in Re Eurofood IFSC Limited [2007] BCLC 150, and recently explained, after analysis of the authorities, by the majority of the Court of Appeal in Re Stanford International Bank Limited [2010] EWCA Civ 137. It is common ground in this case that the following principles fall to be applied:

My starting point is therefore that as Master's registered office is located in Guernsey, there is a presumption that its COMI is also in Guernsey. I have to go on to determine whether the presumption is rebutted by objective and ascertainable factors as explained in Stanford.

I would make the following preliminary observations. First, Master was registered in Guernsey as a limited partnership under the 1995 Law and its filed declaration pursuant to the 1995 Law that its “principal place of business” was in St Peter Port, Guernsey, was a matter of public record. Further, it is evident from a private placement memorandum as amended in July 2007 that the Group's investment would be challenged through Master "to facilitate tax-efficient investment by the Kaupthing investor". The tax advantages of a Guernsey entity (and the evidence that it was a special-purpose vehicle) would be apparent to anyone dealing with Master.

I also note that no partnership accounts or minutes of partnership meetings have been adduced. There is no documentary evidence about dealings in investments, and no evidence as to the banking arrangements or location of bank accounts, other than the agreed fact that Master had a credit facility in Luxembourg with BankLux. There is no evidence of correspondence with HMRC in England or with Revenue authorities in Guernsey.

Nevertheless, it seems clear to me that Master's head office functions were in fact conducted in London by the operator and by investment and other managers. However, location of head office functions is not the test. I can only be satisfied that the presumption that Master's COMI was in Guernsey has been rebutted on the basis that it would have been apparent to third parties doing business with Master that this was the case.

In deciding what would have been ascertainable by such third parties, I first have to consider the nature of Master's business, and the identity of such persons.

Master's business was to hold a fund of investments and the Operating Agreement required those investments to be held in Master's name where practicable. It does not seem that Master itself conducted any active business as all its affairs were conducted on its behalf by and through the operator, and by and through Kaupthing entities to which the operator delegated certain functions. All such business was conducted out of offices in London.

The placing documentation for shares in the fund shows that originally a single fund and an English partnership were contemplated. Potential investors were supplied with all the relevant partnership agreements, operating agreements, investment and other management agreements and other relevant documents. The summary in the placing documentation shows that prospective investors were told in terms that the fund was to be operated and managed in England by companies registered in England. In July 2007 a supplement was issued to the placing memorandum introducing what was to become the actual structure of the investment funds. That supplement contains a summary of changes to the structure and it is again made clear that the actual administration of the fund, the operating and management functions, were to be conducted in London.

I therefore accept that while the investors would know, and indeed would consider it desirable for fiscal reasons, that Master was registered in Guernsey with a declared principal place of business there, they would also know that all business matters were undertaken on its behalf in London. Mr Moss QC submitted that this would be to equate the COMI of the operator and other companies in the Kaupthing Group with the COMI of Master, which is impermissible. However it seems to me that as the operator, and through it the delegated companies, conducted Master's business on Master's behalf, there is no such equation or conflation.

That said, I accept Mr Moss's overarching submission in this context that the investors are not the type of third parties that the ECJ in Eurofood or the Court of Appeal in Stanford had in mind. The investors are insiders within the partnership, equivalent to the shareholders or contributories of the company, rather than persons doing business with the partnership.

Mr Moss QC went on to submit that the only person whose knowledge could be taken into account on a proper consideration of the matter was the operator, as everything the operator did was, to the outside world, done by and for itself.

I do not think that is correct. Master's function was to hold a portfolio of investments. The operation of that portfolio was managed on Master's behalf by the operator and, through it, the investment manager in London. Communications with the registrars of those investments would be on the basis that Master's business was being run from London.

Another very important class of third party comprised Master's creditors. Invoices produced to the court showed that Mr Moss QC's clients communicated with the English operating companies at their London office. Mr Moss QC submitted that I cannot infer from that that the applicants knew of Master's involvement at all, and they may well have believed that they were dealing with the English companies as principals. However that seems to me to be unrealistic. While it is true that creditors would not have been concerned with internal arrangements within the Kaupthing Group, Pillar took over £65.5 million of Master's debt to BankLux as part of the group restructuring. I cannot accept that it did not know the identity of its debtor. Similar considerations applied to other creditors.

I find that it would have been apparent to persons dealing with Master as creditors that their debtors' affairs were being conducted in London on Master's behalf. The truth of the matter is that Master was indeed a letterbox entity, all of its functions were carried out on its behalf in England, and those were matters apparent to all persons dealing with Master through the operator, and those to whom the operator had delegated management functions.

It therefore seems to me that the presumption as to COMI based on the location of Master's registered office was rebutted on the facts of this case so that the English Court has jurisdiction under the EC Regulation.

The applicants' second contention is that the appointment itself was both formally and essentially invalid. The contention starts with the proposition that the wrong form was used by the appointor.

Schedule B1 to the Insolvency Act 1986 now governs the appointment and duties of administrators as a result of the amendments made by Part 10 of the Enterprise Act 2002. The starting point is paragraph 2(c), which provides:

The appointment in the present case was made on Form 2.10B. It can be seen that this form applies where the appointment is in respect of a company. For this purpose, "company" is defined by schedule B1, paragraph 111(1A) to mean:

Section 420(1) of the 1986 Act provided that provisions of the 1986 Act might by order be made to apply to insolvent partnerships. On 13 September 1994 the Insolvent Partnership's Order 1994 (Statutory Instrument 1994/2421) (“IPO 1994”)(replacing an order of 1986 SI 1986/2142) was made pursuant to that subsection. Part III of the IPO 1994 applies the provisions of Schedule B1 to the 1986 Act to insolvent partnerships with the modifications set out in Schedule 2 to the IPO 1994. The modifications adapt the wording of Schedule B1 largely for the purpose of making it suitable to a partnership rather than a company. By Article 9, paragraph 22 of Schedule B1 is modified so as to read:

At the request of the court, counsel researched and explained the position with regard to the forms to be used by different types of partnership established in England. Thus a general partnership is required to use Form 1B. A limited partnership under the Limited Partnerships Act 1907 must do the same. However, a limited liability partnership established in Great Britain pursuant to the Limited Liability Partnerships Act 2000 is treated as a company for all the purposes of Schedule B1 so that Form 2.10B is to be used: see the Limited Liability Partnerships Regulations 2001 paragraph 5, made pursuant to Section 14 of the 2000 Act. Thus, references to directors are to be interpreted as references to members of the LLP: see the 2001 Regulations, paragraph 5.

I would make three observations at this point. First, if it had not been for the 2001 Regulations, an English LLP would be a partnership for all the purposes of the IPO 1994, so that express provision was required to take an LLP out of Form B1 and into Form 2.10B. Secondly, the reason why an LLP is equated with a company rather than a partnership for this purpose would seem to be that it is a body corporate with legal personality. Thirdly, Section 14(2) of the 2000 Act enables (without making it mandatory, unlike Section 14(1)) provision to be made,

Mr Moss QC submits that the wrong form was used. Master was a partnership and should have used Form 1B. Instead it used Form 2.10B, the company form.

Mr Todd QC's primary submission was that Form 2.10B was the correct form on the ground that Master was a company within the definition contained in Schedule B1, paragraph 111(1A)(c).

There was no expert evidence before the court as to Master's status under Guernsey law in this respect. Master's Certificate of Registration shows that it was entered in the Guernsey Register of Legal Partnerships. However, there was evidence that if a search is made of that register, the registry produces a document headed "Company Profile". Mr Todd QC therefore asked the court to draw the conclusion that for some purposes at least Guernsey law treats an entity which is a limited partnership, and which is a body corporate, as a company.

However, on such evidence as I have, Master, although a body corporate, is not a company under Guernsey law. I would apply the principle of, but distinguish on the facts, the decision of Lewison J in Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch). In my judgment, Master is not a company for the purposes of Schedule B1. Indeed it seems probable that it is just the sort of body that Section 14(2) of the 2000 Act was looking to but which has not yet been addressed in subordinate legislation.

Mr Todd QC's alternative submission was that, because it is a body corporate with legal personality, Master is a form of hybrid between a company and a partnership and the court ought to apply a beneficent construction to the rules about prescribed forms in such circumstances. I do not think there is such a thing as a hybrid. I have to decide whether Master is a company for the purposes of Schedule B1. As I have said, as a matter of legal characterisation it is a partnership and not a company. Direct or subordinate legislation was needed before Master could be within the definition of "company" for the purposes of Schedule B1.

Mr Todd QC pressed upon me the provisions of the Insolvency Act 1986 providing for an entity such as Master to be wound up as an unregistered company, and the similarities between a company and a partnership. However, those are the sorts of matters taken into account in the IPO 1994, which itself prescribes a separate form for appointing an administrator of a partnership out of court.

A further consideration arises out of Mr Todd QC's submission that Master was a hybrid entity. I am not sure that he made this submission in terms but it seems to me to arise directly from what he did say. It is that as Master is a body corporate with legal personality, Form 1B was inappropriate because it is the partnership itself rather than its individual members which makes the appointment of administrators. Thus an appointor faced with a choice between the two forms, would find 2.10B fitted the situation better than Form 1B.

I am afraid that is the risk that an appointor and proposed administrators take if they use the out-of-court procedure in a difficult case. If, as I have found, statute prescribes Form 1B, it would create considerable uncertainty to say that an appointor could use another form because it is deemed more appropriate and there is a perceived lacuna in the statutory provisions.

I therefore accept Mr Moss QC's submission that Form 1B should have been used rather than Form 2.10B.

Mr Moss QC submitted that other errors in the appointment independently compromise it. Alternatively, that they compound the error made by the use of the wrong form and do away with any prospect of finding that there was substantial compliance with the statutory procedure.

First, through an error explained in evidence in deleting the wrong words, paragraphs 7 and 8 of the completed Form 2.10B are inconsistent with each other. Paragraph 8 states that "The EC regulation will apply." Paragraph 7 says:

Secondly, there is the form of the annexed so-called “resolution of the company”. This is headed "Written Resolution of the Member [not Members] of the Above Partnership", and in it KCP is described as Master's "Sole Member". On any basis it was not the sole member, as there were four other members, albeit limited partners.

Thirdly, the applicants assert that KCP as general partner did not have authority to appoint administrators without the participation of the limited partners. The administrators adduced a witness statement from Ian Kirk, a Guernsey lawyer, giving his reasoned opinion that only KCP had the power to resolve on Master's behalf to appoint administrators, and indeed that the limited partners were excluded from participation in that decision. In giving this opinion, he considers the construction of a Limited Partnership Agreement, the 1995 Law, and also the Partnership (Guernsey) Law 1995, which relates to the general partnership law applicable in Guernsey.

Mr Moss QC submitted that this evidence is not in form expert evidence, there are obvious flaws in it, Mr Kirk does not refer to any cases of the Guernsey court or any principles that he says are peculiar to Guernsey law. Mr Kirk construes the statutes and the Limited Partnership Agreement in a literal way which would add nothing to interpretation by this Court. He says that Guernsey general partnership law "follows very closely the same principles and would apply to a general law partnership under English law." In these circumstances, Mr Moss QC invites me to ignore the opinion and construe the relevant Guernsey legislation for myself. If I were to do this, he submits, I would find that in the light of the decision in Re Emmadart Limited, KCP's general management powers did not give it the authority to appoint administrators. Further, KCP's powers to protect the assets of Master would not stretch to the fundamental change in the business consequential upon the appointment of administrators.

However, I do not think I can ignore Mr Kirk's opinion altogether. Whatever deficiencies it may have, it is the only evidence in the nature of expert evidence before the Court. If I were to reject it, I would be left with nothing but an assumption that English principles as to authority would be applied by the Guernsey Court. It seems to me that it would be too bold a step to take to assume that KCP did not have the authority it purported to exercise to bind Master. I am not prepared to make such a finding on the basis of such an assumption. I am not prepared to find, on an application of this kind, that KCP as general partner did not have actual authority to bind Master on the appointment of administrators.

I will deal with the two other alleged deficiencies in turn. I do not think that the conflict between paragraphs 7 and 8 of the Form caused by the error in paragraph 8, is a matter which by itself invalidates the appointment. Further, while there was certainly an error in the description of the general partner as "Sole Member", that was in my view part and parcel of the fact that the Form was the wrong one in any event. The appointor was trying to fit the membership into a framework of the resolution of the Board or the membership of a company. If KCP had, or is to be taken for present purposes to have had, actual authority to bind the other members, it was the sole member with power to bind Master, and this misdescription was not in my view a fatal one.

At the end of the administrators' year, the applicants agreed to an extension out of court of the period of administration until later this month. However, Mr Todd QC does not assert that the applicants are debarred or estopped from challenging the validity of the appointment in consequence. The issue as to validity goes to the jurisdiction of the court. Instead, Mr Todd QC asked the court, in exercise of its inherent jurisdiction to correct obvious mistakes in the court process, to amend the form of appointment.

On the other hand, Mr Moss QC submitted that if the wrong form was used, the appointment was simply invalid for the reasons given by Mr Justice Hart in Re G-Tech Construction Limited [2007] BPIR 1275. Use of the prescribed form is mandatory.

I asked Mr Todd QC to make a side-by-side comparison of the completed Form 2.10B with Form 1B, as in blank, the two forms are very similar. I was concerned to see whether it was merely the heading to the Form which was wrong, or whether, as completed, it was substantively the wrong form. It seems to me that the latter was indeed the case. The Form as completed stated in effect that Master was a company. Was there any room for doubt on the basis that the attached resolution corrected that error by its reference to a partnership? In my judgment, no. The resolution does not say in terms that Master is not a company. Additionally, as I have said, it incorrectly refers to KCP as the sole member.

In G-Tech, Hart J said:

I have no intention of departing from the principle of Hart J's decision, but it did occur to me to wonder whether the facts of G-Tech might be distinguishable. This would be on the basis that there was a substantive distinction between the Form 2.9B, which was filed, and the Form 2.10B, which was not, which does not apply to the forms in the present case. However, Mr Todd was unable to identify any such relevant difference other than by repeating his submission that Master was a hybrid between a company and a partnership, a submission which I have already rejected.

In any event, it seems to me that it would be invidious to distinguish the decision in G-Tech on such a ground. It would open a can of worms and lead to great uncertainty to say that some forms were in effect more prescribed than others. If a principle can be found to distinguish which forms are essential to validity and which are not, it is for a higher court to identify it.

In these circumstances, waiver or correction does not arise. The Court has no jurisdiction to correct any errors, since relief can only be granted once insolvency proceedings have begun. If the appointment is invalid, there are no insolvency proceedings. Thus in the case of a fundamental flaw going to the validity of the appointment itself, neither Rule 7.55 of the Insolvency Rules 1986, nor paragraph 104 of Schedule B1, can be applied: see G-Tech at paragraphs [7]-[16] and contrast (as to paragraph 104) Re Blights Builders Limited [2008] 1 BCLC 245. See also Re New Cedos Engineering Co Limited [1994] 1 BCLC 797, applying Morris v Kanssen [1946] AC 459, a decision of the House of Lords, as to the effect of a null appointment.

In those circumstances I find that the appointment was invalid. The administration has proceeded without challenge from 9 October 2008 until now, and I am only too aware that my finding has draconian effects. However, an invalid appointment cannot be cured. I am comforted to some extent by Mr Moss QC's assurance that third parties who have dealt with the administrators are likely to be able to rely on a defence of bona fide purchaser without notice of the invalidity so that many transactions may go undisturbed.

Mr Todd submitted that if the appointment were invalid, I could and should cure the invalidity by making a fresh appointment dating back to October 2008. It appears to be within the jurisdiction of the Court to make an administration order dating back to a time before the date of the order: see the wording of Schedule B1 paragraph 13(2)(a). However, by Schedule B1 paragraph 76(1) the appointment of an administrator automatically ceases to have effect at the end of a period of one year beginning with the date on which it takes effect. An appointment made today dating back to October 2008 would already have been deemed to have terminated. Although paragraph 76(2) confers power on the Court to extend the term on the application of the administrator, paragraph 77(1)(b) provides that such an order may not be made after expiry of the administrator's term of office. It is not therefore open to the court to make a fresh appointment starting in October 2008 and continuing down to today or some later date.

Mr Todd QC sought to get round this by submitting that the court could and should make two administration orders, one following immediately upon the other. If Mr Todd QC's submission were correct, this device could be deployed in every case to get round the prohibition in paragraph 77(1)(b) against extending the term. The submission must be wrong and I reject it.

An alternative would be to do what Hart J did in G-Tech and make an administration order dating back only 364 days so that paragraph 77(1)(b) is not engaged. However, Mr Todd QC faces a difficulty in that administrators have no standing to seek an administration order: see Schedule B1, paragraph 12(1). Mr Todd QC again sought to get round this by pointing out that his clients are also the liquidators of KCP, which would have standing to apply to the Court. I am not prepared to make an appointment on that basis at this stage. Mr Spicer and Mr Shinners are respondents to this application in their capacity as administrators of Master. They have made their own application in that capacity. There is no evidence that an administration order is in the interests of KCP, or that those interests have been considered. On the contrary, the application would on the face of it be made in the interests of the administrators personally.

It seems to me that the issue of a 364-day appointment, the ramifications of such an appointment and of the application itself ought to be left over, if necessary, for mature consideration and further argument on another day. I must make it clear that I have been considering jurisdiction under this head and have not addressed the issue at all of the court's discretion. I would add in this context that the creditors' views as to the choice of administrator are likely to be given considerable weight: see the judgment of Mr Justice Patten in Oracle (North West) Limited v. Pinnacle Financial Services (UK) Limited [2008] EWHC 1920 (Ch) [2009] BCC 159.

As I have decided that the appointment of the joint administrators was invalid, I do not need to go on to consider the question of whether they should be removed from office. However, in case I should be wrong in my primary finding I propose to deal with that matter briefly.

It is said that the administrators have been guilty of misconduct in several respects. Some matters were touched on almost in passing, such as that the administrators did not seek the directions of the court as to the validity or otherwise of their appointment. On the hypothesis that the appointment was valid, I do not propose to deal with this.

Currently, there are only two assets of Master which remain to be disposed of. One is shares in a women's clothing company, the other is a debt owed by KSF. The context of the application is an offer from a company called York Capital Management (“York”)to purchase the KSF debt. York has also made a later offer to purchase the clothing company shares as part of a package with the KSF debt. The clothing company shares are incidentally currently the subject of an exclusivity agreement with another potential purchaser. The administrator received an initial offer from York to buy the KSF debt at a price equivalent to 63p in the pound. The applicants wanted the administrators to accept that offer on the basis that they preferred to receive payment immediately. The administrators refused the offer for reasons they have explained at length in evidence.

The applicants say that the real reason the offer was refused was because the administrators feared reprisals from investors. Calls had been made on investors, namely those companies represented by Mr Arden QC, in respect of alleged limited partner obligations to contribute.

Schedule B, paragraph 3(2) provides that administrators must perform their functions in the interests of the company's creditors as a whole. Mr Moss QC relies on this provision in support of an assertion that the administrators owed duties only to consider the creditors, and it is therefore wrong in principle to take into account the views of the investors in any circumstances. He adds that as he represents the vast majority of the creditors' interests the administrators ought to comply with their wishes to realise the debt as soon as possible. The implication is that, but for the investors, there would have been no reason not to accede to those wishes.

The administrators have adduced detailed evidence of their reasons for rejecting the York offer which are irrespective of the wishes of the investors. However, they do also say that it is legitimate to take into account the position of the investors where, as here, there is a real possibility of surplus on the basis that the administrators owe duties to the company or other entity. It would, submitted Mr Todd QC, be perverse if the administrators were to be obliged to realise assets, perhaps even to the creditors themselves, at an obvious undervalue simply because the creditors desired it.

The applicants criticise the fact that certain outcome statements have only been supplied to the investors and not to the creditors, and infer support from this that the interests of the investors have been given undue weight. However, the administrators produced these figures in an effort (unsuccessful in the event) to sell the debt to the investors and achieve a 100 per cent result for the creditors. The Estimated Outcome Statements have been analysed in some details by all parties before this court. I was concerned to see two outcome statements produced on the same day in January 2010 without any apparent explanation for the discrepancy between them. However, I now see that these statements were produced illustratively as models for the benefit of the investors in an effort to persuade them to buy the KSF debt and for no other reason.

I accept the administrators' evidence that they have considered the York offer properly and have decided to reject it on proper grounds, that in their view the market had not been tested and that the offer was too low. I would add that communications with York have, despite rejection of the initial offer, continued, and the administrators' present plan is to auction the debt.

However, there is at present no concrete evidence of surplus. The recent outcome statements produced for the investors were, and as I understand it were taken to be, illustrative only of what might happen. To the contrary, Mr Spicer's evidence produced during the course of the hearing was that on the present figures the estimated outcome is still one of deficit.

I should add that there was something of a spat in Court because York wrote to the administrators during the course of the hearing giving them an ultimatum to accept or reject their latest offer by 5.00 pm on Monday last. The administrators evidently felt this was a tactical move, possibly even one in which the applicants were involved, and that it was possible that York would nevertheless return to the negotiating table. That is not a matter about which I can or should say anything.

Obviously, majority creditors' views ought to carry considerable weight. However, it is for the administrators  (assuming for this purpose that they have been validly appointed) to decide whether particular offers should or should not be accepted. It is unacceptable for the creditors, however large their interest, to dictate the course of the administration. It is not for the Court to pick apart the evidence and decide whether the Court would have made the same decision as the administrators. The Court's role is to investigate whether, as alleged, the administrators have failed in their duties by adopting the wrong approach, taking account of wrong considerations, or failing to take into account the correct ones.

In this case, I accept that the administrators had purported to act in the best interests of the creditors as a whole and, for the reasons adverted to by Mr Spicer in his witness statements, took into account proper considerations in deciding to reject the York offer. I accept that where there is a real possibility of a surplus, it is legitimate for the administrators to consider their duty to the company, which may, depending on the facts, mean taking into account the interests of contributory investors, provided always that the administrators appreciate that there is an express statutory requirement to act in the best interests of the creditors as a whole.

As I have said, the applicants assert that the administrators delayed realisation of the assets through fear that if they acceded to the creditors' desire for early realisation of the debt at a discount, they might be sued by the investors. That is not the reason advanced by the administrators in their evidence and I do not find that it has been made out.

I would not therefore be prepared to remove the administrators for misconduct or a misapprehension of their duties. Indeed, if the appointment were valid, I would be prepared to extend the administration (which, as already extended once, is due to terminate later this month) for a short period to enable them to finish the process of realisation which they have begun.

Mr Moss submitted that as this is not a case of continuing to run a business but one of realisation of the assets the time had come for liquidators to take over. The applicants sought to meet all the objections to this course by (a) the choice of liquidators, who are persons with considerable experience of realising debt and realising shares in the retail sector, (b) agreeing with the proposed liquidators that they would limit their fees to avoid duplication of charges, and (c) indicating that the liquidators would employ the services of the current administrators to tap their knowledge and ensure a seamless transition.

I agree that an administration should not be allowed to drag on. However I am now told that instead of the original six months' extension sought, the administrators need only until the end of July to complete their disposals. I do not accept Mr Moss QC's submission that, in saying that their expertise is required to finish the disposal of the two assets which remain, the administrators are playing what he described as the "fear card". It is indeed accepted that the administrators should remain involved in the negotiations for the sake of continuity.

I therefore turn to the application of certain investors, namely the Bank and Lifeyrissojodur Starfsmanna Rikisins ("LSR") for joinder. I have heard Mr Arden QC's helpful submissions and taken them into account, although I have decided, in the event, that the appointment was invalid. The question of joinder is therefore academic. However, in case I am found to have been wrong in my previous findings, I ought to consider the matter.

Mr Arden QC submitted that the court ought to exercise its discretion to permit joinder on the basis that his clients have an interest in the due conduct of the administration. There are two bases for this. First, it is said that the investors have an interest in the administration because the administrators have called or are likely to call on them for their undrawn commitments as limited partners in the event of shortfall. Secondly, they assert an interest as persons entitled in the event of surplus.

As to the first basis the investors have not admitted liability to pay calls in the event of shortfall. They do not admit liability for the fundamental reason that they do not accept that they are liable to contribute in any event. The Bank has adduced evidence, expressly adopted and relied on by LSR, that they have received advice that Master has terminated the fund so that calls for undrawn commitments cannot be made. The Bank is allegedly also liable to Pillar, as a guarantor in relation to Master, but again, does not admit that liability.

The investors' position is thus analogous to that of partly paid shareholders who do not admit that they are liable to pay calls. In my judgment, the investors cannot use their disputed liability as a ground for intervening in the administration. It is similar to the case of Charit-Email Technology Partnership LLP v Vermillion International Investments Limited [2009] EWHC 388 (Ch).

The second basis for joinder is the prospect of a surplus. At the moment, there is no concrete evidence of a likelihood of surplus. At its highest, the investors' evidence is that "there is a reasonable possibility of surplus". Mr Spicer has said: "The prospect of Master being solvent has increased." In his latest witness statement, a deficit is still predicted. There is some new evidence of comparables to suggest that the KSF debt may achieve a higher price at auction than the 63 per cent offered by York, but it is thin and still does not explain how a surplus would be achieved which would give the investors an interest in the administration. In these circumstances, it seems to me that very little weight would attach to the investors' views in any event.

I would therefore exercise my discretion against joinder of the investors.

I will deal briefly with the other applications. First, on the assumption that the administration is valid, I would have authorised an interim distribution. It has never been suggested that this is not in the interests of creditors; the only reason for deferring the decision of the Court on this point was the issue of validity which had arisen.

I would not, however, make any order depriving the applicants of interest. I believe Mr Todd QC abandoned that application in any event on the basis that he was unable to point to any jurisdiction for the Court to deprive a creditor of interest to which he is statutory entitled. At first, Mr Todd QC sought to rely on the inherent jurisdiction but I understand he now concedes that the court cannot override the specific statutory provision. In any event, it does not seem to me that it would be equitable to deprive the applicants of interest merely because their application delayed the distribution. The administrators' application to the court for permission to make a distribution was adjourned by consent to be heard with the applicants' application. The administrators could, in theory at any rate, have withheld that consent and asked the court to hear their application in any event.

I am not sure what the position is about an indemnity from the administrators' appointors. Mr Todd QC did not deal with that matter in his submissions and I will deal with it at an adjourned hearing if necessary.

Lastly, there is the effect of the invalid appointment on the administrators' remuneration. That matter again was not to my mind substantively argued, and I would wish it to come back for another day with, as arranged, the issue of costs and other ancillary matters.