Hellas Telecommunications (Luxembourg) II SCA, Re

The following matters are before the court:

An application by the Administrators of Hellas Telecommunications (Luxembourg) II SCA (“Hellas II”) for directions how to proceed now the purposes of the administration are, in their view, at an end (“the Administrators’ application”). The Administrators are Ms Margaret Mills and Mr Alan Hudson, partners in the United Kingdom firm of accountants Ernst & Young LLP (“E&Y UK”). They were appointed under an administration order dated 26 November 2009 made by Lewison J (“the Administration Order”): see Re Hellas Telecommunications (Luxembourg) II SCA[2009] EWHC 3199 (Ch); [2010] BCC 295 (Re Hellas II). A group of unsecured creditors of Hellas II are dissatisfied with the proposals of the Administrators about how to proceed. They are represented by a committee known as the Informal Creditors’ Committee (“the ICC”), constituted pursuant to a further order of Lewison J dated 24 June 2010 to assist the Administrators in the conduct of the administration of Hellas II. The ICC is composed of two companies and one individual who together hold about 5% of the unsecured debts of Hellas II. It is unclear to what extent the other unsecured creditors contribute to or agree with decisions taken by the ICC; and

A claim brought against Hellas II under CPR Part 8 and CPR Part 64 (“the Part 8 Claim”) by Weather Finance III S.à.r.l. (“Weather III”) - which in 2009 provided a €10m fund (known as “the Funded Costs Amount”) to be held by Hellas II on trust and to be used for certain purposes to do with funding the administration of Hellas II - and by the successor in title to Weather III’s interest in that fund (Crystal Almond S.à.r.l.), maintaining that the relevant purposes have come to an end and that the trust should be carried into effect by payment of the balance of the Funded Costs Amount to Weather III (for convenience I refer to both companies as Weather III in this judgment).

By direction of the court the hearing took place in private since it was necessary for argument to proceed by reference to legal advice received by the Administrators and the ICC in which legal professional privilege was not waived, save to the extent necessary to permit Weather III to participate in the hearing. Open justice should be achieved so far as is practicable, so this judgment is given in open court, but has appended to it a short Confidential Annex which reviews so far as is necessary the legal advice received.

The Administrators’ application was brought, very properly, to provide a vehicle to allow various arguments to be ventilated between the Administrators, the ICC and Weather III about the way forward now that the Administrators had formed the judgment that the purpose of the administration is at an end. Unfortunately, however, the procedural flexibility this brought carried a price, in that there were no pleadings or clear formulation of issues settled before the application came on. The skeleton arguments served did not adequately fulfil this function either. The hearing, therefore, did not proceed as speedily and efficiently as it might otherwise have done, as a good deal of probing and explanation was required to work out precisely the position which each party adopted and to identify their submissions in support.

In particular, on the fourth day of the hearing Ms Hilliard, for the ICC, introduced a completely new, but important, issue concerning whether the Administrators were entitled to use such cash assets that Hellas II still had after entering into administration to fund the costs of the administration before having recourse to the Funded Costs Amount. She now submitted that the Administrators were not entitled to do this, and that the cash assets of Hellas II which had come into the Administrators’ hands (€222,704) and had been spent on the costs of the administration should be restored out of the Funded Costs Amount, on the grounds that the Administrators were in fact obliged to pay the costs of the administration wholly out of the Funded Costs Amount until that was exhausted, before having recourse to the assets of Hellas II. I refer to this as “the cash assets issue”. It is important because, if correct, it brings into question the applicability of paragraph 84 of Schedule B1 to the Insolvency Act 1986 (“Schedule B1”) on which the Administrators rely and also affects the relief claimed in the Part 8 claim.

On the Administrators’ application, the Administrators and the ICC are both agreed that the administration should come to an end (this is not a case in which creditors are applying to remove administrators: cf Finnerty v Clark [2011] EWCA Civ 858). But they do not agree on what should happen next. the Administrators say that the appropriate way forward is for the court to allow or direct them to serve a notice on the registrar of companies under paragraph 84(1) of Schedule B1 stating that Hellas II “has no property which might permit a distribution to its creditors”. If such a notice is served, the registrar of companies comes under a duty to register it and, three months after registration, the company is deemed to be dissolved: paragraph 84(3) and (6). The administration would then automatically come to an end: paragraph 84(4). Hellas II is a company registered in Luxembourg, so further steps would then have to be taken to arrange for the removal of the company from the companies’ register in Luxembourg.

The Administrators also seek an order from the court under paragraph 98 of Schedule B1 that they be discharged from liability as administrators. The effect of such an order would be that the Administrators could thereafter only be sued for certain types of misconduct during their period in office in control of the company’s affairs (paragraph 98(4) read with paragraph 75 of Schedule B1) and only if the court gives permission for such a claim to be brought (paragraph 75(6) of Schedule B1).

These proposals by the Administrators are opposed by the ICC. The ICC agrees that the administration should be brought to an end but maintains that the appropriate way forward is that the court should treat the Administrators’ application as an application under paragraph 79(1) of Schedule B1 to terminate their appointment on the grounds that the Administrators think that the purpose of administration has been sufficiently achieved in relation to the company (paragraph 79(3)(b)) and should require the Administrators to petition to put the company into compulsory liquidation. If the court decides that compulsory liquidation rather than dissolution ought to be the way forward, the Administrators have indicated that they would issue such a petition. The reason the ICC takes this stance is that it says that Hellas II has potentially viable legal claims against former management, investors and advisers which the Administrators have not properly investigated, or investigated with sufficient thoroughness. The ICC says that a liquidator could investigate more fully and effectively whether there are such claims, and if viable claims are identified and pursued that could result in a better recovery for the unsecured creditors. If the court decides that a liquidator should be appointed, there is a pressing need that that should be done quickly, because it appears that significant limitation periods under Luxembourg law affecting potential claims which Hellas II has there may be about to expire on 5 or perhaps 18 December 2011. The Administrators have made it clear that they do not think there is a sound basis for, or object to be served by, issuing such claims and they have declined the ICC’s request that they issue proceedings. If a liquidator is appointed and decides that it would be right to issue proceedings or take other steps to preserve such claims, that needs to happen quickly.

The ICC opposes the making of an order under paragraph 98 of Schedule B1 discharging the Administrators from liability. The main reason it takes this position is that it says the Administrators have suffered from conflicts of interest throughout the administration so that no aspect of their potential liabilities in respect of the affairs of Hellas II ought to be foreclosed by an order of the court and that it would not be appropriate to subject any claim which might hereafter be brought against them by the company (acting by its liquidator, if appointed) or the unsecured creditors for any wrongdoing or misfeasance to a requirement that the permission of the court is granted before it can be brought.

As regards the Part 8 claim, Weather III has requested Hellas II, acting by the Administrators, to pay over to it the extant balance of the Funded Costs Amount (“the Fund balance”). The Administrators deny that the whole of the Fund balance should be paid to Weather III. They maintain that, assuming the court endorses the Administrators’ proposals that the administration of Hellas II should be terminated and the company dissolved, a part of the Funded Costs Amount (€2m out of the Fund balance) should be retained to cover the costs of implementing those proposals and any costs of the Administrators in facing possible legal proceedings which might be brought against them.

In this regard, the ICC goes further. It maintains that if the ICC’s proposal that Hellas II be put into compulsory liquidation is endorsed by the court, the amount of the retention out of the Fund balance should be increased to the whole of that balance as a fund to cover the further investigation (and possible bringing of claims) by the liquidator which the ICC says should now be carried out. This wider submission is predicated upon an argument by the ICC, opposed by Weather III, that the Funded Costs Amount is properly to be regarded as a fund available to meet not only the costs of an administration but also the costs of a liquidation of Hellas II, should that follow. In relation to this wider submission and the argument on which it is based, the principal opposing parties were Weather III, represented by Mr Smith, and the ICC. However, as Mr Sheldon QC for the Administrators clarified at the hearing, the Administrators would support the ICC in its contentions as to the extent of the retention to be made if (contrary to the Administrators’ case) the court held that Hellas II should go into compulsory liquidation rather than be dissolved and agreed with the argument of the ICC as to the availability of the Fund balance to meet the costs of a liquidation.

There is one further matter that requires mention to explain the limits of the Part 8 claim as presently constituted. In order to bring a claim against Hellas II, as a company in administration, Weather III required either permission from the Administrators or permission from the court. Weather III sought and obtained the permission of the Administrators to bring a claim against Hellas II for the taking of an account of what had been done with the Funded Costs Amount and to claim the present Fund balance. No application was made to the court for permission to bring a more extensive claim. The Administrators have, unsurprisingly, said on behalf of Hellas II that they are happy to provide an account of the Funded Costs Amount, and Weather III therefore accepts that no order is necessary to deal with that. That leaves Weather III’s claim for payment to it of the Fund balance.

However, as part of Weather III’s case to support that claim, it contends that Hellas II was in fact under a duty to repay whatever was the relevant balance as at 27 November 2010. On the basis of that contention, Mr Smith for Weather III included in his skeleton argument an invitation to the court “to direct that the account to be provided by Hellas II shall be surcharged in respect of any payments made from the Trust Account after 27 November 2010 which were not in respect of Funded Costs which had been incurred at that date”. This was an attempt to introduce into the proceedings a further claim, namely to hold Hellas II liable for a money order in respect of alleged breaches of trust from 27 November 2010, for which no permission had been sought or obtained. Mr Sheldon rightly objected to this. He also said that, even if the basic contention were correct, Hellas II and the Administrators would maintain that they had good grounds of defence based on acquiescence by Weather III or should be relieved by the court from any liability since they had acted reasonably. Such points could not be dealt with in the present hearing. In the light of these points, Mr Smith then agreed that this wider claim for relief by Weather III could not be pursued in the Part 8 claim as presently constituted. He reserved Weather III’s position as to whether it might seek to bring any additional claim against Hellas II or the Administrators in the future.

After first setting out the factual background below, I will address the cash assets issue, then the Part 8 claim and finally the Administrators’ application.

Hellas II is a company registered in Luxembourg. It was set up as the finance company for a group of companies (“the Hellas group”). Its immediate parent is another Luxembourg company known as “Hellas I”. The subsidiaries of Hellas II included most importantly WIND Hellas Telecommunications SA (“WIND Hellas” – a company registered in Greece; WIND Hellas adopted that name in 2007, but I refer to it as WIND Hellas throughout the period reviewed in this judgment). WIND Hellas was the main operating company in the Hellas group. At all material times it has carried on a mobile telephone operating business in Greece.

It was in 2005 that WIND Hellas became part of the Hellas group. In June 2005 two private equity firms, Apax and TPG, bought 81% of WIND Hellas for €1,114.1m. Under the corporate structure put into place by Apax and TPG, WIND Hellas was owned by Hellas II, which at that time was a Luxembourg S.à.r.l.-type corporate entity. Hellas II was itself owned by Hellas I, also a Luxembourg company.

Also in June 2005, following the purchase of WIND Hellas, Hellas II made an issue of 490,000 convertible preferred equity certificates (“CPECs”) to Hellas I. The CPECs had an initial par value of €100 and an aggregate par value of €49m. An issue has arisen between the Administrators and the ICC whether CPECs have the character of equity or debt of the company which issues them. Certain of their characteristics are like shares, others are like debt notes. Their characterisation as debt or equity depends upon the particular terms of specific instruments and the legal or accounting purpose for which the characterisation is to be made.

In November 2005 Hellas II acquired the remaining 19% of WIND Hellas for €263.5m, taking the total consideration to €1,377.6m.

On 31 January 2006 Hellas II made a further issue of 282,681 CPECs to Hellas I for an aggregate par value of €28,268,100. Following this issue, Hellas II had 772,681 CPECs in issue at an aggregate par value of €77,268,100.

In April 2006 Hellas I redeemed 434,590 CPECs at their par value of €43,459,000, leaving 338,090 CPECs in issue at an aggregate par value of €33,809,000.

The CPECs were issued on terms that provided that they were subordinate to all other present or future obligations of Hellas II and ranked pari passu with any other CPECs; that they carried no voting rights prior to conversion into shares; that they would mature at par (€100) thirty years after the issue date; that no interest would be payable in respect of them; and that on the occurrence of a ‘conversion event’, as defined in the terms and conditions, there would be a right for Hellas II to offer to convert the CPECs into equity at par, an option for the holders of the majority of the CPECs then outstanding to require the company to exchange the CPECs for equity at par, and an option for Hellas II to redeem the CPECs (instead of converting them into equity) at the greater of i) the par value and ii) the optional redemption price, that being “the market value, on a fully diluted basis… of the conversion shares into which the CPEC would have been convertible or converted pursuant to [the relevant clause] reduced by 0.5%”, with such price to be determined by the board of managers of Hellas II on an arm’s length basis by reference to the equity value of Hellas II and its subsidiaries.

In April 2006 the par value of the CPECs was changed from €100 to €1.

On 18 December 2006, Hellas II was converted from an S.à.r.l. to an S.C.A. (a corporate form bearing similarities to a limited liability partnership and a joint stock company), with Hellas I becoming its general partner. In order for that conversion to occur, the management of Hellas II prepared a valuation of Hellas II dated 18 December 2006 (“the conversion valuation”) by reference to all of the assets and liabilities of the company to be contributed to the S.C.A. at their net book value as derived from the interim accounts as at 31 October 2006. Ernst & Young Luxembourg (“E&Y Lux”), a firm distinct from but related to E&Y UK, performed limited review procedures on those interim accounts and reported that nothing had come to their attention which indicated that the net value of the assets and liabilities of Hellas II did not correspond to at least the shareholders’ equity in the company. This net book value exercise did not constitute a market valuation of Hellas II by its management or by E&Y Lux.

Also on 18 December 2006 the Hellas group made a note issue of €97,250,000 senior secured floating rate notes due 2012, issued by a company known as Hellas V, an indirect subsidiary of Hellas II (“the senior notes”). Hellas II was a guarantor for the issue. The Hellas group also made a note issue of €960,000,000 and US $275,000,000 floating rate subordinated notes due 2015 (“the subordinated notes”). The subordinated notes were issued by Hellas II itself. The offering memorandum for the issue explained in the section on risk factors that “the proceeds from the sale of the notes will be used to repay and redeem [certain other identified notes], to make a distribution to the sponsors and to pay fees and expenses…” The reference to a distribution to the sponsors was a reference to the proposed redemption of the outstanding CPECs by Hellas II, by the making of payments by Hellas II (funded by the sums raised by the issue of the subordinated notes) up to Hellas I and from Hellas I up through the Hellas group structure to the private equity firms, Apax and TPG, which had acquired the Hellas group.

More detail on the intended use of the proceeds was given in the offering memorandum. A comment on the statement of sources and uses explained:

The offering memorandum also included a statement as follows:

Also on 18 December 2006, Hellas I as the general partner of Hellas II set the optional redemption price for the CPECs at €35.82 per €1 of CPEC and resolved to redeem CPECs with a par value of €27,321,600 for a total amount of €978,659,712. The equity value for Hellas II which is implied by this pricing of the CPECs has been calculated to be €1,273m.

The subordinated note issue was successful in raising €1,057,250,000 and US $275m for the Hellas group.

The redemption of and payment for the CPECs took place on 21 December 2006 under an agreement of that date made between Hellas II and Hellas I, presumably pursuant to a fair market valuation produced by the directors of Hellas II. That valuation has not been produced in the course of the investigation of the affairs of Hellas II by the Administrators, and they have not identified the process of reasoning by which the valuation implied by the redemption amount was arrived at. The €978m paid by Hellas II to Hellas I appears to have been passed up the corporate structure and paid out to the sponsors, Apax and TPG.

At the same time, an additional €544m was paid up the Hellas group corporate structure through the redemption of what were referred to as “PIK notes” and €53.8m was incurred in costs. Thus the whole €1,572m raised by the December 2006 note issues was employed in distributions to Apax and TPG and in meeting the costs of the issues.

The effect of the issue of the notes and the redemption of the CPECs and PIK notes was that deeply subordinated funding provided to the Hellas group by Apax and TPG via the group finance company Hellas II was repaid and replaced by subordinated funding from the general bond market provided by the purchase of the subordinated notes.

Hellas II prepared both stand alone and consolidated accounts for its year ending 31 December 2006. The stand alone accounts are stated to be prepared in conformity with applicable legal and statutory requirements in Luxembourg. They include the CPECs which remained outstanding at the year end under note 8 as “amounts owed to shareholders” (i.e. as debt) and record the December redemptions under the same note. Capital and reserves are shown as having a negative balance at the year end of €997m, largely due to the loss of €951m incurred on the redemption of the CPECs. Almost all the liabilities are those represented by the note issues made in December 2006. Trade creditors at the year end were €181,949.

The consolidated accounts for Hellas II and its subsidiaries are stated to be prepared in accordance with international financial reporting standards (IFRS). In relation to the CPECs, the notes to these accounts state:

In February 2007 the Weather group bought Hellas II and its subsidiaries from Apax and TPG for €500m and, as part of the transaction, also assumed the €2.9 billion net debt of the Hellas group. The Hellas group, as bought by the Weather group, had sustained the distribution of €1.5 billion to the sponsors in December 2006 and the debt taken on to make that distribution.

From about mid-2009 the Hellas group, and Hellas II in particular, suffered liquidity problems. About three months before the Administration Order was made, Hellas II moved its centre of main interests to the United Kingdom so as to be able to take advantage of the United Kingdom’s relatively flexible insolvency regime in support of what was hoped would be a restructuring of the finances of Hellas II.

The position before Hellas II was placed into administration on 26 November 2009 was as follows. It owed some €1.8 billion to the holders of the senior notes, who held security for their lending to the company. It also owed some €1.24 billion to the holders of the subordinated notes, who were in substance unsecured creditors.

The holders of the subordinated notes at the time Hellas II went into administration were the creditors who came to be represented by the ICC. The members of the ICC are SPQR Capital LLP (“SPQR”), a holder of subordinated notes represented by Mr Bernard des Pallieres (“Mr des Pallieres”) and Mr Laurence Sudwarts (“Mr Sudwarts”), Mara Holdings Limited, another holder of subordinated notes represented by Mr Michael Hodges, and Mr Nicolaos Geurgoulas, who is another holder of subordinated notes.

In the period up to the making of the Administration Order the management of Hellas II reviewed various restructuring options. In the event, Hellas II held a competitive auction for WIND Hellas, which was in effect its sole valuable asset. In order for a sale of WIND Hellas to proceed, the consent of the holders of the senior notes issued by the Hellas group was required, as any such transaction would require them to release their security interests in relation to WIND Hellas. In the course of the auction, Mr Matthew Tippetts, who had continuing links with the Weather group which then owned Hellas II, had a significant degree of control over the management of Hellas II. Morgan Stanley acted as adviser to Hellas II in relation to the auction.

The auction developed into a contest between bids by the holders of the subordinated notes as a group and the Weather group, using Weather III as its acquisition vehicle. The proposal was that once the outcome of the auction was known, Hellas II would be placed into administration and the administrators would then implement the sale of WIND Hellas pursuant to the successful bid. Ms Mills and Mr Hudson were therefore engaged prior to the making of the Administration Order to fulfil a role monitoring the auction held by the management of Hellas II, so that by their work in that period they could satisfy themselves that as soon as they were appointed under the Administration Order it would be appropriate promptly to sell WIND Hellas to the successful bidder without further delay.

The holders of the senior notes preferred the bid by the Weather group and the management of Hellas II therefore proceeded to make an application to Lewison J to invite him to make the Administration Order. This was on the footing that the Administrators should be appointed and should be directed to enter into a Share Purchase Agreement on behalf of Hellas II with Weather III for the sale of WIND Hellas to Weather III on terms which had already been agreed in principle with Weather III. Such applications to court are sometimes referred to as “pre-pack” applications and Ms Hilliard for the ICC characterised it as such. However, as Lewison J noted in his judgment, the situation was unlike many “pre-pack” arrangements, in that there had been a lengthy bid process: Re Hellas II at [7].

The terms of the bid by Weather III were that it would acquire WIND Hellas from Hellas II in return for i) assuming the obligations of Hellas II in relation to the senior notes, ii) payment of €10,000 to Hellas II and iii) payment of €10m to Hellas II to be held on trust and used to meet the costs of the administration (i.e. the Funded Costs Amount). Weather III’s bid therefore left the unsecured creditors of Hellas II completely exposed to the loss of €1.24 billion, save to the extent that Hellas II had cash assets (as it transpired, the €222,704 referred to above, which included the €10,000 to be paid by Weather III) and could bring viable claims against third parties to recover any part of the very substantial losses it had suffered, following from investigation by the Administrators of the affairs of the company funded out of the Funded Costs Amount.

The substantial size of the Funded Costs Amount indicated that the Administrators were to be funded well beyond the period and work required to complete the sale of WIND Hellas to Weather III. I was not shown the evidence placed before Lewison J in Re Hellas II, which I am told was substantial. However, Mr Sheldon was present at the hearing and told me that the Funded Costs Amount was put forward to the court as a positive feature of the proposed transaction which should encourage the court to make the Administration Order because it meant that the administration would be funded beyond the entry into and completion of the sale agreement, i.e. for the benefit of the unsecured creditors.

The application to Lewison J was not contested by the holders of the subordinated notes (who were the losing bidders), although they did put in evidence alleging that there had been unfairness in the bid process, which they complained had been skewed in favour of the Weather group: see Re Hellas II at [6]-[7]. To meet those complaints and to satisfy Lewison J that it would be appropriate to make the Administration Order, there was extensive evidence put in about what had been done to evaluate the bids, about the role of the (proposed) Administrators and about the involvement of Ernst & Young firms with Hellas II and the Hellas group of companies in the past.

As to this last matter, Lewison J was informed about the following:

E&Y UK had prepared an independent business review of the Hellas group in July 2009 for its management;

the Administrators’ monitoring role in relation to the auction of WIND Hellas in 2009; and

Ernst & Young Greece (“E&Y Greece”, a firm distinct from but related to E&Y UK) had been the auditor of the accounts of WIND Hellas for a period to the year ended 31 December 2006 (i.e. before it was acquired by the Weather group in February 2007).

E&Y Lux had been auditor of the published accounts of Hellas II up to its accounts for the year ended 31 December 2006, which were published in July 2007 (i.e. the accounts covering the period in which Hellas II redeemed the CPECs and issued the subordinated notes) and had reported on the conversion valuation when Hellas II converted to become an S.C.A..

Although the holders of the subordinated notes appeared before Lewison J to complain about the fairness of the auction process, they did not complain that the matters at sub-paragraphs i) to iii) above gave grounds for any objection to the appointment of the Administrators on the basis that they would be subject to a conflict between their firm’s (or related firms’) interests and their duties as Administrators. Even on the present application when points on conflicts of interest have been made by the ICC, Ms Hilliard has not pointed to any substantial objective or relevant ground which might give rise to any significant concern that the matters at sub-paragraphs i) to iii) above gave rise even to an appearance of a relevant conflict of interests on the part of the Administrators, let alone that they may actually have inspired the Administrators to fail to carry out their duties as administrators and to pursue their investigations as such with proper thoroughness.

So far as the matters at sub-paragraph iv) above are concerned, the omission of provision of information to the court about this matter was spotted in time for the application to the court for an extension of the Administration Order in October 2010. A witness statement was put in to explain the position and was served on the ICC. The ICC agreed to the extension of the Administration Order and did not suggest that the matters at iv) above gave any grounds for thinking that they created any significant conflict of interests so far as the Administrators were concerned.

In May 2011 there was a further application by the Administrators to the court for an extension of the Administration Order. On this occasion, Mr Sudwarts wrote a letter dated 4 May 2011 saying that the ICC again supported the application for the administration to be continued, even though on this occasion he did seek to suggest that the Administrators were subject to conflicts of interest by reason of the matters at sub-paragraph iv) above. It is difficult to conclude that Mr Sudwarts had any serious or overriding concerns relating to possible conflicts of interest of the Administrators at this stage since he positively supported the continuation of their appointment to investigate the affairs of Hellas II and any claims it might have.

Again, Ms Hilliard did not point to any substantial objective or relevant grounds to suggest that the involvement of E&Y Lux in relation to Hellas II created any appearance of conflict or significant risk of actual conflict of interests for the Administrators in carrying the Administration Order into effect. I accept the evidence of Ms Mills, explaining why in the particular context of this case the Administrators are satisfied that they have not been acting in circumstances involving any relevant conflict of interest.

On 26 November 2009 Lewison J decided that, notwithstanding the complaints of the holders of the subordinated notes regarding the alleged unfairness in the bid process, the Administration Order should be made. He also used the authority of the court positively to sanction the sale of WIND Hellas to Weather III on the terms of Weather III’s winning bid: See Re Hellas II at [9]. This represented the decision of the court that entering into this sale was the only positive way forward for the Administrators to take in the circumstances.

On 27 November 2009, the day after the Administration Order was made, the Administrators caused Hellas II to enter into a Share Purchase Agreement with Weather III for the sale of WIND Hellas to Weather III (“the SPA”). Under the terms of the SPA, Weather III acquired the assets of Hellas II, including in particular the share capital in WIND Hellas, and in return Hellas II was released from its obligations under the senior notes (and the Weather group assumed those liabilities), Weather III paid Hellas II €10,000 (in context, a nominal sum) and Weather III paid Hellas II €10m as the Funded Costs Amount to be held on trust and used for certain purposes defined in the SPA, with any balance left after those purposes came to an end to be held on trust for Weather III. Accordingly, the Funded Costs Amount did not fall to be treated as part of the assets owned by Hellas II available for distribution to its creditors. I set out the relevant parts of the SPA in relation to the Funded Costs Amount below.

So far as the holders of the subordinated notes were concerned, after the SPA was entered into and completed, everything turned on whether viable claims by Hellas II or the Administrators could be identified after investigation of the affairs of Hellas II by the Administrators. Any sum so recovered would, after deduction of the costs involved in realising it, be available for distribution to Hellas II’s unsecured creditors. The holders of the subordinated notes held by far the greatest part of Hellas II’s unsecured debts. Weather III was the only other potential unsecured creditor, claiming that it was owed €5.725m by Hellas II in relation to certain costs associated with the bid process.

By reason of the way in which the subordinated notes are structured, the legal title to the debts which they represented was vested in a single trustee (“the note trustee”) which was required to represent the interests of the holders of the beneficial interest in those debts. In substance, it is those beneficiaries, the holders from time to time of the subordinated notes, who are the creditors of Hellas II in relation to the subordinated notes. Under the terms of the instruments governing the subordinated notes, where certain conditions are fulfilled the holders of the subordinated notes are entitled to call for the issue by Hellas II to them of what are called “Definitive Notes”, i.e. notes representing that portion of the overall debts represented by the subordinated notes held by the particular beneficiaries in which the legal title is now vested in those beneficiaries (bypassing the involvement of the note trustee).

Some time after causing Hellas II to enter into the SPA, the Administrators issued a set of proposals (known as “the amended proposals”) regarding the process to be adopted for investigating possible claims by Hellas II against third parties, including provision for involvement of the ICC in making suggestions for lines of inquiry and involvement of a QC to advise the Administrators and the ICC regarding the merits of possible claims which might be identified. These measures have provided additional protections for the holders of the subordinated notes to try to ensure that possible claims by Hellas II are carefully examined and reviewed.

The Administrators have carried out extensive investigations. They have followed up lines of inquiry suggested by the ICC. They have instructed lawyers in Greece and Luxembourg to give advice. They have also instructed suitable leading counsel, Rhodri Davies QC, to advise them and the ICC.

The Administrators have now come to the conclusion that there are no viable claims which Hellas II could bring which would offer any reasonable prospect of success so as to be worth pursuing. Since the cash assets of Hellas II have been expended by them on the costs of the administration, they have formed the view, therefore, that Hellas II has no property which might permit a distribution to its creditors and therefore propose to serve a notice to that effect pursuant to paragraph 84(1) of Schedule B1.

Meanwhile, certain holders of subordinated notes have commenced proceedings in New York to compel the issue of Definitive Notes to them. The Administrators have been joined as parties in those proceedings.

The relevant provisions in the SPA which bear upon the operation of the fund constituted by the Funded Costs Amount are as follows. The parties to the SPA are set out as including:

the administration of the Seller;

any proceedings, execution or other legal process commenced or continued by or against the Administrators, the Seller or the Seller’s property;

the discharge of the administration of the Seller; and

any subsequent liquidation, scheme of arrangement or voluntary arrangement of the Seller.

pay to the Seller the Consideration as set out in Clause 3.1.1 by telegraphic transfer in immediately available funds to the account to be notified to the Buyer in accordance with Clause 3.1.3;

pay the Funded Costs Amount by telegraphic transfer in immediately available funds to the Trust Account; …”

Completion occurred on 27 November 2009. The Funded Costs Termination Date, as defined, was 27 November 2010.

Under paragraph 3(2) of Schedule B1, the Administrators are obliged to perform their functions in the interests of the company’s creditors as a whole. By virtue of clause 3.3.1 of the SPA, the Administrators have permission and authority to use the fund constituted as the Funded Costs Amount for the purposes of discharging the Funded Costs. In choosing what investigations to make, where to incur expenses and from what fund they should be paid, the Administrators were performing their functions as Administrators and were therefore obliged to act in the interests of the company’s creditors as a whole. The interests of the company’s creditors as a whole were that assets available for distribution to them should be preserved, so long as the Administrators were able to fund their investigations from other sources of funds - as they were in this case by using the Funded Costs Amount.

Analysed in this way, I consider that the Administrators were clearly obliged to fund their investigations from the Funded Costs Amount before having recourse to the cash assets of Hellas II. They should not have used those cash assets to fund their investigation before having recourse to the Funded Costs Amount, as in fact happened, thereby depleting and using up assets which could have been distributed to the unsecured creditors of Hellas II.

Mr Smith, for Weather III, sought to defend the Administrators’ decision to use the cash assets of Hellas II before using the Funded Costs Amount on the grounds that Hellas II had duties as trustee of the Funded Costs Amount owed to Weather III under clause 3.3.1. He submitted that Hellas II (and the Administrators as its agents) were therefore obliged to administer the trust property (the Funded Costs Amount) with care and so as to preserve it; with the consequence that the Administrators were entitled to choose to use the cash assets to meet the costs of the administration before having recourse to the Funded Costs Amount. Mr Sheldon adopted that submission as well.

I reject this contention. In my view, since clause 3.3.1 of the SPA gave Hellas II (and its agents, the Administrators) permission and authority to apply the Funded Costs Amount for the purposes of discharging the Funded Costs (including in particular the costs associated with the administration of Hellas II), Hellas II (and the Administrators) had the right to use the Funded Costs Amount for those purposes before using up its own resources. To do so would involve no breach of obligation owed to Weather III. In using the Funded Costs Amount for that purpose Hellas II (and the Administrators) were exempt from any obligation to act to preserve the Funded Costs Amount for the benefit of Weather III. There was, therefore, no obligation owed to Weather III to set against the general duty of both company and the Administrators to act in the interests of the creditors as a whole to preserve so far as possible any assets which might be available to be distributed to them.

When read in conjunction with the insolvency code, I consider that the terms of the SPA, and clause 3.3.1 in particular, create an order of priority according to which the costs of the administration were first to be met from the Funded Costs Amount before any distributable assets of the company were used for that purpose. This view is reinforced by the fact that the commercial object of establishing the Funded Costs Amount was that it should be used to fund investigations for the benefit of the unsecured creditors of Hellas II.

Mr Sheldon also referred to In re Atlantic Computer Systems Plc [1992] Ch 505 (CA) in order to suggest that, even if it could now be seen that the Administrators should treat the Funded Costs Amount as a fund to be used to meet the Funded Costs in relation to the administration before having recourse to the company’s own cash assets, they could not be criticised for using the cash assets on an interim basis before the position was clarified. It is unnecessary to delve further into this question for the purposes of deciding the matters before me.

The effect of success for the ICC on the cash assets issue is two-fold. First, the current balances which the Administrators have given for the cash assets fund (which is nil) and the Funded Costs Amount (which is about €6m) fall to be reconstituted to reflect the fact that the cash assets should only have been depleted if the Funded Costs Amount was first used up. The cash assets fund is to be treated as having a current balance of €222,704 (plus interest, if appropriate), while the current Fund balance is to be reduced by a corresponding amount. Secondly, it means that paragraph 84(1) of Schedule B1 does not apply as things stand, since Hellas II does have property (the current balance of the cash assets, as properly stated) which is available to permit a distribution to its creditors.

The five principal issues which arose under this heading were (i) whether the Administrators had given proper notice under clause 3.3.2 of the SPA of the Funded Costs projected to be incurred after the Funded Costs Termination Date (27 November 2010) in a letter dated 26 October 2010; (ii) the effect in relation to the Funded Costs Amount if no such proper notice was given; (iii) whether the definition of “Funded Costs” covers expenses and liabilities of the Administrators and Hellas II beyond those incurred by proper exercise by the Administrators of their functions within the parameters allowed to them under the insolvency code; (iv) whether the definition of “Funded Costs” covers legal expenses of the Administrators which might be incurred by them after their appointment comes to an end, but to meet claims said to arise in relation to the exercise of their functions as Administrators while the Administration Order has been in effect; and (v) whether the definition of “Funded Costs” covers costs which may be incurred if Hellas II now goes into compulsory liquidation. The extent to which (if at all) a retention may be made out of the Fund balance now claimed by Weather III depends on these issues. I deal with them in turn.

By letter dated 26 October 2010, shortly before the Funded Costs Termination Date, the Administrators wrote to Weather III to report on the state of the administration. It is this letter that is relied on by the Administrators as containing a projection of Funded Costs after 27 November 2010 under clause 3.3.2 of the SPA so as to justify the non-payment of the remaining balance of that fund to Weather III and the continued retention of the Funded Costs Amount after that date in accordance with clause 3.3.3. (In fact, Weather III extended time for a projection to be sent until 3 December 2010 and the Administrators sent another letter on that date, but it added nothing of substance to the letter of 26 October 2010).

The letter of 26 October 2010 explained that the Administrators’ investigations were continuing and that accordingly “it is not possible at this point in time for the Administrators to predict the likely outcome or consequences of either the investigations or the administration more generally.” The Administrators explained that the current balance of the fund was €8,928,955, gave an estimate for Funded Costs likely to be incurred but not discharged by 27 November 2010 (an element relevant to calculating any sum due to be paid to Weather III under clause 3.3.3, albeit not something distinctly required to be set out in a notice under clause 3.3.2) and said this about Funded Costs projected to be incurred after 27 November 2010:

Mr Smith for Weather III submits that this letter did not provide a “calculation with sufficient detail” to show the amount of projected Funded Costs after 27 November 2010 so as to comply with clause 3.3.2(a) of the SPA, and that the statement that the Administrators were “unable to project the amount of Funded Costs” after that date clearly meant that the letter did not contain a projection of such costs. I do not accept these submissions.

It is fair to state that in this respect the letter is not well-drafted. However, in the context of an agreement which was intended to address investigation of a situation of great uncertainty, where the parties contemplated that investigations and possible legal action as a result might have to extend well beyond the Funded Costs Termination Date and hence provided a mechanism in clauses 3.3.2 and 3.3.3 for the Funded Costs Amount to remain available beyond that date, I consider that on proper interpretation of clause 3.3.2(a) a calculation with sufficient detail to show projected Funded Costs could take the form of explaining that there were ongoing contingencies which would affect the amount of the Funded Costs to be incurred after the relevant date and that in light of those contingencies the Funded Costs projected to be incurred after that date were in an amount exceeding the then balance of the Funded Costs Amount. This is an interpretation which in my view accords with the standard meaning of projection given in the Oxford English Dictionary as “an estimate or forecast of a future situation based on study of present trends” and is properly informed by the context in which the SPA was entered into. In my judgment (notwithstanding the incautious statement that the Administrators were unable to make a projection) the substance of the message contained in the letter of 26 October 2010 was to this effect, and so complied with the requirements of clause 3.3.2(a) by giving a projection of Funded Costs to be incurred as greater than or equal to the balance in the fund, and by explaining why that was the case.

Since the Administrators gave a valid projection of the Funded Costs to be incurred after 27 November 2010 in good time before that date, in an amount which meant that according to the calculation under clause 3.3.3 there was no excess due to be paid to Weather III on that date, Hellas II was entitled to retain the balance of the Funded Costs Amount at that date to be spent on further investigations and the matters listed in the definition of “Funded Costs” in the SPA. Subject to the further points considered below, those purposes continue to be relevant and accordingly, to the extent that they are, Hellas II continues at this stage to be entitled to retain the balance of the Funded Costs Amount against future Funded Costs to be incurred.

In view of my ruling above, this issue does not arise. If it had done, I would have been inclined to accept Mr Smith’s submission that the permission and authority for Hellas II and the Administrators to retain the Funded Costs Amount after 27 November 2010 would have come to an end at that date, with the result under clause 3.3.3 that the balance of the fund would have become repayable to Weather III at that date.

The key provision here is the definition of “Funded Costs” in the Agreement. The concept covers “costs and expenses” incurred by or awarded against “the Administrators” and “costs and expenses” incurred by or awarded against the Seller. “The Administrators” are defined in the SPA as Ms Mills and Mr Hudson “in their capacities as administrators of the Seller” – “the Administrators” are those specified individuals, and not any replacement administrators should they drop out of the picture (e.g. if they died, became ill or retired).

In so far as one looks at costs and expenses incurred by the Seller, it is clear that if the Administrators are to have a valid claim against the assets of Hellas II they must act within the parameters allowed them under the insolvency code. So, for example, if the Administrators incur legal expenses on behalf of Hellas II in the course of the administration and wish to recover those expenses from Hellas II, they can only do so if the expenses have been incurred in the proper exercise of their functions as Administrators.

In my view, it is only by virtue of the reference in the definition of “Funded Costs” to costs and expenses incurred by the Seller that the Administrators are entitled to recover their own remuneration in the administration (or, at least, the profit element thereof). Their own remuneration is not a cost or expense incurred by them; it is a cost or expense incurred by the Seller. This interpretation is supported not only by the ordinary meaning of the words used in the definition, but also by reference to rule 2.67(1) of the Insolvency Rules 1986 governing the expenses of an administration, which draws a distinction between “expenses properly incurred by the administrator in performing his functions in the administration of the company” (sub-paragraph (a)) and “the administrator’s remuneration …” (sub-paragraph (h)). Accordingly, the Administrators’ remuneration may only be paid out of the Funded Costs Amount to the extent that it is properly incurred in accordance with the insolvency code. (What appears to be a drafting glitch in the SPA should be noted here: the second sentence of clause 3.3.1 refers only to discharge of costs “as they are incurred by the Administrators”, and does not refer to costs incurred by the Seller: for the purposes of this judgment it is not necessary to explore further the true meaning and effect of that sentence).

Turning to the costs and expenses “incurred by or awarded against the Administrators”, I accept the submission of Mr Smith that the same position applies: such costs and expenses only qualify as “Funded Costs” under the SPA if they are properly incurred by the Administrators in accordance with the insolvency code. I reject Mr Sheldon’s submission that the Administrators have some wider right of recoupment out of the Funded Costs Amount in relation to their costs or liabilities, even if incurred by actions of theirs which do not comply with the insolvency code:

The definition of “the Administrators” requires them to act “in their capacities as administrators” of Hellas II. In my view, they are required to act properly in such capacity. They do not truly act in their capacities as administrators in so far as they do things wrongly, improperly or otherwise outside the proper scope of the functions given to them as administrators under the insolvency code;

It is not plausible to suppose that Weather III intended that the Administrators should be entitled to have recourse to the Funded Costs Amount if they acted wrongly, improperly or otherwise outside the proper scope of the functions given to them as administrators under the insolvency code, nor to suppose that the Administrators would have thought they could reasonably demand to be so entitled. On an objective interpretation of the SPA, therefore, the protection afforded them by the provision of the Funded Costs Amount is limited to circumstances in which they act properly in accordance with the insolvency code;

It is true that the definition of “Funded Costs” refers to costs and expenses (including damages) awarded against the Administrators “in their personal capacities”, but that is said to be “for the avoidance of doubt”. In my view, the effect of this language is not to extend the protection for the Administrators to cover any personal liability they may incur in relation to the administration (e.g. for misfeasance in that role), but simply to make it clear that if the Administrators incur personal liabilities while properly acting as such and cannot recoup the amount of such liabilities from the company (for want of assets), they are nonetheless entitled to recoup the amount from the Funded Costs Amount;

The position in relation to the Administrators’ own remuneration is an indicator in favour of the interpretation I prefer. If the Administrators are not entitled to be paid their own fees save to the extent that they act properly in accordance with the insolvency code, it is difficult to see why they should be able to recover other costs and expenses on a wider basis.

Mr Smith submitted that the definition did not cover the legal costs of the Administrators arising after their appointment comes to an end, even though they may relate to their costs of defending themselves in respect of proper actions taken by them while acting as administrators. I reject this submission. In my view, where the Administrators incur legal costs to defend themselves in respect of such proper actions taken by them, they incur such costs “in their capacities as administrators of the Seller” (i.e. within the definition of them as “the Administrators”) and hence they are covered by the definition of “Funded Costs” in the SPA. This interpretation is supported by the way in which the insolvency code operates, according to which such expenses will be recoverable as a cost of the administration: see paragraph 99 of Schedule B1. Against that background, on an objective approach, the parties intended the Administrators to have similar coverage, but with the protection of recourse to the Funded Costs Amount. Moreover, the interpretation of the definition which Mr Smith urged would lead to odd and adventitious results which cannot realistically have been intended: if someone happened to sue the Administrators during the course of the administration they would be protected, but if by chance the action were commenced the day after the administration ended they would not be.

In my judgment, contrary to the submission of Mr Smith and the view of the Administrators, the definition does cover the costs of a liquidation:

The basic commercial object in setting up the Funded Costs Amount was to provide funds for investigation of the company’s affairs and the bringing of claims (if appropriate) to create assets in the company’s hands which could be distributed to the unsecured creditors: see para. [41] above. That objective informs the proper interpretation of the SPA. When the SPA was entered into, the parties must have contemplated that there might be a range of circumstances in which the Administrators might conclude that the best way to carry forward that objective would be for the company to be put into liquidation, to take advantage of powers and remedies available to a liquidator but not available to an administrator to promote that objective: e.g. the power to conduct an examination in public under section 133 of the 1986 Act, or to use the summary procedure under section 212, or to pursue the substantive remedies available to a liquidator under sections 213 (fraudulent trading) and 214 (wrongful trading). Therefore, the natural intention and expectation of the parties, judged on an objective approach, was that in such circumstances the company could move from administration to liquidation without losing the benefit of the Funded Costs Amount;

The structure and language of the definition of “Funded Costs” supports this interpretation. The coverage in the definition in relation to costs and expenses incurred “by the Administrators” is personal to Ms Mills and Mr Hudson. If they died or retired and were replaced as administrators by other partners in E&Y UK, those new administrators would not be covered by this part of the definition of “Funded Costs”. But in such circumstances, the parties obviously intended that the administration should continue and that the costs of it would be covered by the Funded Costs Amount (as, indeed, Mr Smith accepted). In such a case, the new administrators would be covered by the part of the definition of “Funded Costs” which refers to costs and expenses incurred by the Seller, since the new administrators would act as agents for the Seller in incurring costs in the administration. What this demonstrates is that the coverage of “Funded Costs” extends beyond a situation in which “the Administrators” (as defined) are in place. The definition is apt to include costs and expenses incurred by the company acting by other relevant agents, including new administrators; and the same reasoning applies to cover costs and expenses incurred by the company acting by a liquidator, if one is appointed;

Against this, Mr Smith sought to argue that the words “(in administration)” after the name of Hellas II in the definition of the Seller indicated that the parties intended that the Funded Costs Amount should be available only while the company is in administration, and not thereafter. I regard this as a very weak indicator which is clearly outweighed by the point at i) above. The definition of “the Seller” simply identifies Hellas II, and the words “(in administration)” are just part of its proper identification as at the date of the SPA. They cannot be made to bear the substantive weight which Mr Smith sought to place on them in this part of his submissions;

It is of some significance that it is Hellas II – not the Administrators - which holds the Funded Costs Amount and is trustee of it. That is an indicator that the fund was intended to be available for the purposes of Hellas II (representing, by the time of the SPA, the interests of its unsecured creditors) rather than just for the purposes of the Administrators. The interests of the unsecured creditors could clearly extend beyond the administration and into a liquidation of the company;

The reference in the definition to the costs and expenses of the Seller “in respect of … (d) any subsequent liquidation …” supports this interpretation. There is no sound reason why these words should be read as focusing only on the costs of administrators in arranging for the company to go into liquidation, as Mr Smith urged. Their natural tenor is much wider than that. It is difficult to see why the draftsman would have singled out such (fairly minor) costs of the administrators for special and specific treatment in the wording of the definition.

My conclusion on this point of interpretation is of considerable significance for the Part 8 claim and for the Administrators’ application. Since I conclude in relation to the latter, below, that the proper course now is for Hellas II to go into compulsory liquidation and since there therefore remains a similar level of uncertainty and contingency in relation to future Funded Costs to be incurred as there was when the Administrators wrote their letter of 26 October 2010, the commercial logic is that the Fund balance ought still to be retained by Hellas II because it remains possible that the Funded Costs in future will exceed the amount of that balance. Therefore, the Part 8 claim by Weather III fails and falls to be dismissed.

The Administrators were appointed by order of the court dated 26 November 2009. Paragraph 84 of Schedule B1 provides:

Paragraph 98 of Schedule B1 provides:

Paragraphs 74 and 75 of Schedule B1 provide:

Paragraph 79 of Schedule B1 provides:

It was common ground that it is possible to challenge a conclusion of an administrator under paragraph 84(1) that he thinks there is no property of a company available to make a distribution on the basis that the conclusion is irrational, in the sense that no reasonable administrator in the particular circumstances could properly reach that conclusion. However, subject to the cash assets issue, Ms Hilliard conceded in the course of her submissions (rightly, in my opinion) that she could not complain that the conclusion of the Administrators in this case was irrational or unlawful in this sense. She accepted that they had carried out such investigations as allowed them rationally to conclude that, in their judgment, Hellas II did not have viable claims to bring against third parties.

However, by reason of the success of the ICC on the cash assets issue as set out above, it is clear that the Administrators are mistaken in their view and (particularly in light of the judgment of the court) could not rationally or properly adhere to that conclusion in the present case. Therefore, it is not strictly necessary for the court to make an order under paragraph 84(2) to disapply paragraph 84(1). However, even if I were wrong about that, I consider that the proper way forward is for the company to go into compulsory liquidation rather than be dissolved.

If a notice is properly given under paragraph 84(1), it remains open to creditors to apply under paragraph 84(7) for an order that the company not be dissolved and also to petition for the company to be put into liquidation. In this case the Administrators have indicated that, if the court is of the view that the company should go into liquidation, they will act further to the relevant notice they have given under paragraph 79 of Schedule B1 and make the necessary application rather than compelling the creditors to make it themselves.

The remaining issue of substance between the parties is whether it is right for the company now to go into compulsory liquidation. In my view, it is.

I address the question on the basis that a significant proportion of the unsecured creditors wish that to occur, and they are unopposed by any other creditors (other than, I think, Weather III, if it is properly to be regarded as a creditor; but its interests as creditor are tiny by comparison and are compromised by its more vital concern to preserve the Fund balance to be repaid to it). There would be nothing to stop them from petitioning to put the company into liquidation. Would a court be likely to grant such an application? In my view, it would.

In the ordinary course, if creditors wish an insolvent company to go into liquidation in order for its affairs to be examined by a liquidator and there is no significant opposition from other creditors, the court will accede to such an application. Under the old law, it used sometimes to be said that the application would be granted “ex debito justitiae”, so strong was the legitimate interest of a creditor to place an insolvent debtor company into liquidation taken to be. The basic rule now cannot be expressed so strongly, but the courts still give great weight to the interests and desires of creditors of an insolvent company who wish to place it into liquidation: “The basic rule is that where a creditor petitioner’s debt is undisputed and not satisfied and there are no exceptional circumstances, the creditor is entitled to expect the court to exercise its jurisdiction in the way of making a winding-up order” (Derek French, Applications to Wind Up Companies, 2^nd ed. (2008), p. 537, and see the discussion of “Ex debito justitiae” at pp. 537ff).

In the present case there are, in my view, no exceptional circumstances sufficient to displace that basic rule; and several reasons why it should be followed.

The court will not order a winding-up after an investigation by administrators if to do so would serve no useful purpose: the court will not act in vain. It is also the case that the Administrators have conducted appropriate investigations of the affairs of Hellas II and have reached the rational and lawful conclusion as a result that, in their judgment, the company has no viable claims likely to result in an increase in the property available for distribution to creditors. But in my view that is not determinative of the matter.

Although the Administrators’ judgment in this regard could not be attacked as irrational or under paragraph 74 of Schedule B1, it has not been established that they have managed to get fully to the bottom of events and to lay out clearly to view the reasons why Hellas II suffered the very large and catastrophic losses it did. It has not been established that there is no fair or reasonable prospect of a liquidator being able to push further down the same avenues of inquiry as the Administrators, or being able to explore additional avenues which may potentially be relevant but which do not appear to have been the subject of close critical evaluation by the Administrators, such as in relation to the role of E&Y Lux as auditors of the accounts of Hellas II. Although the Administrators’ judgment that they have investigated to a reasonable degree is a rational one, it is possible that a liquidator could equally rationally conclude that further investigations could properly be made and that the possibility that there may be viable claims should not be entirely written off at this stage. There is, moreover, still a proper basis for the investigation of the company’s affairs to fulfil the wider purposes of a winding up emphasised by Lord Millett in Re Pantmaenog Timber Co. Ltd[2003] UKHL 49; [2004] 1 AC 158 at [64].

Although there may be good reasons to think that the redemption of the CPECs in December 2006 was pursuant to a market valuation of the Hellas group properly arrived at (when compared with the success of the issue of the notes and the price paid by the Weather group shortly thereafter), the document containing the valuation by the management of Hellas II has not in fact been located, nor does it appear that the management has given a clear explanation of the basis or justification for the valuation they seem to have made. In my view, there is clearly scope for such issues to be probed further, if a liquidator takes the view that they should be. Similarly, there may be good reasons to think that the losses suffered by Hellas II can best be explained by the deterioration in the market from 2007; but that is a matter of broad assessment, and not the product of close detailed analysis of precisely how the losses occurred. Again, there is clearly scope for such issues to be probed further, if a liquidator takes the view that they should be. Where such huge losses are suffered by a company in such a short period of time as in this case, the court is bound to be sympathetic to the plea of unsecured creditors who ask for its affairs to be examined very thoroughly, including in a liquidation if they are dissatisfied with the examination conducted by administrators (even though they cannot say that those investigations were improper or insufficient as a basis for the administrators to reach their own business judgment about how to proceed).

On the question whether the company should be dissolved or put into liquidation, the Administrators have no proper interest of their own at stake (the administration will come to an end either way), and the ICC is not confined to an attempt to attack their view in that regard under paragraph 74 of Schedule B1. It is entitled to invite the court to exercise its own discretion in the circumstances which apply now, and in light of the basic rule referred to above, to say that the company should be placed into liquidation.

By reason of my ruling in relation to the Funded Costs Amount above, there are funds available for a liquidation. In any event, I was told that there is a serious prospect that a liquidator could be appointed who would make initial investigations at no charge and that holders of the subordinated notes would be willing to fund a liquidator to the extent necessary to satisfy their interest in pursuing investigations further.

For these reasons, I conclude that the appropriate way forward is for the company to go into compulsory liquidation. The Administrators have indicated that they will make the necessary application in order for that to happen. In view of the urgency in relation to expiry of limitation periods, it may well be appropriate for a provisional liquidator to be appointed who can take action to preserve the position of the company. That is a matter on which the parties can address the court in due course.

In my view, there are no good grounds to depart from what I was told is the usual practice of ordering that an administrator be discharged from liability under paragraph 98 of Schedule B1 to take effect 28 days after he has filed his final report. The reason that it will usually be right to order such a discharge is that the administrator will no longer retain in his hands the assets of the company out of which he is entitled to meet any liability properly incurred by him, so that it is unfair to leave him on risk generally. In so far as there is a good arguable case against him of improper conduct or misfeasance, that can be proceeded with after the discharge is given, in accordance with paragraph 98 of Schedule B1 read with paragraph 75.

That balancing of interests is in my view particularly appropriate in the present case. The 28 day period will allow an opportunity for any person who wishes to say that the Administrators ought not to be discharged in this case because of the claims currently being brought in New York for issue of Definitive Notes (in which the Administrators have been joined as parties) to come forward to argue for a variation of the discharge order, if they can show that it is necessary. At the moment, I cannot see that it will be, since the company will continue in existence with a different officeholder (the liquidator) acting as its agent; but if I am wrong about that, it is open to a party to come forward to explain why.

On the other hand, Mr Sudwarts and Mr des Pallieres have made a number of wild and very serious allegations against the Administrators and those acting for them (including Mr Davies QC and Slaughter and May) which Ms Hilliard was unable to justify when pressed on them and which were in my view wholly without merit. I therefore think that it is right that if any actual claim is to be brought against the Administrators for misfeasance or the like, the permission of the court should first be required to be obtained.

For the reasons given above I hold that the claim of the ICC to preserve the cash assets of Hellas II is made out; that the Part 8 claim should be dismissed; and that the appropriate way forward for the company is that it should be placed into compulsory liquidation. I also find that the Funded Costs Amount will be available to meet the costs of the liquidation.