England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, COMPANIES COURT
The Hon Mr Justice Warren
No 5598 of 2013

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/05/2014

Lord Justice Kitchin:

Introduction

1. This is an appeal against the judgment of Warren J given on 25 September 2013 and his consequential order upon an application made by the respondents, as administrators of Musion Systems Limited ("MSL"), pursuant to paragraph 71 of Schedule B1 to the Insolvency Act 1986 ("the Act") for an order that they be permitted to sell the assets of MSL which were subject to a fixed charge security held by the appellant, Mr Ian O'Connell, as if they were not subject to that security.
2. The application was made by the respondents (collectively "the Administrators") on an urgent basis and it was opposed by Mr O'Connell who asked that it be adjourned to enable him properly to prepare a response and to be represented. He also asked that the application should not be heard until after the first creditors' meeting scheduled for 30 September 2013, and preferably until after the hearing of a pending arbitration which he contended would determine whether MSL held the benefit of certain valuable intellectual property licences.
3. The judge neither granted nor refused the adjournment Mr O'Connell sought, indicating that he could not make a ruling on the point without hearing more about the issues. Accordingly, he proceeded to hear the application. At the end of the first day, he adjourned it over until the following day to allow counsel instructed by Mr O'Connell to appear on his behalf. The hearing duly resumed the following morning with Mr O'Connell now represented by counsel, Mr Michael Smith, who was familiar with the background and who supplemented the submissions Mr O'Connell had made on the first day. At the end of his submissions, Mr Smith again asked the judge to adjourn the application. The judge then rose and, on his return a short while later, announced that he had decided to allow the application and to grant to the Administrators the relief they sought subject to the condition that there be applied towards discharging the sums secured by the charge the net proceeds of the disposal of the assets, and any additional money required to be added to the net proceeds so as to produce the amount determined by the court as the net amount which would be realised on a sale of the assets at market value. The judge indicated that he would give a reasoned judgment the following day, and that is what he did.
4. Upon this appeal, brought with the permission of the judge, Mr O'Connell contends that the judge should have adjourned the application or should have refused it. He also seeks permission to adduce further evidence which he maintains would probably have had an important influence on the result but which he was not able to put before the judge having regard to the great speed with which the hearing was convened and the enormous difficulties with which he was faced in preparing his response to it.

The legislative scheme

5. Paragraph 71 of the Schedule B1 of the Act provides, so far as relevant:

"(1) The court may by order enable the administrator of a company to dispose of property which is subject to a security (other than a floating charge) as if it were not subject to the security.

(2) An order under sub-paragraph (1) may be made only –

(a)on the application of the administrator, and

(b)where the court thinks that disposal of the property would be likely to be promote the purpose of administration in respect of the company.

(3) An order under this paragraph is subject to the condition that there be applied towards discharging the sums secured by that security –

(a)the net proceeds of disposal of the property, and

(b)any additional money required to be added to the net proceeds so as to produce the amount determined by the court as the net amount which would be realised on a sale of the property at market value.

(4) If an order under this paragraph relates to more than one security, application of money under sub-paragraph (3) shall be in the order of the priorities of the securities."

6. Market value is defined by paragraph 111(1) of Schedule B1 as "the amount which would be realised on a sale of property in the open market by a willing vendor".

The background

7. MSL was incorporated on 2 October 2002 and carried on business providing holographic illusion services at events organised by its customers.
8. From October 2002 until April 2013, MSL had two directors, Mr O'Connell and Mr James Rock. On 29 April 2013 they were joined by a third director, Mr Uwe Maass. Mr O'Connell was removed as a director by a members' resolution on 30 May 2013 and Mr Rock ceased to be a director on 5 September 2013.
9. MSL is one of a number of companies with which Mr O'Connell, Mr Rock and Mr Maass are associated. It is a wholly owned subsidiary of Musion Intellectual Property Limited, the shares in which are held equally by Mr O'Connell, Mr Rock and Mr Maass, and it conducted business in parallel, albeit in different territories, with Musion Events Limited ("MEL"), the shares in which are held equally by Mr O'Connell and Mr Rock. There are two other important matters concerning MSL which I must mention at the outset. First, Mr Rock and Mr O'Connell were charge-holders in respect of several debts allegedly owed to them by MSL under a debenture dated 14 July 2009 ("the Debenture"). Second, MSL and MEL exploited various intellectual property rights owned by Mr Maass or entities in which he had an interest and which he licensed to MSL and MEL under the terms of an agreement referred to as the "Eyeliner Agreement".
10. The relationship between Mr Maass, Mr Rock and Mr O'Connell was initially harmonious. However, in the course of 2012 the relationship began to break down as a result, so Mr O'Connell says, of the misconduct of Mr Maass. Attempts at mediation failed and, in April 2013, Mr Maass purported to terminate the Eyeliner Agreement. Shortly afterwards, Mr O'Connell was removed as a director of MSL.
11. The breakdown of the relationship and the purported termination of the Eyeliner Agreement caused MSL and MEL enormous difficulties. Mr Maass contends that the termination was entirely proper and that all the intellectual property rights licensed to MSL and MEL have now reverted to him. Mr O'Connell maintains that the termination was not justified and that MSL is entitled to compensation from Mr Maass arising from his various breaches of agreement, breaches of confidence and breaches of fiduciary duty which far exceed any claims which Mr Maass has against MSL or MEL. Most importantly, however, Mr O'Connell disputes that MSL and MEL no longer enjoy a licence of the intellectual property rights owned or controlled by Mr Maass. This, amongst other issues, will, says Mr O'Connell, be determined by an arbitration proceeding before the London Court of International Arbitration (the "LCIA") which began in mid August 2013.
12. Meanwhile, on 3 July 2013, Mr O'Connell presented a petition for the winding up of MSL. Then, on 23 July 2013, the first and second respondents, Mr Michael Rollings and Ms Vivienne Oliver, were appointed as joint administrators by Mr Rock pursuant to the Debenture. They took the view that an administration would achieve a better result for MSL's creditors as a whole than would be likely if the company were wound up. However, Mr O'Connell objected to their appointment on the grounds that Mr Rock had not sought or obtained his consent, as he claimed Mr Rock was bound to do under the terms of the Debenture. At a directions hearing before Mann J on 9 August 2013, this particular aspect of the dispute was resolved by the discharge by consent of the appointment of Mr Rollings and Ms Oliver under the Debenture and their re-appointment as joint administrators by the court with effect from 23 July 2013. At the same time, and at the request of Mr O'Connell, the third and fourth respondents, Mr Christopher Laughton and Mr Peter Godfrey-Evans, were also appointed as joint administrators with effect from 9 August 2013. Mr O'Connell and Mr Rock agreed that the appointment of the Administrators would provide a practical way forward. For their part, the Administrators made mention of two matters which they anticipated would require the co-operation of Mr Rock and Mr O'Connell, namely Mr O'Connell's claim to certain foil stock in the possession of MSL, and Mr Rock's and Mr O'Connell's consent to a sale of the business and assets of MSL, assuming that was the course the Administrators decided to take. In the event, Mr O'Connell's claim to the foil stock was resolved by agreement. However, no agreement was reached regarding the sale of the business and assets of MSL free of the Debenture, as I shall explain.
13. Following their appointment, the Administrators continued to conduct the business of MSL as best they could. It had about £80,000 available in cash but was incurring salary costs of some £40,000 per month and, on 27 September 2013, a quarter's rent in respect of one of the properties it occupied would fall due. The Administrators formed the view that, in the light of the lack of available funds and the numerous disputes between the various parties to which I have referred, it was unlikely they could rescue the company as a going concern and therefore decided to continue to trade the company for a short period in order to achieve a sale of its business and assets. They also initiated a sales process by advertising the business and assets for sale through their agents, Edward Symmons, and on the ip-bid.com website.
14. In light of the submissions advanced on behalf of Mr O'Connell on this appeal, I must now explain how the marketing process progressed. By 16 August 2013, some 29 potential purchasers had expressed interest and, of these, 14 returned signed confidentiality agreements and were supplied with details of the business.
15. The first offers were received from or on behalf of Mr Rock and Mr O'Connell. On 16 August 2013, Musion Global Limited ("MGL"), a company controlled by Mr Rock and Mr Maass, offered £250,000. Shortly afterwards, on 19 August 2013, Mr O'Connell made an offer of £300,000, of which one half would be payable on completion and the other half in three later instalments conditional upon a ratification of MSL's rights under the Eyeliner Agreement.
16. On 21 August 2013 the Administrators entered into an agreement with MEL (a company now effectively controlled by Mr O'Connell) in relation to the foil stock to which Mr O'Connell had asserted title. In light of this settlement, on 28 August 2013, MGL revised its offer to £214,000. It was, however, supported by Mr Maass who indicated that he would release debts of £800,000 which he claimed were owed to him by MSL.
17. On 29 August 2013 the Administrators wrote to Mr Rock and Mr O'Connell requesting the release of their security under the Debenture on the basis that they would require such a release to complete any sale. Agreement was not forthcoming and the following day MGL withdrew its revised offer. The Administrators were therefore left with no choice but to re-start the sales process, which they did on 31 August 2013 by inviting new offers and requesting potential bidders to state their best offer and give proof of funding by midday on 3 September 2013. Four bids were received, including one from MEL and one from MGL.
18. On 5 September 2013 the Administrators decided to accept in principle, and subject to contract, a third offer of £214,000 made by Ms Julie Benson, a former employee of MSL. That same day, however, they received an offer of £250,000 from Mr Giovanni Palma, together with a deposit of £20,000. This was supported by Mr Maass who again indicated that he would release the debt of £800,000 which he claimed was owing to him. This offer was significantly better than that of Ms Benson and so the Administrators decided to accept it, again in principle. Ms Benson then indicated that she wished to make a further and better offer and arranged for the payment of a deposit of £20,000. The payment was in fact made by Mr O'Connell, indicating that she had his backing. Anticipating an imminent sale, the Administrators' solicitors again wrote to Mr Rock and Mr O'Connell asking them to release their security under the Debenture.
19. On 6 September 2013 the Administrators invited Ms Benson and Mr Palma to submit their best and final offers by 3.00pm that day. Ms Benson offered £330,000 but was unable to provide adequate proof of funding. Mr Palma, acting through his company, Musion Das Hologram ("MDH"), offered £300,000, accompanied by the waiver by Mr Maass of his claim to £800,000. This being the better offer, the Administrators accepted it in principle with a view to completing the sale the following week.
20. Later that same day, a new bidder emerged. Mr John Textor, an American, acting through his company Musion Entertainment LLC, offered US $1m, with US $100,000 payable upon completion and the balance payable in quarterly instalments of US $100,000 over a period of two years commencing 90 days after completion. The Administrators considered this offer was not viable because of the substantial deferred consideration payable over such a long period of time.
21. On 9 September 2013 Mr Textor submitted a revised offer of US $1m, with the substantially greater sum of US $400,000 payable on completion and the remainder in quarterly instalments, as before. The following day, Mr Textor wired a non-refundable deposit of US $40,000 which was received by the Administrators on 11 September 2013. This offer appeared to the Administrators to be marginally better than that of Mr Palma and so they decided to proceed with it. They had a meeting with Mr Textor on the evening of 11 September 2013. I should add, that by this time, both Mr Rock and O'Connell had indicated they were not prepared to release their security.
22. On the following day, 12 September 2013, Mr Textor withdrew his revised offer and instead made a further offer of US $300,000 payable on completion and then variable deferred payments depending upon the outcome of the dispute in relation to the Eyeliner Agreement. Faced with this revised offer the Administrators decided to proceed with Mr Palma, considering that this would provide them with the greatest degree of certainty.
23. On 13 September 2013, a number of events happened. First, notice of a creditors' meeting to be held on 30 September 2013 was circulated to all known creditors. Second, Mr Laughton met with a representative of Mr O'Connell to discuss the release of Mr O'Connell's security. These discussions continued on 18 September 2013. Third, Mr Textor reinstated his earlier and more generous offer of US $1m, with US $400,000 payable on completion and US $600,000 deferred. This led the Administrators to inform Mr Palma that they were again considering Mr Textor's offer.
24. On 16 September 2013 Mr Textor revised his offer yet again and proposed an arrangement whereby if any of the deferred consideration of the US $600,000 was paid within 14 days of completion, then twice this sum would be deducted from the total deferred consideration payable. The Administrators thereupon sent the sale and purchase documents to Mr Textor in what they believed to be substantially agreed form and asked for the initial consideration to be paid into their client account, to be held to Mr Textor's order. However, it was not clear to the Administrators whether Mr Textor had any settled intention to enter into an agreement at all. They were also concerned at the time the bidding process was taking.
25. Accordingly, on 17 September 2013, the Administrators informed Mr Palma and Mr Textor that there would be a contract race and that the Administrators would enter into an agreement with whichever party provided the essential elements for the sale first. They made this decision in light of what they considered to be the very similar offers they had received, the uncertainty over Mr Textor's intentions, the limited period of time for which they could continue to trade, the approaching September quarter date and their perception that they needed to provide certainty to the company's employees.
26. On being notified of the contract race, Mr Palma acted very promptly. He put his solicitors in funds in the sum of nearly £280,000 that same afternoon and immediately travelled to London from Italy. Meetings were held with the Administrators and contracts for the sale of the business and assets of MSL to MDH were exchanged early in the morning of the following day, 18 September 2013. Importantly, Mr Palma requested and the Administrators agreed a side letter under the terms of which Mr Palma could withdraw in the event no unconditional order was made to release the security held by Mr Rock and Mr O'Connell by 5.00pm on 25 September 2013.
27. As for Mr Textor, he did not move so swiftly. He did not provide to the Administrators all of the documents they needed and, although it is true to say that he did initiate a transfer of funds late in the evening of 17 September 2013, those funds were not received by the Administrators' solicitors until mid-morning on 18 September 2013, by which time they had exchanged contracts with Mr Palma.

The application to the judge and his decision

28. Faced as they were with a refusal by Mr O'Connell and Mr Rock to release their security, on 19 September 2013, the Administrators served upon them in draft an application for an order under paragraph 71 of Schedule B1 together with supporting evidence. The following day, 20 September 2013, Mr Rock's solicitors indicated that he would consent to a release of his security. However, Mr O'Connell, by his solicitors, requested until 5.00pm on 24 September 2013 to provide a release. The Administrators responded that this was not possible because of Mr Palma's right to withdraw.
29. On 23 September 2013, the following Monday, Mr O'Connell's solicitors again requested an extension of time. The Administrators responded granting a short extension but still the release was not forthcoming. Accordingly they issued the application returnable the following day, and notified Mr O'Connell accordingly.
30. The application came before Warren J in the applications court on 24 September 2013 supported by the first witness statement of Mr Rollings dated 23 September 2013. The Administrators were represented by solicitors and counsel. Mr O'Connell appeared in person because his solicitor was on an aeroplane and his counsel, Mr Smith, was engaged in court elsewhere. At the outset of the hearing, Mr O'Connell requested an adjournment to give him an opportunity properly to prepare his response and be represented. The Administrators opposed that application because they were concerned that unless they were authorised to complete the sale to Mr Palma as a matter of urgency, there was a real risk it would fall through. They considered this would have been highly detrimental to MSL's creditors because the agreement with Mr Palma was the best that could be achieved in all the circumstances and, if Mr Palma were to withdraw, it was likely they would have to put MSL into liquidation.
31. The judge was clearly placed in a very difficult position but, as I have indicated, he decided to proceed to hear the application and submissions from both sides because he felt he could not decide whether to adjourn it without so doing. However, he said that he would adjourn the application over until the following day if, at the end of the first day, he felt the need to hear from counsel on behalf of Mr O'Connell. As the judge explained, Mr O'Connell presented his case fully and effectively and, although not a lawyer, addressed him in a highly articulate and comprehensive way. Nevertheless, at the end of the first day, the judge did indeed feel that he would be assisted by further submissions and so stood the application over. The next morning, Mr Smith appeared on behalf of Mr O'Connell and, as the judge put it, was able to supplement Mr O'Connell's submissions because he was not new to the case. At the end of the hearing on the second day, Mr Smith again asked for an adjournment, which the judge refused. At about 3.30pm, and under pressure from the Administrators to make a decision, with the deadline expiring at 5.00pm, the judge said that he had decided to grant the application and would give his reasons the following morning.
32. Two other matters emerged during the course of the hearing which I should mention before explaining how the judge arrived at the conclusion he did. The first concerned Mr Textor. On the morning of the first day of the hearing, Mr O'Connell explained that he had been contacted by Mr Textor and that he had made a further offer of £300,000 for the business and assets of MSL, excluding its intellectual property rights. Mr O'Connell said that if this offer were accepted, he would forgive part of the debt which he claimed MSL owed to him. Then, after the lunch time adjournment, Mr O'Connell informed the judge that Mr Textor was now prepared to offer US $1m for the business and assets of MSL and that, if accepted, he, that is to say Mr O'Connell, would release £400,000 of the moneys MSL owed to him. After the judge had risen at the end of the day, Mr Rollings telephoned Mr Textor only to be told that he had accepted the outcome of the contract race and that, since MDH had entered into a contract to purchase the business and assets of MSL, he had been liaising with Mr Palma to find a way that they could work together. He also indicated that should the application be refused and Mr Palma withdraw then he would reconsider his position.
33. The second matter concerns another potential purchaser called Solutions Diverse. On the morning of the first day, Mr O'Connell stated that this company had made an offer. The judge commented in his judgment on the lack of evidence as to the nature of the offer but the position has now become rather more clear. On 17 September 2013 Mr Laughton spoke to Ms Gemma Birch, an accountant. She indicated that she represented a client who had an interest in the business, but she did not identify the client and made no offer on its behalf. Mr Laughton told her that, with only a few hours to go, there was little point in encouraging the client to make an offer. Ms Birch appeared to accept this position. On the following day, after contracts had been exchanged, Ms Birch e-mailed Mr Laughton saying that she represented a Ms Horsley and asked for her client's details to be kept on file and her interest noted in case the transaction did not complete. Again, Ms Birch did not give details of the nature of her client's interest or the name of any corporate entity involved.
34. On the previous day, but again after the contracts had been exchanged, Ms Oliver received a call from Mr Kevin McCook, who introduced himself as being from a company called Solutions Diverse. He stated that Solutions Diverse was willing to pay £350,000 "up front" with a deferred payment of £100,000. However, no further details were provided and the Administrators never had any reason to suppose that Solutions Diverse was represented by Ms Birch. However the evidence before us now shows that was in fact the case.
35. That brings me to the judgment given on 26 September 2013. The judge began by setting out the background, including details of the debt owed to Mr O'Connell. He explained that Mr O'Connell claimed to be a secured creditor for in excess of £800,000, and that this was disputed by the Administrators although they accepted that, for the purposes of their application, this was not a matter that he needed to decide and that he should proceed on the basis that Mr O'Connell was indeed a secured creditor for the sum he claimed.
36. The judge also gave careful consideration to the submissions advanced by and on behalf of Mr O'Connell. He noted first of all the position in relation to the Eyeliner Agreement. He fully understood that Mr Maass had purported to terminate this agreement and that Mr Maass maintained that such termination meant that the intellectual property rights previously enjoyed by MEL and MSL had reverted to him. However, Mr O'Connell disputed the validity of that termination and this issue was the subject of the LCIA arbitration. Mr O'Connell informed the judge that the result of that arbitration would be known by the beginning of December 2013 at the latest and possibly as early as October. As for the Administrators, they had not formed a view about the merits of this dispute, however they estimated MSL's rights to be worth around £100,000 if its arguments prevailed but nothing if they failed. Mr O'Connell, by contrast, asserted that MSL's rights were worth around £3m. The judge observed that he not been given any explanation as to how Mr O'Connell had arrived at this figure or what evidence there might be to support it. This is something addressed by the further evidence upon which Mr O'Connell seeks to rely before this court.
37. The judge also had regard to a contention advanced by Mr O'Connell that Mr Maass and Mr Rock had improperly diverted business away from MEL and that they were using for their own purposes MEL's confidential information. The judge was conscious too that Mr O'Connell believed Mr Maass and Mr Rock were closely associated with Mr Palma.
38. The final matter to which the judge gave careful consideration was the submission by Mr O'Connell that both Mr Textor and Solutions Diverse were ready and willing to make better offers than that of Mr Palma. So far as Mr Textor was concerned, the judge was provided by Mr O'Connell with details of the telephone conversations he had had with Mr Textor on the first day of the hearing. However, on the second day he was also provided by Mr Rollings with a further witness statement setting out the substance of the conversations that he had had with Mr Textor after court on the first day. In the result, the judge felt that he could not say with any great confidence that a better offer from Mr Textor would become available. As for Solutions Diverse, the judge observed he had no evidence whatsoever of the nature of any offer made by this company. The judge recorded that the Administrators had not heard from this bidder at all. In this particular and limited respect, the judge was not provided with the full picture and this is a matter to which I must return.
39. The judge said he had found the decision a very difficult one to make and, as he put it, "the balance could not be finer". However, notwithstanding the submissions advanced by Mr O'Connell, he had come to the conclusion that he should make the order sought by the Administrators for the following reasons. First, the bid process was open and fair. Second, the Administrators needed an order under paragraph 71 of Schedule B1 in order to allow them to complete the sale of the business and assets. Third, there was no better offer on the table than that of Mr Palma. Fourth, there was a risk of losing the sale if he did not make the order sought. That risk might be small but it was nevertheless real. Fifth, the sale would not deprive MSL of any claim against any third party because such claims were not included within the assets the subject of the sale agreement. The purpose of the administration would be promoted by the completion of the sale and Mr O'Connell was not entitled to control the timing of the realisation of his security, at least in the context of a situation in which the result of the LCIA arbitration might not be known until December 2013. Finally, the Administrators were entitled to have regard to the problems they would face in trying to continue to trade the business until that time, particularly having regard to the need to pay rent and the salaries of MSL's staff.

The appeal

40. Mr O'Connell has been represented on this appeal by Mr Thomas Graham. His submissions to us were directed to first, Mr O'Connell's application to adduce further evidence; and second, the substantive appeal. In addressing the substantive appeal, Mr Graham focused upon Mr O'Connell's contention that the judge ought to have refused the application. However, he made clear that Mr O'Connell also maintained his contention that, in the alternative, the judge should not have abridged time and should have adjourned the application.
41. The Administrators have been represented on this appeal by Ms Lexa Hilliard QC and Mr Adam Al-Attar. Ms Hilliard invited us to refuse the application to adduce further evidence or, if we were minded to admit it, to allow the Administrators to rely upon evidence in response. As for the substantive appeal, she submitted that the judge was entitled to exercise his discretion as he did and that no proper basis has been shown for this court to interfere with his decision. She also explained that, so far as necessary, the Administrators relied upon the matters raised in their respondents' notice as providing a further reason for upholding the judge's decision, namely that Mr O'Connell was never in fact a secured creditor in respect of debts of £800,000, or anything approaching that figure.

The further evidence

42. The further evidence which Mr O'Connell wishes to introduce is contained in his second witness statement dated 16 October 2013 and falls into four parts. The first concerns the LCIA arbitration. Here Mr O'Connell refers to correspondence with the LCIA which confirms the receipt on 21 August 2013 of a request for arbitration dated 14 August 2013, and of the registration fee. Mr Graham emphasised that, although MSL is not a party to the arbitration, it will determine whether the intellectual property licences granted to MSL survived the purported termination of the Eyeliner Agreement by Mr Maass and consequently its outcome will have a significant effect upon the value of MSL's intellectual property rights. However, he also explained that, contrary to expectations, the substantive hearing of the arbitration has not yet taken place and will not do so for at least another two months.
43. The second part concerns the value of MSL's intellectual property rights. As I have explained, the Administrators valued those rights at about £100,000. Mr O'Connell says that this is significantly less than they were worth and relies in support upon various contracts between MSL and its customers, the income those contracts generated, the revenues MSL generated by licensing its intellectual property rights in the years to 2012, and details of a contract which MSL was negotiating in early 2013.
44. The third part concerns the sums secured by the Debenture. Here Mr O'Connell refers to certain correspondence with the Administrators' solicitors after the hearing before the judge in which he set out his claim that further debts totalling in excess of £111,000 were secured. In further correspondence since the date of the witness statement this figure has grown to about £240,000.
45. The final part concerns the position of Solutions Diverse. Mr O'Connell explains that Solutions Diverse did not become aware of the administration until 12 September 2013 and expressed its interest in purchasing the business and assets of MSL on 17 and 18 September 2013. This evidence therefore supports the submissions made by Mr O'Connell to the judge at the hearing and which he dealt with in the manner I have described.
46. The Administrators vigorously opposed the admission of this evidence on the grounds that it is, in part, not admissible; that it is disputed; and that, in any event, it cannot be said that it would probably have had an important influence on the result of the hearing. Despite these points which were all advanced powerfully by Ms Hilliard on the Administrators' behalf, I would admit this evidence in the unusual circumstances of this case. The hearing took place at short notice and this rendered it very difficult for Mr O'Connell to assemble all of the evidence upon which he wished to rely; it does bear upon and is relevant to the issues the judge had to decide; and it is apparently credible, though I recognise that it is disputed. In all these circumstances I believe it would be just to allow Mr O'Connell to rely upon it. However, I also believe that, this being so, the Administrators should have the opportunity to rely upon the responsive evidence contained in the third witness statement of Mr Rollings dated 2 November 2013. Mr Graham made clear that, if we were to admit Mr O'Connell's further evidence, he would have no objection to the admission of Mr Rollings' further evidence. Accordingly, I would admit that too.

Should the judge have refused the application?

47. Mr Graham contended that the judge should have refused the application and that he fell into error in seven different respects, each of which forms a separate ground of appeal. As I will explain, Mr Graham focused particularly on the fourth of these in his oral submissions to us. Nevertheless all of the grounds are maintained so I will address them in turn. Before doing so I would, however, emphasise one important and over-arching point. It is not and has never been suggested that the judge did not have jurisdiction to exercise his discretion under paragraph 71 of Schedule B1. The jurisdiction to exercise the discretion conferred by that paragraph arises if the sale in issue is "likely to promote the purpose of the administration in respect of the company". The judge held that it was and there is no appeal against that finding. Mr Graham's criticisms were all directed at the exercise by the judge of his discretion to make the order sought. That necessarily involves inviting this court to find that the judge erred in principle in approaching the matter as he did, or that he left out of account, or took into account, some features that he should, or should not, have considered, or that his decision was wholly wrong. Mr Graham accepted that that was so but contended that the judge did indeed fall into error in such a way in each of the respects identified in Mr O'Connell's grounds of appeal.
48. The first of those grounds is that the Administrators failed to produce any or any adequate evidence as to the value of the sums secured by the Debenture; or that there would be sufficient funds available to pay Mr O'Connell the sums so secured. Mr Graham submitted that, as a result of the lack of such evidence, the judge was unable to carry out a fair and proper assessment of the extent of the prejudice that would be caused to Mr O'Connell by granting the Administrators the relief they sought, and accordingly he erred in principle.
49. In assessing this contention, I think that the following points are material. First, Mr Rock having released his security on the basis of the proposed sale to Mr Palma, the only secured creditor was Mr O'Connell. As I have explained, Mr O'Connell claimed to be a secured creditor in respect of debts in excess of £800,000 and, although this was and is disputed by the Administrators, they accepted that, for the purposes of the application, and in the light of the limited time available for the hearing, the judge should assume that it was. The judge therefore proceeded on the basis that Mr O'Connell was secured to the extent he claimed. Second, Mr Rollings exhibited to his second witness statement dated 25 September 2013 a comparison of outcomes which showed that the Administrators expected to achieve £355,860 if the application was granted but only £111,119 if it was refused and the Administrators had to place MSL into liquidation and sell the assets on a break up basis. Third, it was therefore perfectly clear that the net proceeds of sale would not exceed the sums which Mr O'Connell claimed were secured by the Debenture. I do not, however, accept that the judge was, in these circumstances, bound to refuse the application. Rather, he was required to satisfy himself that the Administrators were proposing to sell the business and assets of MSL for a proper price and to consider the balance of relative prejudice, that is to say the prejudice to Mr O'Connell if he made the order sought against the prejudice to all those interested in the promotion of the purposes of the administration if he refused it. As Knox J explained in Re AVR v Aviation Ltd [1989] BCLC 664 at 669:

"The court has to make a balancing exercise between the prejudice that will be felt if the order is made by the secured creditor, against the prejudice that would be felt by those interested in the promotion of the purposes specified in the administration order if it is not."

50. This, it seems to me, is precisely what the judge did. As I will elaborate in addressing the other grounds of appeal, he satisfied himself that the Administrators were proposing to sell the business and assets at a proper price and then he undertook the required balancing exercise, and in so doing had proper regard to the prejudice that would be suffered by Mr O'Connell if he made the order, and also to the prejudice that would be suffered by all those interested in the promotion of the purposes of the administration if he did not.
51. The first ground of appeal is supplemented by the second which relies upon the further evidence contained in Mr O'Connell's second witness statement which I would permit him to rely upon for the reasons I have given. Mr O'Connell explains in that witness statement how a further sum in excess of £111,400 is due and owing to him and secured by the Debenture in addition to the £800,000 upon which he relied before the judge. As I have said, that figure has now risen to about £240,000. Once again, this is disputed but, for the purpose of this appeal, I am prepared to assume that Mr O'Connell's claim is justified. I do not, however, believe that this would have had any effect upon the way the judge exercised his discretion because the £800,000 of secured debt already materially exceeded the sum of £300,000 which Mr Palma was prepared to pay.
52. The third ground concerns the impact of the LCIA arbitration. Mr Graham submitted that it will be decided in the arbitration whether the intellectual property licences granted to MSL survived the purported termination by Mr Maass of the Eyeliner Agreement. The result of the arbitration will, Mr Graham continued, have an overwhelming impact on the value of MSL's assets and yet the Administrators failed to carry out any investigation into the merits or value of the claim. Moreover, as a debenture holder, Mr O'Connell had the right to decide when to exercise his rights, yet they were overridden by the judge's order.
53. The fundamental difficulty with this submission is that the Administrators were far from sure that the arbitration could and would be concluded within a relatively short timescale. Mr O'Connell was confident that the substantive hearing would take place before 5 December 2013 and probably a good deal earlier but the Administrators were rather more cautious in their approach, and rightly so as it has turned out for, as I have explained, the hearing has still not taken place; nor has a date for that hearing been fixed. Moreover, in mid September 2013, the Administrators knew that MSL could only continue to trade for a relatively short period of time. It had limited funds, was occupying two premises with quarter-day rental payments about to fall due on both premises, and had 17 employees. In these circumstances the Administrators formed the entirely reasonable view that, unless they could sell the business and assets on a going concern basis, they would have to place the company into liquidation, and that would mean selling its assets on a forced sale basis. They therefore had no choice but to try and sell the assets and business, such as they were, with an inevitable associated uncertainty about their value. As Ms Hilliard put it, Mr O'Connell may win or lose the arbitration but, if he loses, MSL's intellectual property rights will be shown to have had little or no value at all. I of course accept that the order made by the judge amounted to a significant interference with Mr O'Connell's rights as a fixed charge holder to realise his security at a time and in a manner of his own choosing, but this is the inevitable consequence of an order under paragraph 71 of Schedule B1 in a case where the fixed charge holder objects to the sale. In such a case the prejudice to the charge holder caused by the making of an order must be balanced against the interests of those interested in the promotion of the purposes of the administration, just as the judge did.
54. That brings me to the fourth ground of appeal, and the one upon which Mr Graham placed particular reliance at the hearing. He contended that the judge should have refused the application on the basis that the proposed sale of the business and assets would not achieve a proper price having regard, in particular, to the value of its intellectual property rights. To the contrary, continued Mr Graham, the Administrators chose to conduct an unfair and unjustified contract race; they accepted Mr Palma's offer which was lower than that of Mr Textor; Mr Textor's bid was still available at the date of the hearing; and Mr Maass deliberately and wrongfully depressed the market by intimidating Mr Textor, as the judge was or should have been aware. Moreover, there were other offers in the wings and consequently the Administrators had every reason to suppose they would secure another and better offer than that of Mr Palma were they to go back to the market. In short, there was, submitted Mr Graham, no proper investigation of the value of the assets of the business and, in particular, its intellectual property rights. Further, the Administrators carried out no adequate investigation of the diversion of the assets of the business by Mr Maass and Mr Rock by way of asset stripping.
55. Attractively and forcefully though Mr Graham advanced these submissions, I have found myself unable to accept them. Starting with the contention that the Administrators conducted an unfair contract race, I accept that this was announced on 17 September 2013 without prior warning. I also recognise that Mr Palma was able to board an aeroplane in Italy and arrive in London that same day, whereas Mr Textor had no such opportunity, resident as he was in the United States. However, it must be remembered that Mr Textor had been aware of the marketing process for some time, having made his first offer on 6 September 2013. Further, he had made a total of five different offers by 16 September 2013. He had had his second offer accepted in principle on 11 September 2013 only to withdraw it the following day. Then, on 13 September 2013, he had reinstated his previous offer, revised it again on 16 September 2013 and been sent sales documentation for him to execute. He was, therefore, intimately familiar with the issues by 17 September 2013 and had instructed lawyers to act for him. Accordingly and while it is entirely true to say that he could not travel from the US to England on 17 September, there was no reason at all why he could not have exchanged contracts, had he so wished. Further, it is notable that he has never himself complained that the procedure initiated by the Administrators was unfair.
56. As for the contention the contract race was unjustified, it seems to me the following points are material. The marketing process was initiated on 9 August 2013 and yet by 17 September 2013 the Administrators still had no firm offer. Further, the Administrators knew that they might well have to make an application to the court under paragraph 71 of Schedule B1; they had limited cash available to them; they were continuing to incur liabilities to the 17 employees in the business; and they knew that on 27 September 2013 another quarter-day rental payment would become due and payable. Faced as they were with diminishing assets and no firm commitment, the Administrators sought to crystallise the situation and bring some finality to the marketing process, and they did so by announcing a contract race. In the circumstances I do not think they can be criticised for so doing.
57. Mr Graham's next submission was closely related to those I have addressed. He argued that Mr Textor's bid was plainly higher than that of Mr Palma and that the Administrators should therefore have favoured him and given him more time to enter into a binding agreement. I do not accept this was so. Mr Textor's offer would involve an initial payment of, so we were told, around £240,000 at the exchange rate of the time, with the balance deferred. It seems to me the Administrators had every reason to be cautious about this deferred consideration bearing in mind the potential difficulties associated with enforcement, particularly against a US corporation. Further and importantly, by 17 September 2013 it was unclear to the Administrators whether Mr Textor had any settled intention to enter into a binding agreement at all. They knew too that if either Mr Palma or Mr Textor withdrew then it was likely the other would take the opportunity to revise his offer. I consider that the Administrators were therefore entitled to take the view they did on the morning of 18 September 2013 that they should accept Mr Palma's offer.
58. Mr Graham then submitted that Mr Textor's offer was never withdrawn and he was plainly willing and available to negotiate with the Administrators at any time and certainly throughout the two days of the hearing before the judge. I am prepared to accept that this was indeed the case. Certainly, on the first day of the hearing Mr O'Connell related to the judge that Mr Textor had made a further and higher offer for the business and assets. However, it must also be borne in mind that, at the end of that day, the Administrators themselves telephoned Mr Textor and in the course of their conversation Mr Textor did not confirm the offer Mr O'Connell had earlier related but said he was content to abide by the outcome of the contract race and looked forward to finding a way to work with Mr Palma. Accordingly, and while Mr Textor did indeed express his continuing interest should the sale to Mr Palma fall through, it seems to me far less certain what the terms of any offer Mr Textor might then have been prepared to make would have been. Certainly I do not believe the Administrators had any solid reason to believe it would be higher than that of Mr Palma.
59. That brings me to the fourth aspect of Mr Graham's submissions, namely that Mr Maass intimidated Mr Textor and thereby depressed the market. Further, continued Mr Graham, this was something the judge failed to take into account. I recognise that the considerable uncertainty about the intellectual property rights previously enjoyed by MSL was the consequence of the action taken by Mr Maass to terminate the Eyeliner Agreement. I also accept that this did have a significant effect upon the value of the business and assets of MSL in September 2013 and reduced the price which any bidder was prepared to pay for them. Whether Mr Maass was entitled to terminate the Eyeliner Agrement is an issue which will be decided in the arbitration. However, I am not persuaded that any other action taken by Mr Maass affected the price which Mr Textor was prepared to offer and certainly nothing said by Mr Maass seems to have deterred Mr Textor or caused him any particular concern because, as he said to the Administrators at the end of the first day of the hearing, he was content to abide by the outcome of the contract race and was looking forward to finding a way to work with Mr Palma.
60. I must now address the submission that there were other offers available and that this demonstrates that this was, in truth, a vibrant market and that the Administrators therefore had no justification in seeking to push forward with the offer made by Mr Palma and to make the application on short notice in the manner they did. Here Mr Graham relied in particular upon the offer from Solutions Diverse on 18 September 2013 to pay a total of £450,000 of which £100,000 would be deferred. This matter, referred to by Mr Rollings in his third witness statement of 5 November 2013, was not drawn to the attention of the judge. To the contrary, he was told by Mr Al-Attar on the first day of the hearing that the Administrators had not heard from this company. It is now tolerably clear that Mr Al-Attar's instructions on this point were not correct. He and those present in court were aware of the discussions with Ms Birch but, at that stage, had no reason to suppose that her client was Solutions Diverse. Ms Oliver, who had the conversation with Mr McCook of Solutions Diverse was, regrettably, not present in court and she had not conveyed the substance of her telephone conversation with Mr McCook to those who were. In this respect there was an unfortunate breakdown in communication.
61. Ms Hilliard accepted that the information conveyed to the judge was wrong and apologised. However, she explained that this lapse was not deliberate and emphasised that the Administrators had no idea whether or not Solutions Diverse was an entity with any real interest or, indeed, ability to pursue a bid. This is, I think, a fair point and, bearing in mind that Mr McCook's offer and the communications from Ms Birch had come so late in the day and were so ill defined, it seems to me the Administrators were justified in attaching little weight to them and, most importantly, I do not believe that, had the judge been provided with full information, it would have affected the exercise of his discretion in any way.
62. I come then to the investigation of the value of the assets. The parties are agreed that it was incumbent upon the Administrators to obtain on the sale the proper and fair value of the business and assets they were selling. However, there was a sharp disagreement between them as whether or not this is something the Administrators achieved. Mr Graham relied for this purpose upon the third witness statement of Mr O'Connell in which he explained that MSL entered into two new licence agreements in 2012, one with an Indian company called Kasu Mani Enterprises Private Limited and another with a Slovenian company called Elekroncek dd. These agreements generated licence fees and a revenue stream based upon the number of holographic displays each company installed. Mr O'Connell also gave evidence that, over the previous five years, its gross revenue from licensing its IP rights amounted to in excess of £7,800,000. Finally, he explained that, in early 2013, MSL was negotiating for a new licence which had a potential value to MSL of around £6m. In light of all these matters Mr O'Connell valued the company's intellectual property rights at around £3m, and certainly very substantially more than the Administrators achieved.
63. This is powerful evidence. However, it suffers from the fundamental problem that the purported termination of the Eyeliner Agreement by Mr Maass had a devastating impact upon MSL's business. It therefore seems to me that evidence of the value of the business before the relationship between the various protagonists deteriorated is of little assistance in determining its value once it had. Instead, the Administrators ascertained the value by undertaking a wide and extensive marketing exercise. They placed adverts on appropriate websites, received 29 expressions of interest and 14 prospective purchasers were provided with information regarding MSL's business. But ultimately all of this interest translated into just a few offers. MGL withdrew in the manner I have described leaving Mr Textor and Mr Palma, both of whom made offers which were, in the Administrators' eyes, very similar. I am therefore satisfied that the Administrators did ascertain the value of the business and assets of the company, including its intellectual property rights, such as they were, by testing the market, and doing so in a perfectly sensible and adequate way. Faced with rising costs and diminishing assets, they were naturally concerned to secure a sale as soon as reasonably possible. That is precisely what they did and I am satisfied that, in doing so, they obtained a proper price.
64. The final matter relied upon by Mr Graham under this ground of appeal is that the Administrators failed to investigate potential claims by MSL against Mr Maass and Mr Rock and, in particular, took no adequate steps to recover assets and opportunities improperly diverted from the business.
65. Ms Hilliard's response to this submission, which I accept, is that the benefit of any actual or potential claim against third parties falls within the assets excluded from the sale and the right to pursue such claims remains vested in MSL. However the Administrators face the difficulty that they do not have and have never had the funds to pursue any such claims. They only ever had two options, one being to try and sell the assets and business of MSL on a going concern basis for the best price they could achieve and the other being to place the company into liquidation. They took the former because this was, as all parties accepted, likely to produce a better result for the creditors than the latter.
66. Drawing the threads together, I reject the fourth ground of appeal. I am satisfied that the Administrators did achieve a proper price for the business and assets of MSL; that the offers of Mr Palma and Mr Textor were comparable and that the Administrators were entitled to conduct a contract race and to accept Mr Palma's offer in the way they did.
67. The fifth and sixth grounds of appeal relied upon by Mr O'Connell are directed to rather wider issues, some of which I have addressed earlier in this judgment. But there are two particular matters to which I have not yet referred. First, Mr O'Connell contends that the judge ought to have had regard to the fact that the assets proposed to be sold included electronic equipment containing, or at least giving access to, data which was the confidential proprietary information of MEL and that for this information to fall into the hands of a third party purchaser would be extremely damaging to MEL. Second, he contends that the assets proposed to be sold included physical property owned by MEL.
68. I can deal with these matters quite shortly. The Administrators have not in fact sold any assets or property belonging to MEL. They only sold such assets used by MSL as that company actually owned. The Administrators were, however, conscious of the need to protect any confidential information belonging to MEL and not to permit it to fall into the hands of Mr Palma. Indeed, this was something to which the judge specifically referred in paragraph 12 of his judgment. However, as he explained, this did not go so much to the merits of the application as to the mechanics of the completion of the sale.
69. Mr O'Connell's seventh ground of appeal is that the judge ought to have refused the application because it was overwhelmingly likely that the unsecured creditors of MSL would receive no dividend. Mr O'Connell contends that, in practice, the Administrators had no constituency to serve other than the secured creditors, of which he was the only one, and that in these circumstances the matters he relied upon and the prejudice he would suffer from the proposed sale should have been given particular weight.
70. I accept that, on the basis of the proposed sale to Mr Palma and the release by Mr Rock of his security, Mr O'Connell was the only secured creditor and accordingly his interests were a matter to which the Administrators had to have particular regard, but I do not accept this meant the Administrators were precluded from agreeing the sale to Mr Palma without Mr O'Connell's consent. It is accepted that the judge had jurisdiction under paragraph 71 of Schedule B1 to make the order sought because he was satisfied that the sale was likely to promote the purposes of the administration, namely to achieve a better result for the creditors as a whole than an immediate winding up. The question then was how the discretion that provision conferred upon him should be exercised. The judge balanced, as he was bound to, the prejudice that would be suffered by Mr O'Connell if he made the order against the prejudice that would be felt by all those interested in the promotion of the purposes specified in the administration if he did not. In considering the latter, the judge properly took into account that the Administrators had engaged in a process which would leave Mr O'Connell no worse off than if he had sold the assets secured by the Debenture himself, and also the interests of all other creditors and potential creditors, including the employees of the company and its landlords. Everybody agreed that an administration would achieve a better result for the creditors as a whole than would be likely if the company were wound up and that an administration would necessarily involve, in due course, a sale of the assets and business of the company on a going concern basis for the best price that could be achieved. That is precisely what the Administrators sought to do.
71. The eighth and final ground of appeal relied upon by Mr O'Connell is that both he and the judge were led to believe that Mr Maass, as a purported creditor of MSL in a sum exceeding £800,000, had agreed to waive all his claims against the company if the sale to Mr Palma proceeded to completion. In fact, however, and while Mr Maass did indeed waive his claims against MSL, he nevertheless retained all his voting rights as a purported creditor and this was a matter of which Mr O'Connell was unaware until after the hearing. In due course Mr Maass exercised those voting rights at the creditors' meeting which was ultimately held on 14 October 2013 with the result that Mr O'Connell and his supporters were outvoted.
72. It is true the judge was not aware of the retention by Mr Maass of his voting rights and that he did in due course exercise them at the creditors' meeting. I also recognise that, in consequence of the retention by Mr Maass of his voting rights, Mr O'Connell was unable to carry a majority at the meeting. Nevertheless, I do not believe this provides a basis for overturning the judge's decision. First, Mr Maass was under no obligation to waive his voting rights and there was no basis for compelling him to do so. He retained those voting rights, as was his right, and then, in due course, chose to exercise them in the way that he did. Second, I accept that the retention by Mr Maass of his voting rights was not a matter to which the judge's attention was specifically drawn. But that, it seems to me, is neither nor there. Had the judge's attention been drawn to this matter, it could not have led him to exercise his discretion in any different way. Indeed, if anything, it would have reinforced the decision to which he came for it would have rendered it that much less likely Mr O'Connell would be able to carry a majority.
73. As I have said, the judge found the decision with which he was faced an extremely difficult one to make. That I can well understand. However, I am satisfied that he approached the matter correctly, properly took into account those matters to which he was bound to have regard and came to a conclusion which fell well within the bounds of a reasonable exercise of his discretion. I do not believe there is any proper basis for this court to interfere with it.

Should the judge have adjourned the application?

74. Mr O'Connell contends that the judge was wrong to abridge time and that he should have adjourned the application to enable him to be represented and to have a fair and proper opportunity to respond to it, or until after the imminent creditors' meeting, or until after the conclusion of the LCIA arbitration. I will deal with these three contentions in turn.
75. Mr Graham developed the first of these grounds in the following way. He emphasised that the application was issued on Monday 23 September and made returnable the following day. Neither Mr O'Connell's counsel nor his solicitor was available and the judge had no skeleton argument from Mr O'Connell because there was no time to prepare one. Mr O'Connell's witness statement was prepared at short notice and lacked focus. It was 55 pages long and much of it had been cut and pasted from statements prepared for earlier applications. It was not served until the morning of the hearing and the judge had no time to read it. Accordingly Mr O'Connell attended on that first day but sought an adjournment to give him an opportunity to prepare his response properly and be represented. The judge did not accede to that request and instead proceeded to hear the application although, as I have said, it was, later in the day, adjourned until the following day to allow counsel, Mr Smith, to appear on Mr O'Connell's behalf. Further, Mr Graham continued, there was no real urgency and certainly no sufficient urgency to justify depriving Mr O'Connell of his right to a fair hearing.
76. I entirely accept that the hearing took place before the judge in circumstances which were far from ideal. I also accept that Mr O'Connell was placed in an extremely difficult position which he dealt with as best he could. I may say that, despite the formidable challenge with which he was presented, a review of the transcript reveals that he acquitted himself with distinction and clearly articulated the objections to the order which have been developed more fully on his behalf on this appeal. Further, looking at the matter more broadly, as Ms Hilliard has invited us to, it must be borne in mind that Mr O'Connell had been aware for some time that an application would have to be made if he declined to release his security. This was raised at the hearing before Mann J and pursued by the Administrators with Mr O'Connell as the marketing process unfolded. Further, the application and evidence were served upon Mr O'Connell in draft on 19 September 2013, four clear days before the hearing, albeit that period included a weekend. The judge was also conscious of the difficulties facing Mr O'Connell on the first day and, recognising that he would be assisted by hearing submissions from Mr O'Connell's counsel, adjourned the application over until the second day.
77. Further, for all the reasons I have explained, the application was indeed urgent. Mr Palma required the side letter because he was not prepared to purchase the business and assets of MSL subject to the Debenture. That side letter required the Administrators to secure an order of the court under paragraph 71 of Schedule B1 by close of business on 25 September 2013. Had the order not been granted, there was, as the judge recognised, a real risk that Mr Palma would withdraw. That would have meant a further marketing exercise of uncertain outcome and the likely accrual of a further rental liability of around £30,875 which was, as the judge noted, no small sum in the context of this particular administration. To that would have had to be added the payroll for September which was, in the event, paid by Mr Palma. In all these circumstances I do not believe it can be said that the judge fell into error in exercising his discretion to case manage the application in the way that he did.
78. Mr Graham then turned to the alternative contention that the judge ought to have adjourned the hearing of the application until after the creditors' meeting which was due to held on 30 September 2013. This was a matter to which the judge was not prepared to attach great weight because, as he put it at paragraph 14 of his judgment, there was no firm, or even something approaching a firm, alternative offer. Nevertheless Mr Graham submitted that the views of the creditors about the proposed sale were highly material and the judge ought to have adjourned the application so as to allow them to be expressed. In support of this submission he referred us to Re Consumer & Industrial Press Ltd (No 2) [1988] 4 BCC 72, a decision under the former administration regime. In that case Peter Gibson J refused an application by administrators for an order under s.15 of the Act authorising them to dispose of property subject to fixed charges, and he did so because the administrators' proposals had not been put to a meeting of creditors. He said (at page 73):

"I am very unhappy indeed at the suggestion that the court should make an order such as will mean that there can be no useful meeting of creditors. It seems to me that the power the court undoubtedly has under sec. 15 should only be exercised in circumstances in which it can readily be seen that the disposals are really the only sensible course to be adopted and when unsecured creditors have had a chance to say what they think about the proposals in the administration. It seems to me that quite exceptional circumstances would be needed for the court to frustrate a meeting of creditors to consider proposals by the administrators."

79. Recent decisions, however, have seen the adoption of a more pragmatic approach to the commercial pressures facing administrators. Thus in In re T & D Industries Plc [2000] 1 WLR 646, Neuberger J considered whether administrators might dispose of the assets and undertaking of a company prior to the meeting of creditors and, if so, whether the court should give directions to sanction such a sale. After referring to the decision of Vinelott J in In re Charnley Davies Ltd (unreported), 21 January 1987, the decision of Millett J in In re Charnley Davies (No. 2) [1990] BCLC 760, his own decision in In re Montin Ltd [1999] 1 BCLC 663 and the decision of Rimer J in In re Osmosis Group Ltd (unreported), 25 May 1999, Neuberger J explained (at page 657):

"Faced with a course which the administrator was advised, and believed, was highly beneficial to the company, where the course had to be taken very quickly because the proposed purchaser would otherwise withdraw, Rimer J., like me in In re Montin Ltd. [1999] 1 B.C.L.C. 663, appears to have felt that he had little real alternative in effect but to sanction the proposal. This tends to emphasise the point mentioned earlier, namely that in the great majority of cases it seems a little difficult for the court to do anything other than sanction a commercial decision which the administrator reasonably, and, on the face of it, justifiably wishes to make."

A little later Neuberger J emphasised the desirability, indeed need, for administrators to put their proposals to creditors, and to call a meeting as soon as reasonably possible before continuing (at page 657):

"[M]y decision tends to emphasise the fact that a person appointed to act as an administrator may be called upon to make important and urgent decisions. He has a responsible and potentially demanding role. Commercial and administrative decisions are for him, and the court is not there to act as a sort of bomb shelter for him.

[A]dministrators should not be able to take unfair advantage of the fact that the creditors' rights are, as it were, limited by sections 23 to 25. There will be many cases where an administrator will be called upon to make urgent and important decisions and where the urgency means that there is no possibility of a section 24 creditors' meeting being called to consider the decision prior to it having to be made. However, the importance of the decision and the time involved may well be such that the administrator should have what consultation he can with the creditors. An obvious case might be where there were three days to make a decision and there were only four creditors of the company, or there were four creditors who make up 80 per cent. in value of the total creditors of the company. In those circumstances, it seems to me that the administrators should at least consider consulting those four creditors. Whether he should effect any consultation, with whom he should effect it, how he should effect it and what decision he should make following any consultation must be matters for him to decide by reference to the facts of the individual case."

80. While not in any way seeking to diminish the importance of the creditors' meeting in the context of an administration, I too recognise that the urgency of the situation and commercial pressures will sometimes require administrators to make a decision before a meeting can be convened. But in any such case it may still be possible for the administrators to consult with the creditors and, so far as circumstances permit and it is reasonable to do so, that is what they should do. It seems to me that much the same considerations apply to paragraph 71 of Schedule B1, for the underlying issue is the same, namely whether a sale should be authorised before it has been considered at the creditors' meeting. In the present case the Administrators did not require a direction from the court to exercise the general power of sale but they did require an order under paragraph 71 of Schedule B1 unless Mr O'Connell agreed to release his security. They believed and the judge accepted there was a real risk that, absent an order, the sale to Mr Palma would be lost and, despite his plain expression of interest, Mr Textor had not committed himself to buy the business and assets on the terms he had discussed. Further, the judge was well aware that Mr O'Connell and Mr Maass represented 80% by value of the creditors of the company and that Mr O'Connell opposed the sale to Mr Palma and Mr Maass supported it. In all these circumstances I believe the judge was entitled to proceed as he did.
81. Finally, Mr Graham submitted that the hearing should have been adjourned until after the conclusion of the LCIA arbitration. Mr Graham did not place this ground at the forefront of his submissions, and rightly so. As I have explained, it was far from clear when the substantive hearing would take place and, in the event, there is still no scheduled date for it. There was no realistic possibility that the Administrators could continue to trade MSL's business in the meantime. Inevitably, therefore, they had to carry out their duties on the basis that there was a real uncertainty over the intellectual property rights to which Mr O'Connell claimed the company was entitled.

Conclusion

82. For all of the reasons I have given, I believe the judge was entitled to exercise his discretion in the way that he did. The Administrators could not continue to trade until after the conclusion of the LCIA arbitration and even now it is far from clear that Mr O'Connell will prevail at the end of the day. There was, therefore, a considerable degree of uncertainty attaching to the value of MSL's intellectual property rights. The Administrators therefore decided to conduct a marketing exercise and then a competitive sale process with a view to selling the business and assets of the company, such as they were, for a fair and proper price. The sale realised a substantial sum, enabled a transfer of the company's 17 employees and avoided the accrual of further liabilities. Had the sale fallen through, there was a real risk the Administrators would have been forced to put the company into liquidation. In all these circumstances no basis has been shown for this court to interfere with the exercise by the judge of his discretion in the way that he did. It is therefore not necessary to address the issues raised by the Administrators in their respondents' notice and, these being points which were not argued out before us at the oral hearing, I prefer not to do so. Nor is it necessary to address a further point which was briefly touched upon in the course of oral submissions, namely from what date any re-exercise of discretion would have taken effect. I would dismiss this appeal.

Lord Justice Floyd:

83. I agree.

Lord Justice Fulford:

84. I also agree.