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On 14th June 2022, the Right Honourable Madam Justice McBride delivered a judgement in the case of Bedford Hotel Limited (In Administration), the registered owner of the proposed George Best Hotel (“the Property”). The Property was to be a boutique hotel in the centre of Belfast however, its owner fell into financial difficulty and entered administration in April 2020 with the Property only partly completed.
Kroll, the appointed administrators, faced a number of issues with the Property. The main one being the priority of security held over the Property by a secured lender and also individuals who had invested money into a scheme whereby they held a lien over an identified bedroom in the Property.
The administrators issued an application in the High Court in Belfast pursuant to paragraph 72 of Schedule B1 of the Insolvency (Northern Ireland) Order 1989 (“the Order”), which is an application permitting the administrators to dispose of charged property as though it were not subject to security, in order to achieve the purpose of the administration.
There were two issues which needed to be determined at the outcome of this judgement;
(a) Whether the purpose of the administration is best achieved by sale of the Property free from the secured interests or whether it is best achieved in another way – (“the options issue.”)
(b) If the purpose of the administration is best achieved by sale of the Property free from the secured interests, the order of the securities affected – (“Priorities issue”)
When the matter was first listed for hearing, one of the 72 bedroom investors appeared at the hearing and requested an adjournment on the basis that the administrators had failed to adequately investigate whether there was a potential investor who would complete the building works and then sell the completed building or operate it as a going concern.
This application was supported by 22 other bedroom investors who had filed affidavit evidence to this effect.
The Honourable Madam Justice McBride allowed the adjournment to enable the parties to file further evidence to support their submission that they believed there was another viable option whereby the Property could be completed and in this way the interests of all the creditors could be met.
The court afforded time for considering whether the completion of the hotel would be viable prior to its sale and as a result, over one year had passed since the application was first issued. During this period, the debt had grown and the building remains unfinished and continues to fall into disrepair. Given the circumstances, there was a risk that the value of the building was falling significantly.
Under Schedule B1, paragraph 5 of the Order states: “The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable.” Therefore, as the administrators had this duty, the court considered that it would not delay any longer.
The court was satisfied that a sale of the Property, free of the relevant security interests, would promote one or other of the two purposes of administration in respect of the company.
The court was satisfied that the legal charges rank in priority to the equitable purchasers’ liens held by the bedroom investors. An equitable lien is an equitable right over real or personal properties to secure the discharge of a debt. It is a form of equitable charge over the Property.
The legal charges rank in order of date of registration. Accordingly, the lender’s legal charge being first registered ranks prior to the legal charge of another party holding an order charging land over the Property and the bedroom investors’ equitable interests rank thereafter.
The court agreed to the administrators’ application notwithstanding the opposition of the bedroom investors.
The court went on to state that it had immense sympathy for the bedroom investors who stand to lose their entire investment without any return and it noted that in the case of many of the 18 individual investors the investments made represented their lifetime savings. The court has, it considers, given ample opportunity for attempts to be made to secure the best return for the creditors as a whole.
The Property is now on the market for sale and its future will be in the hands of the new owner in due course.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Insolvency & Business Restructuring team at Cleaver Fulton Rankin for further advice or information.