Court of Appeal revives challenge to loan-to-own administration appointment

The Court of Appeal has ruled that a company has an arguable case that administrators appointed by a secured lender were invalidly appointed because the lender’s sole purpose was to acquire the company’s business and assets through a pre-pack sale.

The Court allowed an appeal by Glint Pay Ltd and two subsidiaries against a decision striking out their claims against former administrators Jason Baker and Geoffrey Rowley of FRP Advisory. Glint alleges that their out-of-court appointments in September 2019 were ineffective because the appointing lender, Niven Alpha Pte Limited, acted solely for an improper purpose.

Glint had developed an app linked to the price of gold and was solvent before its £1.65 million secured loan was accelerated. After Glint rejected Niven Alpha’s offer to acquire 51% of the company, Niven bought the loan and security, requested financial information and treated Glint’s refusal to provide it as an event of default. It appointed administrators in September 2019, having previously told shareholders that it was preparing to acquire the business through a pre-pack.

The administration ended within weeks after Glint secured replacement funding and repaid the loan. The administrators later received more than £1.5 million in remuneration and expenses. Glint subsequently sued for equitable compensation and trespass, arguing that the administrators’ appointments had been invalid from the outset.

The Court of Appeal agreed that Glint’s refusal to provide cash balances, creditor lists and intercompany lending information breached the debenture. Those requests concerned the condition and operation of Glint’s business and undertaking, which formed part of the secured assets.

However, the Court held that Glint had a realistic prospect of proving that Niven appointed the administrators solely for an improper purpose. Equitable principles governing receivers may also invalidate an out-of-court administration appointment where a security holder acts solely to pursue a collateral objective rather than to recover its debt or protect its security.

The independence and statutory duties of administrators did not automatically make the appointment proper. The relevant issue was Niven’s subjective purpose when making the appointment, not whether the administrators would later act independently.

The Court also rejected the finding that Glint’s agreement to the administrators’ remuneration prevented it from challenging the appointments. Glint could argue that it adopted a “pay now and litigate later” approach to end the administration quickly while reserving its rights.

The ruling does not decide whether the appointments were invalid - it simply allows Glint’s claim to proceed to trial.

Read the decision here.

• Philip Marshall KC (instructed by Greenwoods) for Glint

• Lexa Hilliard KC and Jack Watson KC, both of Wilberforce Chambers (instructed by Reynolds Porter Chamberlain) for the former administrators