In particular, whilst the views and commercial judgment of the liquidators will be given considerable weight on a given application, those views are not dispositive. Sanction is ultimately granted by the Court, not the liquidators.

Accordingly, the Court must also consider for itself the merits of the proposed sale. The Court will do so by reference to the financial consequences for, and the wishes of, relevant stakeholders. If it is not satisfied that the best commercial interests of the company (as reflected by the wishes of stakeholders) are met by the proposed sale, then sanction will be refused.

In re Pacific Harbor Asia Fund I Ltd (in Official Liquidation) provides a very recent example of these principles in operation. The liquidators sought sanction for the sale of the company’s assets to its 99 per cent shareholder (and also a purported creditor) following a competitive bidding process. The application was opposed by a number of creditors.

1. Unpaid liquidation expenses. Sanction of the proposed sale (for US$4,500,000) would effectively have extinguished creditor claims given the level of unpaid liquidation expenses (in excess of US$4,000,000) which would take priority over any creditor distribution. The Court held that “…outstanding unpaid fees are not themselves dispositive of the merits of a sanction application. Clearly fees do have a larger role where prospective recoveries are unpromising as distinct from good, but ultimately if other concerns are present even if of a procedural nature those concerns are not submerged or minimized by the fact that as in the present instance the sanction sought if approved would provide a clear gateway to full fees recovery.”  In short: the fact there are outstanding liquidation fees is a factor militating towards sanction but is by no means the end of the matter.
2. The bidding process. The Court had concerns, based on the evidence, as to the clarity and transparency (and therefore the fairness) of the bidding process. In this regard the Court referred to procedural matters, including: (i) the fact that it appears to have been unclear to one of the bidders, at least initially, that it was engaged in a competitive bidding process at all (the Court acknowledged that the stance a party may adopt in a competitive bidding process may be different to its stance in circumstances where it is making a unilateral offer); and (ii) as to the timing for the submission of bids.

In the light the above, whilst taking into consideration the liquidators’ views that the proposed sale was in the commercial best interests of the company and noting that such views were clearly held in good faith, in the unusually challenging circumstances of the case, the Court disagreed. Accordingly, sanction was declined.