Insolvency Oracle

Developments in UK insolvency by Michelle Butler

What should an Administrator do if his proposals are rejected by creditors?

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Lavin & Ors v Swindell [2102] EWHC 2398 (Ch) (23 August 2012)

http://www.bailii.org/ew/cases/EWHC/Ch/2012/2398.html

The Administrator did not call a meeting to consider his proposals, as he envisaged there would be insufficient funds for a dividend to unsecured creditors.  Some creditors requisitioned a meeting at which a majority of creditors voted to reject the Administrator’s proposals.  They also voted that the Administrator should immediately petition for the compulsory winding up of the company, however the Administrator did not accept this modification to the proposals citing that there were insufficient funds to cover the petition costs.  The proceedings were commenced by a creditor in order to compel the Administrator to apply for the compulsory winding up.

Behrens J considered the notes in Lightman & Moss’ the Law of Administrators and Receivers and Sealy & Milman’s Annotated Guide to the Insolvency Legislation on Paragraph 55 of Schedule B1 of the IA86.  Lightman & Moss suggest that “the administrator is under specific duties to seek directions from or the permission of the court… where he finds that his proposals, or any revisions to them, are not approved at a creditors’ meeting”, whereas Sealy & Milman suggest that “although the administrator is required to report the failure to gain approval to the court, it does not appear essential that he should seek any ruling from the court: in particular, if revised proposals are not approved, he is surely free to continue to act under the original proposals or to draw up a new set of revised proposals and summon a further creditors’ meeting”.

Behrens J preferred Lightman & Moss’ views: “Whilst it is true that paragraph 55 does not expressly require the Administrator to bring the matter before the Court, to my mind the language of paragraph 55(2) contemplates that there will be a hearing and indeed necessarily implies that there must be a hearing. There can only be such a hearing if an application is made. That application must ordinarily be made by the Administrator. If, as here, the Administrator does not make the application, I see no reason why it should not be made by a creditor…  If, therefore, the proposals are rejected by the creditors it is difficult to see how the Administrator can manage the Company’s affairs in accordance with paragraph 68 without making an application to Court” (paragraphs 64 & 66).  Behrens J did suggest that the situation might not be quite so dire in the event that revised proposals are rejected, as the Administrator can still manage the company’s affairs in line with the original proposals.

Behrens J concluded that the court had the power, not only to direct the Administrator to present a winding up petition, but also to wind up a company without a petition, but this step should be taken only in an exceptional case.  In this case, the judge was persuaded that there were pre-Administration events that required investigation – with the consequence that it was not absolutely certain that there was no possibility of a recovery for unsecured creditors – and that had not been investigated by the Administrator.  He was satisfied that, if a petition were presented, a winding up order would result and he considered that there was a degree of urgency.  Consequently, his decision was that the Administrator’s appointment be terminated with immediate effect and a compulsory winding up order be made.

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