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The administrators of one company must have been very frustrated with the Courts last month. Originally appointed by the directors, the administrators hoped for the company’s rescue, but recognised this was not certain and specified in their proposals the purpose of the administration would be “realisation of property in order to make a distribution to one or more secured creditors”. The proposals were duly approved. Bucking the trend, the administrators’ strategy beat expectations, the company’s secured lender was paid in full, and its directors, having secured financing to meet the other claims, were champing at the bit to get the company trading once more.

The administrators considered the directors’ business plan was sustainable and believed the rescue of the company as a going concern was now achievable.  They decided that the company should exit administration under paragraph 80 of schedule B1 Insolvency Act 1986, which provides that an administrator appointed out of court may end the administration by filing a notice at Court and Companies House if he considers the purpose of the company’s administration has been sufficiently achieved

The company was in dispute with one of its contractors. The directors valued the contractor’s claim at some £20,000, but the contractor insisted its claim was worth 20 times more – £400,000. This contractor was now potentially the company’s largest unsecured creditor. The contractor had persuaded the administrators to agree to a binding adjudication, set for a few months’ time.  The contractor claimant was not at all happy with the administrators’ suggested exit. It wanted the company to stay in administration until after the adjudication. It cited the directors’ unreasonable and obstructive conduct in the litigation and said it was entitled to have its claim sorted out by the (presumably more reasonable) administrators.

The Court gave guidance as to how to assess whether the rescue of the Company as a going concern was achievable, confirming it is a matter for the administrators, in their discretion, to decide:

  • there had to be an assessment of the company’s ability to pay its debts as they fell due;
  • the proposed business plan had to stand a fair chance of success;
  • the outcome had to be in the best interests of the company and its creditors as a whole.

Applying this here, the major concern was the contractor’s claim, and whether this would undermine the directors’ cash flow projections.  That decision was the administrators’ – not one that the creditor had the power to dispute. The Court confirmed there was no need to apply for the Court’s permission to exit this way.

However – as the title suggests – there was a fly in the ointment. The Court held that changing the purpose of the company’s administration – albeit to the best one on the hierarchy – was a substantial departure from the administrators’ proposals, and one that needed creditors’ approval.  The Court said that this was not a step that could be circumvented (even where, as here, the creditors were expected to vote against it) – but reminded the administrators they could apply to the Court for further assistance if necessary.

Nonetheless, the case is a useful summary of the factors to consider when assessing whether a company’s rescue has been achieved.

Case: Nimmo and Fraser: Joint Administrators of Station Properties Limited (in administration) [2013] CSOH 120

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.