We have recently assisted the administrators of SGL Realisations Limited (formerly Solus Garden and Leisure Limited) (Company) in an application for directions to ratify the extension of the administration of the Company by the Company’s creditors’ committee.

Administrators were appointed to the Company on 15 July 2014. The administrators’ proposals included the following specific provision:

“A creditors’ committee will be established if sufficient creditors are willing to act on it.

The administrators will consult with the creditors’ committee concerning the necessary steps to extend the administration beyond the statutory duration of one year if an extension is considered as advantageous. The administrators will either apply to court or seek the consent of the creditors’ committee.”

The administrators’ proposals were approved by 60% of the unsecured creditors. As the one year expiry of the administration approached, the administrators consulted with the creditors’ committee who approved an extension of the administration for a further period of six months.

At the time of the extension in this particular instance, one extension of six months could be approved by the consent of the secured creditor(s) and the unsecured creditors whose debts amount to more than 50% of the total unsecured debt, disregarding the debts of creditors who do not respond. The Company no longer had any secured creditors.

On an application by the administrators, the court was asked to consider:

  1. Whether there is a power to delegate decisions to a group of creditors;
  2. If so, whether the wording used in the proposals in this particular case was sufficient to affect such delegation; and
  3. If so, whether the delegated power was validly exercised.

The court decided that the administration had been validly extended.

The rationale for this decision was as follows:

The proposals which contained the delegation were approved by 60% of the company’s creditors. Therefore, the requisite majority of the unsecured creditors had accepted the committee’s ability to make this decision.

The judge noted that there is no power of delegation in the legislation and there is no express power for the committee to extend an administration. Conversely, there is no prohibition on the committee exercising the power either.  The judge continued that, commercially, he can see no reason why the creditors could not expressly appoint an agent to consent on their behalf.

While this is a helpful decision in this particular case, it turned on the particular wording and its facts.

This post was edited by Su Garner. For more information, email blogs@gateleyplc.com.

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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.