Administration – costs – statutory statement
The claimant creditors of BW Estates Ltd, applied for orders that the remuneration and expenses of the company’s former administrators, the defendants, be disallowed or reduced.
The creditors had obtained a freezing injunction against the company’s principal shareholder that affected its assets and a mortgagee had appointed receivers over four of eight properties owned by the company. Nevertheless, there was a reasonable prospect of solvency. The company exited administration in broadly the same position as when it entered it, save that its assets had to bear the costs of the administration.
The creditors contended that there was no good reason for the company to go into administration and that, consequently, the defendant administrators could not have properly made the necessary statement that the purpose of administration was reasonably likely to be achieved (Insolvency Act 1986 schedule B1 paragraph 29(3)(b)).
The creditors also alleged that the director, acting under direction of his father, the shareholder, appointed the administrators to frustrate their recovery of a large debt secured against the company’s shares. The administrators contended their administration was justified by, inter alia, the exploration of a potential liability of the company.
The judge ruled that achieving the purpose of “rescuing the company as a going concern” did not mean that the administrators had to achieve something that could not otherwise happen without their involvement. Rather, if the management of the company could be continued by the administrators while liabilities were explored and if this would enable the preservation of a going concern when otherwise it would or might have ceased, this could be described as a “rescue”.
Consequently, in this case the administrators properly made the statutory statement. Even if other, more robust, directors might have carried on the business themselves, that did not mean that administrators could not properly act. It was irrelevant that the directors may have acted from an improper motive by appointing the administrators; that was not something that affected whether they could properly make the statutory statement.
While not disposing of the issue of the level of costs incurred, the court offered guidance regarding the treatment of the dubious debt: once initial enquiries had drawn a blank, there was force to the creditor’s submission that costly investigations should have ceased and further action restricted to advertising for claims in the usual way.
This case provides useful guidance on the relevant considerations for administrators accepting office for the purpose of “rescuing the company as a going concern” as well as discussion on the responsibilities of administrators where there might be ulterior motives for their appointment.
