T&N Ltd. & Ors, Re

Administrators may take lawful steps that prevent a substantial future liability from arising where doing so is in the clear interests of the general body of creditors. They need not treat the interests of persons who may become creditors in the future as overriding that duty where no present liability exists.

The principle in Ex parte James does not restrain such conduct merely because it worsens the position of trustees or other potential claimants. The principle requires dishonourable behaviour or the taking of unfair advantage. Lawful steps taken in good faith to protect creditors do not meet that threshold.

The administrators of T&N Limited and eleven associated companies sought directions concerning the companies’ participation in a pension scheme. The associated companies were lawfully entitled to withdraw, and withdrawal before a possible winding-up of the scheme would substantially reduce their statutory pension liabilities and improve creditor recoveries.

The administrators were concerned that withdrawal might breach their duties to the pension trustees or constitute dishonourable conduct contrary to the principle in Ex parte James. They also referred to draft provisions in the Pensions Bill which might retrospectively impose liability where an act was undertaken otherwise than in good faith to prevent a debt under section 75 of the Pensions Act 1995 becoming due.

1. Directions granted. The administrators would act in accordance with their duties if they caused the associated companies to give notice withdrawing from the pension scheme.
2. The administrators’ primary duty was to act in the best interests of the companies’ creditors. Where a company is lawfully entitled to take steps preventing a large liability from arising, and those steps are clearly beneficial to creditors, that duty ordinarily requires the steps to be taken.
3. The associated companies had no present liability to fund the scheme deficit on a buy-out basis. That liability might arise in future if the scheme were wound up, but the companies were entitled to withdraw before then. The administrators therefore owed no duty to the trustees requiring them to protect the trustees’ prospective claim at the expense of existing creditors.
4. The principle in Ex parte James applies only where a court officer acts dishonourably or takes unfair advantage of another person. The proposed withdrawal was lawful, directed to protecting existing creditors, and would not take unfair advantage of the trustees. The court therefore would not restrain it under that principle.
5. The judge observed that the authorities suggested a possible confinement of the principle to cases involving unjust enrichment, such as an increase in distributable assets through a mistake of law or fact or by retaining a payment made by a third party without giving credit. That observation was not necessary to the decision.
6. The draft retrospective provisions in clauses 35 and 36 of the Pensions Bill did not prevent the directions. The administrators would be acting in good faith. The directions were given without notice to the trustees because notice might defeat the purpose of the application, and were subject to the administrators’ commercial judgment concerning employee relations, the businesses, and the benefit to T&N’s creditors.