AES Barry Ltd. v TXU Europe Energy Trading

Permission to commence proceedings against a company in administration is exceptional where the proposed claim is purely monetary. The applicant must justify relaxing the statutory prohibition. The court must balance the creditor’s legitimate interests against those of the company and its creditors, having regard to the purpose of the administration and its collective machinery.

Permission is unlikely where the administration scheme provides an effective route for determining disputed claims, preserves access to the court, and protects creditors through interim distributions and interest. A creditor’s wish to obtain an earlier judicial determination, or enhanced voting rights, will ordinarily carry little weight where the statutory process would cause no real prejudice.

The applicant sought permission under section 11(3) of the Insolvency Act 1986 to commence Commercial Court proceedings against the respondent, which was in administration. The proposed proceedings concerned the construction of a power purchase agreement and the calculation of an early termination payment claimed to exceed £60 million.

The applicant argued that an early determination would avoid delay, establish the amount of its claim for voting purposes, and enable it to receive a dividend as an undisputed creditor. The administrators opposed permission because disputed claims should be dealt with through the proposed scheme, which would provide adjudication procedures, interim dividends on undisputed amounts, and interest on sums later established.

The central issue was whether it was appropriate or equitable to lift the statutory prohibition before the administration and its collective claims process had concluded.

1. Application dismissed. The court refused permission under section 11(3) of the Insolvency Act 1986 to commence the proposed Commercial Court proceedings.
2. The relevant principles were those stated by the Court of Appeal in In re Atlantic Computer Systems plc [1992] Ch 505. The applicant bears the burden of showing why leave should be granted. The statutory purpose is to enable the company to achieve the purposes of the administration, while leave permits relaxation of the prohibition where its operation would be inequitable.
3. For a purely monetary claim, the court must balance the legitimate interests of the applicant against those of the company and its creditors. The administration’s collective machinery should not ordinarily be overridden or pre-empted by individual proceedings.
4. Only exceptional circumstances would justify permitting a monetary creditor to pursue proceedings before the administration’s scheme or other statutory process had operated. Here, the proposed scheme would provide access to expert determination or the court, permit payment of an interim dividend on the undisputed part of the claim, reserve funds for the disputed balance, and add interest if the claim succeeded.
5. Those arrangements meant that the applicant would suffer no real prejudice by waiting. Its asserted voting prejudice was also weak because it was more likely than not to support the scheme irrespective of its voting rights. The proposed proceedings were therefore neither justified nor necessary to avoid inequity.
6. The application was dismissed with costs. The costs were directed to detailed assessment, and the applicant was ordered to pay £50,000 on account within 14 days.