Lune Metal Products Ltd v Getliffe & Ors

Under the pre-amendment Insolvency Act 1986, an administrator’s functions are confined by the statutory purposes of the administration and the powers in Schedule 1. Once assets have been realised, a pro rata payment of the proceeds to creditors is a distribution, not a more advantageous realisation. The court cannot sanction that distribution on a free-standing application under section 14(3) or section 18(3). Section 18(3) may, however, support consequential directions where the application is made in connection with discharge and the distribution facilitates an appropriate exit from the administration. An application may be amended to seek discharge, provided there is no procedural objection or prejudice.

Administrators held a fund of £485,237 after realising the company’s assets. They sought authority to pay preferential creditors in full and unsecured creditors pari passu, producing an estimated return of 35p in the pound rather than 31p through a CVA or liquidation.

His Honour Judge Hodge QC dismissed the application, following Re The Designer Room Ltd [2005] 1 WLR 1581. The Court of Appeal considered whether the proposed distribution could be authorised under sections 14(3) or 18(3) of the Insolvency Act 1986, and whether the application could be amended to include discharge. The central issue was whether the court could sanction distribution as part of an appropriate exit from the administration.

Lord Justice Neuberger delivered the judgment, with which Lord Justice Carnwath and Lord Justice Tuckey agreed.

1. Original application. The first-instance judge was right to dismiss the application as framed. The statutory purposes in section 8(3) did not include distributing realised assets. The proposed payments were therefore outside the administrators’ powers as a free-standing course. The reasoning in Re Powerstore (Trading) Ltd [1997] 1 WLR 1280 and Re The Designer Room Ltd [2005] 1 WLR 1581 was preferred to the contrary approach in Re Mark One (Oxford Street) Plc [1999] 1 WLR 1445.
2. Section 14(3). The provision permits directions connected with the carrying out of an administrator’s functions. It recognises a residual inherent jurisdiction over the conduct of an administrator as an officer of the court, but does not permit the court to authorise conduct wholly outside the administrator’s statutory powers.
3. Section 18(3). The power to make consequential provision arises only on an application under section 18(1) to discharge, vary or add an administration purpose. It could not support the original free-standing application. The court accepted the reasoning in Re UCT (UK) Ltd [2001] 1 WLR 436 that consequential directions may be made immediately before discharge.
4. Amendment and relief. The application was amended to seek discharge. The amendment was permitted because section 18(1) allows an application at any time and no party was prejudiced. On the amended application, section 18(3) could authorise the proposed direct distribution because it would facilitate a simpler and cheaper exit. The appeal was therefore allowed on the terms indicated. The administrators were to notify and assist the Registrar under section 652 of the Companies Act 1985, with liberty to apply. Discharge was to occur on an appropriate later date, and permission was given to apply for release under section 20.

1. Court of Appeal (Civil Division) held that the original free-standing distribution application was rightly dismissed, but allowed an amendment seeking discharge and allowed the appeal on that amended basis.
2. High Court of Justice, Liverpool District Registry (Chancery Division) His Honour Judge Hodge QC declined to sanction the proposed distribution because he considered that the Insolvency Act 1986 conferred no such jurisdiction.