Collins & Aikman Europe SA Collins & Ors, Re Insolvency Act 1986

Administrators may, with the court’s directions, honour assurances given to creditors where doing so was reasonably considered likely to assist the purposes of the administration. This may permit distributions reflecting local insolvency priorities that differ from the law of the main proceedings. The power arises principally under Schedule B1 paragraphs 63 and 66 of the Insolvency Act 1986. The court must still exercise its discretion, having regard to creditor approval, the practical alternatives and the effect on creditors. The rule in Ex parte James and the court’s inherent jurisdiction may support the result, but neither need be relied on where the statutory powers suffice.

The joint administrators of ten European companies within the Collins & Aikman group sought directions concerning distributions following administrations opened in England as main proceedings under Articles 3 and 4 of the Council Regulation of 29 May 2000. Before the applications, they had assured creditors that, if secondary proceedings were not opened locally, relevant local-law priorities would be respected as far as possible.

The administrators argued that the assurances had encouraged creditor cooperation and produced materially better realisations. They sought authority to make distributions which could depart from English priority rules. The central issues were whether the court had jurisdiction to give the directions and whether it should exercise that jurisdiction.

1. Jurisdiction. The administrators could implement the assurances and could seek directions under Schedule B1 paragraphs 63 and 66 of the Insolvency Act 1986. Paragraph 66 was wide enough to encompass payments otherwise than in accordance with paragraph 65 where the administrators reasonably thought that performance was likely to assist achievement of the purpose of the administration.
2. The court was not required to distinguish between contractual and non-contractual assurances. Administrators were expected to behave honourably, and performance could preserve creditor confidence, avoid potential disputes and maintain the benefits obtained through the administration strategy. Exceptional circumstances might justify a different conclusion, but none existed here.
3. Paragraph 65 was of doubtful application because it incorporated the English priority for preferential debts. That issue did not need to be resolved because paragraph 66 supplied a sufficient statutory route. The court also observed that paragraph 63 was not so negatively framed as to exclude any inherent jurisdiction, although it was unnecessary to determine the precise interaction between that jurisdiction and the statute.
4. The rule in Ex parte James reinforced the propriety of the directions. It required officers of the court to act honourably and could support performance of promises, subject to any statutory provision which clearly precluded the proposed conduct.
5. Discretion. The court considered the creditor approvals, the disadvantages of voluntary liquidation arrangements and secondary proceedings, and the practical effect on creditors. The proposed distributions were fair in the circumstances, including because creditors most affected had understood and accepted the consequences.
6. Directions were therefore made for each applicant company except Collins & Aikman Automotive Holdings GmbH, for which the application was adjourned to 4 July pending consultation with its five largest creditors. A certificate under Articles 54 and 58 of Council Regulation (EC) No. 44/2001 was authorised.

First-instance applications for directions in ongoing administrations. The judgment records provisional approval given on 6 April 2006 and final directions on 6 June 2006.