Needwood Managed Services Ltd , Re (Rev 1)

An administrator’s commercial decisions should ordinarily be left to the administrator’s judgment. A reasonable suspicion of partiality does not, without more, justify directions requiring court or creditor approval of those decisions. The court should not impose an undertaking that fetters the administrator’s statutory powers where no adverse action is threatened. Injunctive relief is inappropriate where damages would adequately protect the creditor. A prior professional relationship must be disclosed on the prescribed appointment form where it involved substantive advice concerning the company’s affairs, but it does not necessarily disqualify the practitioner from appointment.

Needwood Managed Services Limited entered administration. Norman ICT Limited, a substantial creditor, applied urgently for directions restraining the administrator from selling the business or assets, dissolving the company, settling claims against the shareholders or otherwise exiting administration without court or creditors’ approval.

The application followed concerns about the administrator’s prior advice to the company, his treatment of Norman’s proof of debt and a possible sale to the shareholders. The creditors’ meeting subsequently admitted Norman’s proof in an amount sufficient to defeat the administrator’s proposals. Modified proposals replacing the administrator were approved, leaving the court to determine the costs and remuneration consequences of the application.

1. The application was misconceived and the temporary order should not have been made. The application was in substance an application for an injunction, although framed as one for directions. The feared sale at an undervalue was not threatened, and damages would have provided an adequate remedy if a sale were ultimately shown to have caused loss.
2. The court should not require creditor or court approval merely because an administrator declines to give an undertaking. Such an order would fetter the administrator’s statutory powers and reverse the legislative policy of leaving commercial decisions to the administrator. That policy was recognised in In re T. & D. Industries PLC [2000] 1 W.L.R. 646 and was, if anything, stronger after the Enterprise Act 2002.
3. Although the administrator’s conduct created a reasonable suspicion of partiality, that suspicion did not establish that he intended to sell at an undervalue or force through proposals against creditor opposition. Commercial judgments about marketing, information disclosure and the genuineness of a bidder remained matters for the administrator unless it was clearly shown that the decision could not properly be taken.
4. An administrator may sell the business before a creditors’ meeting under the power recognised in Re Transbus International Ltd [2004] 1 W.L.R. 2654. Here, however, no such sale had occurred or been threatened. The undertakings offered were sufficient to protect any legitimate concern, and further undertakings would have imposed an undue fetter.
5. The administrator’s firm had given substantive advice concerning the earlier litigation. That prior relationship should have been disclosed in Form 2.2B. It did not, however, disqualify the administrator from accepting office, particularly because the relationship had been disclosed in the report to creditors and removal was not the relief sought.
6. Norman was ordered to pay the administrator’s costs. There was no justification for depriving him of remuneration for dealing with the application.

First-instance decision. No prior appellate decision is stated in the judgment.