Lehman Brothers International (Europe), Re

Under Schedule B1 to the Insolvency Act 1986, an applicant challenging an administrator’s conduct under paragraph 74 must establish both harm to its interests and unfairness. In a complex administration, the administrator has a wide latitude to allocate time and resources between individual requests and the interests of creditors and asset claimants generally. The court should not intervene in detailed day-to-day management, or require bespoke investigations into an individual claim, unless the administrator has acted plainly wrongfully or contrary to his statutory duties and approved proposals. Equitable jurisdiction concerning trusts does not provide a wider route to obtain information where directions under Schedule B1 are unwarranted.

Four private investment funds applied for orders requiring the joint administrators of Lehman Brothers International (Europe) to provide detailed information about securities lodged under prime brokerage and margin lending arrangements. The administrators had supplied information but declined to undertake further bespoke investigations, relying on the scale and complexity of the administration and the need to treat clients and creditors fairly as a whole.

The application was advanced under paragraph 74(1)(b) and paragraph 68(2) of Schedule B1 to the Insolvency Act 1986, and under the court’s equitable jurisdiction concerning trusts. The central issue was whether the administrators’ refusal to provide further information justified judicial intervention.

1. The application was dismissed. The applicants had to establish jurisdiction and a sufficient factual basis for the orders sought; sympathy for their position was insufficient.

2. For paragraph 74(1)(b) of Schedule B1 to the Insolvency Act 1986, the complained-of conduct must be causative, or potentially causative, of harm to the applicant’s interests. Harm alone is insufficient. The harm must also be unfair.

3. The concept of unfairness in this context differs from unfair prejudice under section 994 of the Companies Act 2006. The administrator must pursue the statutory purpose, act in the interests of creditors as a whole, and perform his functions as quickly and efficiently as reasonably practicable. Where the administrators were acting in good faith in accordance with those duties and approved proposals, refusing to devote disproportionate resources to a particular group of clients did not establish unfair harm.

4. A person with a genuine and legitimate interest, including a person who is not a creditor or member, may apply for directions under paragraph 68(2). Once proposals have been approved, however, any direction must be consistent with them and must respect the administrator’s management of the administration.

5. The statutory scheme gives the administrator a wide measure of latitude in managing the company’s affairs, business and property. The court should not interfere with detailed day-to-day management or require responses to individual information requests in the absence of plainly wrongful conduct. The administrator must balance the interests of creditors as a whole against legitimate individual enquiries, but it is ordinarily for the administrator to decide where that balance lies.

6. The equitable jurisdiction concerning trusts and trustees did not improve the applicants’ position. It could not be used to secure information which the court was unwilling to require by directions under paragraph 68(2).

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