Clark & Anor v Finnerty & Anor

The court may remove an administrator under paragraph 88 of Schedule B1 only for good or sufficient cause. Whether such cause exists must be assessed by reference to the purposes of the office and all the facts of the case. A merely triable issue, or the possibility that another administrator might take a different view, is insufficient by itself. Where an administrator is unbiased and entitled on the available material to reach the relevant decision, that decision should ordinarily be respected. The court should consider less disruptive alternatives, including directions to the administrator under Schedule B1.

Administrators appointed to St George’s Property Services (London) Ltd appealed against an order removing them under paragraph 88 of Schedule B1 to the Insolvency Act 1986. The application for removal was made by the company’s guarantors, who wished the administrators to commence proceedings concerning allegedly extortionate credit and default interest said to be a penalty.

The Registrar considered that there was a serious issue to investigate and that exceptional circumstances justified replacement of the administrators. The appeal concerned the meaning of good or sufficient cause under paragraph 88 and whether the Registrar’s factual assessment justified the order.

1. The appeal was allowed, the Registrar’s order was set aside and the originating application was dismissed.

2. Paragraph 88 of Schedule B1 contains a free-standing power, but removal remains available only for good or sufficient cause. The relevant standard is not to be converted into rigid statutory conditions derived from authorities concerning liquidators. Good or sufficient cause must be determined by reference to the purposes of the office and the facts of the case.

3. The existence of a serious or triable issue concerning proceedings under section 244 of the Insolvency Act 1986, or concerning whether default interest was a penalty, was relevant but not decisive. It did not establish that proceedings would rescue the company as a going concern. Success, the relief ultimately granted and the extent to which any recovery would achieve that objective all remained uncertain.

4. The administrators were unbiased, efficient and entitled on the material before them to decide not to commence the proposed proceedings. The fact that another administrator might take a different view was not, without more, good cause for removal. The court should respect the office-holder’s decision unless it concludes otherwise.

5. The administrators could have sought directions under paragraph 63 of Schedule B1, which would have bound the administrator, successors and creditors under paragraph 67(2). Directions or further independent legal advice could have addressed the concern without the expense and upheaval of removal. The Registrar’s order therefore lacked a sufficient causal connection with the statutory purposes of the administration.

High Court (Chancery Division): appeal from the reserved decision of Registrar Derrett dated 30 July 2010. The appeal was allowed and the originating application for removal of the administrators was dismissed.