Finnerty & Anor v Clark & Anor

Removal of an administrator under paragraph 88 of Schedule B1 to the Insolvency Act 1986 requires evidence of a good and sufficient ground. The power is wide, and misconduct or personal fault is unnecessary, but it must be exercised judicially by reference to the office’s purposes and the facts.

An unbiased administrator’s competent commercial decision not to bring proceedings should ordinarily be respected. The wishes of majority creditors, and the possibility that a replacement administrator might take a different view, do not alone justify removal. An appellate court may set aside a discretionary removal order where no sufficient evidential ground supported it.

The appellants were the only shareholders and, in substance, the principal unsecured creditors of a company in administration. They sought the removal of the respondent administrators after the administrators declined to bring proceedings challenging a lender’s default interest rate under section 244 of the Insolvency Act 1986.

The Registrar ordered the administrators’ removal and the appointment of a replacement. The Chancellor allowed the administrators’ appeal, set aside that order and dismissed the application: [2010] EWHC 2538 (Ch). On a second appeal, the central issues were what amounts to a good and sufficient ground for removal and when an appellate court may disturb a discretionary removal order.

1. Appeal dismissed. Mummery LJ, with whom Carnwath and Richards LJJ agreed, held that the Chancellor was entitled to set aside the Registrar’s order. Although the discretion under paragraph 88 of Schedule B1 to the Insolvency Act 1986 is very wide, removal requires a good and sufficient ground established by evidence.
2. Such grounds are identified by reference to the purposes of the office and the facts. Misconduct, personal unfitness and criticism of integrity are not prerequisites. Nevertheless, only after a sufficient ground has been shown may the court weigh the factors for and against removal.
3. The respondents had acted independently and without bias. They had investigated the proposed section 244 claim, considered the creditors’ submissions, and obtained specialist legal advice. Their decision not to litigate was properly open to them. An administrator’s unbiased and properly informed decision whether to institute proceedings should be respected unless the court concludes otherwise.
4. The mere possibility that a replacement administrator might take a different view was not a ground for removal. The asserted benefits depended first on proceedings being commenced and then on their success or settlement. There was no solid evidence that a replacement would bring the proceedings or reach a different decision. The majority creditors’ wishes and the conditional benefits of possible litigation did not justify the disruption and expense of replacing competent administrators.
5. The Chancellor could therefore intervene despite the width of the Registrar’s discretion. The Registrar’s order was plainly wrong on the evidence because the consequential factors relied on did not constitute a sufficient ground for removal. The court did not determine the merits of a section 244 challenge, and observed that directions or another remedy short of removal might have been available.

• Court of Appeal (Civil Division): Dismissed the second appeal and upheld the Chancellor’s decision: [2011] EWCA Civ 858.
• High Court, Chancery Division, Companies Court: The Chancellor allowed the administrators’ appeal, set aside the Registrar’s removal order and dismissed the originating application: [2010] EWHC 2538 (Ch).
• Companies Court: Registrar Derrett had ordered the respondents removed as administrators and appointed a replacement administrator.