Lavin & Ors v Swindell

Where an initial creditors’ meeting rejects an administrator’s proposals, the administrator must apply to the court under paragraph 55 of Schedule B1 to the Insolvency Act 1986. The court has broad powers, including terminating the administration and making consequential orders. In an exceptional case, it may make an immediate winding-up order without requiring a further petition, particularly where insolvency, urgency, the absence of prejudice to persons not before the court, and the appropriateness of winding up are clear. Genuine creditor concerns requiring investigation cannot be ignored merely because preferential creditors may receive less.

BTR (UK) Ltd entered administration on 16 December 2011. Its administrator sold some assets, made proposals to creditors and initially considered that there would be no distribution to unsecured creditors. Creditors requisitioned a meeting, rejected the proposals and sought compulsory liquidation so that alleged transfers of assets to ITAS could be investigated.

The administrator reported the rejection but declined to petition for winding up, relying on limited funds, administration costs and the interests of preferential creditors. The creditors applied for an order requiring him to petition. The administrator cross-applied for directions concerning the continuation or termination of the administration.

1. Application under paragraph 55. The administrator was required to apply to the court after the initial creditors’ meeting rejected his proposals. Paragraph 55(2) contemplated a hearing, and the administrator could not continue managing the company under paragraph 68(1) in accordance with proposals which the creditors had rejected. A creditor could make the application if the administrator failed to do so.
2. Scope of the court’s powers. Paragraph 55(2) conferred wide powers, including terminating the administration, adjourning the matter for directions and making any appropriate consequential order. The court could direct the presentation of a winding-up petition.
3. Exceptional jurisdiction. The court also had power under paragraph 55(2)(e) to make a winding-up order without a new petition. That jurisdiction required caution and an exceptional case. The relevant circumstances included a clear insolvency, the certainty that a winding-up order would be made on a petition, urgency, and the absence of prejudice to persons not before the court.
4. Creditors’ interests. The administrator’s duty under paragraph 3(2) was to act in the interests of creditors as a whole. Although the interests of preferential creditors required a balancing exercise, they did not justify ignoring bona fide unsecured-creditor claims or the need to investigate potentially recoverable assets.
5. Those conditions were satisfied. BTR was insolvent; serious allegations concerning asset diversion remained uninvestigated; ITAS had failed to make the final payment; and delay risked prejudicing an investigation. The administration had failed because the proposals were rejected. The administrator’s appointment was therefore terminated immediately under paragraph 55(2)(a), and the court made a compulsory winding-up order.

This was a first-instance application. An administration order was made on 16 December 2011, following which the administrator’s proposals were rejected by the creditors. The present court terminated the administration and made a compulsory winding-up order.