UK Coal Operations Ltd, Re

Where an administration will last only a few days and the company will then enter liquidation, the court may direct administrators not to comply with the requirements to prepare and circulate proposals or hold an initial creditors’ meeting. Non-compliance may be justified by a reasonable excuse where compliance would involve pointless expense and the statutory processes could no longer sensibly be completed or considered. The court may give such a direction to remove uncertainty about the administrators’ exposure to the statutory offence provisions.

The court considered an application concerning four companies in the same group. The proposed administrators sought permission to dispense with the requirements in paragraphs 49 and 51 of Schedule B1 to the Insolvency Act 1986, namely the preparation and circulation of administrators’ proposals and the holding of an initial creditors’ meeting.

The restructuring required immediate control by the administrators. One company was expected to enter creditors’ voluntary liquidation within days, enabling the same individuals, acting as liquidators, to disclaim onerous liabilities. The issue was whether the statutory requirements could properly be dispensed with where the administration would end before the proposals or meeting could serve any useful purpose.

1. The application was granted. The administrators were directed not to comply with the requirements of paragraphs 49 and 51 of Schedule B1 to the Insolvency Act 1986.
2. The court applied the reasoning in Re Advent Computer Training Limited (No. 2) [2011] B.C.C. 52. Commercial necessity may constitute a reasonable excuse for non-compliance, and a direction from the court is appropriate where administrators might otherwise remain uncertain about potential criminal liability.
3. Paragraph 49 required proposals to be sent within up to eight weeks, and the creditors’ meeting could take place within up to ten weeks under paragraph 52(2)(b). The company would be in liquidation before those periods expired. It was therefore pointless to prepare, circulate or consider proposals, or to hold an initial creditors’ meeting.
4. The restructuring proposals had been adequately explained to the court and had informed the administration orders. In the circumstances, avoiding pointless expense constituted a reasonable excuse for non-compliance under paragraphs 49(7) and 51(5).
5. The court also noted that administration avoided the notice period and interim court-sanction difficulties associated with an immediate liquidation under paragraph 83 and section 166(2) of the Insolvency Act 1986.