Holgate & Anor v Reid & Anor

An application under paragraph 74 of Schedule B1 to the Insolvency Act 1986 requires proof both of harm and of unfairness. The court should not micromanage administrators acting properly and in good faith, particularly where the decision falls within their commercial judgment. The restriction in paragraph 74(6)(c) applies to proposals deemed approved under rule 2.33(5) of the Insolvency Rules 1986 as well as to proposals approved at a creditors’ meeting. An application cannot impede implementation of such proposals more than 28 days after approval. Directions under paragraph 68 require a sufficient change of circumstances or a misunderstanding of the approved proposals. A possible claim against a bank and a suggested rescue strategy did not establish either a viable alternative to sale or a sufficient change of circumstances.

The applicants, creditors and members of a company in administration, applied against its joint administrators. They sought to prevent the sale of the company’s caravan park, revoke deemed approval of the administrators’ proposals, revoke the determination of remuneration, and require a creditors’ meeting.

The applicants relied on a possible interest-rate-hedging mis-selling claim against the company’s bank and contended that the business could be rescued as a going concern. The administrators maintained that the business was trading at a loss, that a sale would produce the best available result, and that the statutory conditions for relief were not met. The central issues were whether the administrators had acted unfairly under paragraph 74 of Schedule B1, whether paragraph 74(6)(c) applied to deemed approval, and whether directions were justified by a change of circumstances under paragraph 68.

1. The application was dismissed. The applicants failed to establish that the administrators were acting, had acted, or proposed to act in a way which unfairly harmed their interests. The evidence did not establish that the caravan park was viable or that the company could be rescued as a going concern.

2. The court accepted that the bank mis-selling claim was neither fanciful nor entirely speculative and had a real prospect of success. Its quantum was uncertain, however, and the claim did not demonstrate that continued trading or a company voluntary arrangement was a viable alternative to sale.

3. Paragraph 74(6)(c) of Schedule B1 applies to proposals deemed approved under rule 2.33(5) of the Insolvency Rules 1986. Paragraph 68(1), which requires administrators to manage the company in accordance with approved proposals, must be read consistently with paragraph 74(6)(c). Otherwise there would be a gap in the statutory scheme.

4. The proposals, read as a whole, implicitly contemplated disposal of the caravan park. An order preventing or delaying the sale would therefore impede implementation of proposals deemed approved more than 28 days before the application. That was a fatal obstacle under paragraph 74(6)(c).

5. The court accepted the principle in Four Private Investment Funds v Lomas that, absent plainly wrongful conduct, the court should not interfere in the detailed day-to-day management of an administration. Administrators must balance the interests of creditors as a whole, and another administrator or the court might have adopted a different course.

6. The FSA review of interest-rate-hedging mis-selling claims was not a sufficient change of circumstances for directions under paragraph 68. Nor was there a misunderstanding of the approved proposals. A meeting could not properly be ordered at the expense of the administration, particularly where the applicants could requisition one under paragraph 56 and had previously abandoned their requisition.

7. The court also declined to make an order under rule 2.109 concerning remuneration or expenses because the application had not been brought on the grounds or with the notice required by that rule.

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