Randhawa & Anor v Turpin & Anor

An administration may satisfy the statutory purpose of rescuing a company as a going concern where it preserves the business while disputed liabilities and assets are investigated, even if the directors could have taken another lawful course. The prospective administrator assesses what may happen during the administration, rather than the directors’ motives for making the appointment. An administrator need not achieve something that could not otherwise occur. Entitlement to remuneration in principle does not approve every item of time or cost; expenditure must still be assessed for reasonableness and necessity.

The applicants, creditors of BW Estates Ltd, challenged the remuneration and expenses of former administrators appointed by the company’s director. They sought disallowance or reduction of remuneration and expenses, together with personal costs orders under Insolvency Rules 1986 rule 2.109 and paragraph 74 of Schedule B1 to the Insolvency Act 1986.

The applicants argued that there had been no good reason for the administration, that its statutory purpose was not reasonably likely to be achieved, and that the administrators should receive no remuneration. The central issues were whether the proposed administration could properly be characterised as a rescue of the company as a going concern and whether the administrators’ subsequent work and costs were recoverable.

1. Paragraph 74 application. No positive case was advanced showing that the administrators had acted so as unfairly to harm the applicants’ interests. Relief under paragraph 74 of Schedule B1 to the Insolvency Act 1986 was refused.
2. Statutory purpose. The prospective administrators could properly state that the purpose of administration was reasonably likely to be achieved under Schedule B1 paragraph 29(3)(b). Rescue as a going concern does not require the administrators themselves to create a result that could not otherwise occur. It is sufficient that the administration enables the business to be preserved while assets and disputed liabilities are investigated.
3. The company’s business was not confined to the directly owned properties. It could continue through properties held for it or through surplus cash. The case was therefore distinguishable from Doltable Ltd v Lexi Holdings Plc, where the company’s business was treated as confined to a single property and the proposed administration would not advance the sale process.
4. The relevant assessment looked forward to what might happen during the administration, not backwards to the directors’ motives. Any improper purpose or breach of duty by the directors could give rise to a claim against them, but did not itself prevent the prospective administrators from making the statutory statement. Nor were they required to refuse appointment to force directors to continue trading.
5. The challenge to remuneration in principle failed. It was appropriate to investigate the company’s assets and the alleged Belvadere liability. However, this did not approve all time and costs. Once initial enquiries had shown that the alleged creditor company was dissolved and no reliable information was forthcoming, further investigation might have been unnecessary; a later advertisement for claims could have tested the position more cheaply. Detailed remuneration issues were left for agreement or a further hearing. Costs were to be reconsidered after that process.