Zinc Hotels (Investment) Ltd & Anor v Beveridge & Ors

The court may appoint an additional administrator after an administration has begun, including on an interim basis, but only in accordance with the conditions in Schedule B1 to the Insolvency Act 1986. Where administrators were appointed by a qualifying floating charge-holder, an additional administrator may be appointed only by that charge-holder or on the application of the existing administrators, and the existing administrators’ consent is required.

An application for interim appointment is subject to the American Cyanamid principles. The court will not interfere with administrators’ commercial decisions unless the relevant legal standard is met. A fixed-charge holder is generally entitled to receive sale proceeds where its security must be released to permit the sale.

The applicants, ultimate shareholders of companies in administration, sought interim relief under Schedule B1 to the Insolvency Act 1986. They requested the appointment of additional concurrent administrators to represent shareholder interests and an order restraining distribution of sale proceeds.

The companies had been placed into administration by a qualifying floating charge-holder. The existing administrators opposed the proposed appointments and were conducting sales of hotel assets. The applicants alleged conflicts of interest, failure to pursue rescue or valuable claims, and defects in the sales process. The issues were whether the court had power to appoint additional administrators, whether the statutory conditions were satisfied, and whether either form of interim relief should be granted.

1. Power to appoint additional administrators. The court had power under paragraphs 74(3)(d) and 103 of Schedule B1 to appoint an additional administrator on an interim basis after an administration had commenced. The power was statutory, rather than an unrestricted inherent jurisdiction. The statutory conditions in paragraph 103 therefore had to be satisfied.

2. Because the administrators had been appointed under paragraph 14 by a floating charge-holder, an additional administrator could be appointed only by that charge-holder or by the court on the application of the existing administrators. Paragraph 103(6) also required the consent of the existing administrators. The applicants lacked standing and the existing administrators opposed the appointment. The proposed appointment therefore could not be made.

3. The authorities concerning appointment of a provisional administrator before an administration exists did not determine the different question arising after administration has commenced. The court’s general insolvency jurisdiction could not be used to bypass the mandatory statutory scheme.

4. Even if the power existed on the applicants’ application, the ordinary American Cyanamid approach applied. There was no serious issue to be tried. The prior engagements of the administrators and the shared representation by Ashurst did not establish a disqualifying conflict. The administrators had acted reasonably in pursuing the statutory objective of achieving a better result for creditors as a whole and in declining to pursue or assign claims which, on professional advice, lacked sufficient merit.

5. An administrator’s choice of statutory objective was challengeable only for lack of good faith or irrationality. Decisions about the methods used to pursue the objective involved commercial judgment. The court would not interfere unless the decision was based on a wrong appreciation of law or was conspicuously unfair to a creditor or counterparty.

6. The injunction restraining distribution of sale proceeds was also refused. The hotel assets were subject to valid legal mortgages and fixed charges. Since the sales required release of that security, the Security Agent was entitled to the net proceeds. There was no serious issue to be tried, no threatened actionable wrong, and no suitably fortified cross-undertaking in damages.

7. Both heads of interim relief were refused and the application was dismissed.