Baker & Anor v Biomethane (Castle Easton) Ltd (Rev 1)

An administration may be extended by creditor consent only where the statutory requirements for the relevant classes of creditors are satisfied. Deemed consent cannot replace the actual consent required from each secured creditor.

The court has jurisdiction to make an administration order retrospectively. That jurisdiction should be exercised with extreme caution, having regard to the interests and potential prejudice of all creditors. A retrospective order may be appropriate where it regularises the administration and causes no unfair alteration of creditors’ positions.

An extension under Schedule B1 para. 76 involves an unfettered discretion. The court should consider whether the purpose of the administration remains reasonably likely to be achieved, prejudice to creditors, and creditors’ views.

Biomethane (Castle Eaton) Ltd was placed into administration after its secured creditor appointed the applicants as administrators. The administrators later used the deemed consent procedure to obtain an extension, treating the silence of secured creditors as consent.

That procedure was ineffective for obtaining the actual consent required from each secured creditor. The administrators nevertheless continued trading, funded by a secured creditor, while negotiations for refinancing progressed and substantial payments were made to unsecured creditors.

The applicants sought a new administration order, retrospective to the expiry of the original administration, together with a further 12-month extension. The issues were whether the applicants had standing, whether the company was insolvent, whether an administration objective was reasonably likely to be achieved, whether retrospectivity was available and appropriate, and whether a further extension should be granted.

1. Administration order. The applicants were creditors because unpaid fees for work performed while acting as administrators constituted debts within para. 12(1)(c) of Schedule B1 to the Insolvency Act 1986. The company was unable to pay its debts and was insolvent on a balance-sheet basis. An objective of the administration, including a possible rescue by refinancing or distribution following realisation, was reasonably likely to be achieved. A new administration order was therefore made.
2. Retrospective effect. Paragraph 13(2) of Schedule B1 was treated at first instance as conferring jurisdiction to appoint an administrator retrospectively. The jurisdiction was established at first instance, but required extreme caution and would frequently be withheld as a matter of discretion. The court considered the interests of all creditors, including whether backdating would alter unequally the amount or priority of debts carrying interest.
3. In this case, retrospectivity would regularise the trading administration and quieten potential issues concerning payments, preferences and administration expenses. No creditor would suffer material prejudice, and the secured creditors with the real economic interest supported the application. The order was therefore made retrospective.
4. Extension. The discretion under para. 76 of Schedule B1 was unfettered. Relevant considerations included whether the purpose of the administration remained reasonably likely to be achieved, prejudice to creditors, and creditors’ views. The refinancing negotiations were advanced, the secured creditors consented, and no material prejudice was shown. A further 12-month extension was granted.