Koon v Ltd v Bowes & Ors

Under Insolvency Act 1986, Schedule B1, paragraph 81, the allegation of improper motive is a gateway to the court’s jurisdiction. The court retains a broad discretion to terminate an administration where the appointment constitutes a serious abuse of the procedure, is intended to secure a collateral advantage, or is likely to undermine the administration or interfere with the administrator’s proper duties. The court may also make consequential orders, including winding-up relief. A creditor-appointed administrator remains subject to duties owed to creditors as a whole. Where the appointor has acted as a de facto director and procured security for liabilities arising from advice obtained partly for personal benefit, the security and appointment may create a conflict of interest and provide compelling grounds for termination.

Tan Koon, a creditor of C A & T Developments Limited, applied under Schedule B1, paragraph 81 of the Insolvency Act 1986 for the termination of the appointment of Tom Bowes and Andrew David Rosler as administrators. He alleged that Christopher Parker had procured the company’s entry into a debenture and appointed the administrators with an improper motive, principally to improve his position against Mr Koon.

Mr Koon alternatively sought the replacement of the administrators and an order winding up the company. The central issues were whether the improper-motive gateway was satisfied, whether the court should exercise its discretion to terminate the appointment, and whether consequential winding-up relief was appropriate.

1. The application under Schedule B1, paragraph 81 was granted. The administrators’ appointment was ordered to cease to have effect. The alternative application to replace them was unnecessary and inappropriate.
2. The improper-motive allegation was adequately raised and was honestly advanced on reasonable grounds. The most likely explanation was that Mr Parker procured the debenture and appointment of his nominees to obtain a collateral advantage in the insolvency process, including influence over the management and disposal of the property.
3. The allegation of improper motive is a gateway to the statutory jurisdiction. It is not itself a condition which mechanically determines the relief. The court has a broad discretion under paragraph 81(3), although relief will ordinarily require good reason.
4. Good reason may arise where the appointment seriously abuses the administration procedure, or where circumstances surrounding the appointment are likely to undermine the administration or interfere with the administrator’s proper performance of duties.
5. Mr Parker acted as a de facto director when procuring the debenture and breached fiduciary duties by causing the company to assume liability for professional fees which substantially related to advice given to him personally as creditor. The debenture was also potentially vulnerable under sections 238, 239 and 245 of the Insolvency Act 1986.
6. The administrators faced a potential conflict because they had been appointed under security which they might themselves need to challenge. The administration was at an impasse, with little prospect of creditor approval and no compelling reason to continue it.
7. The court had jurisdiction under paragraph 81(3)(d), by analogy with the authorities cited, to make a winding-up order. However, further submissions were required on the appropriate course because termination would revive the suspended winding-up petition.

First-instance decision. No prior appellate decision was stated.