Dearing v Skelton & Ors

During an administration, administrators remain responsible for managing the company as a whole, subject to the statutory purposes, approved proposals and their duty to act in creditors’ interests. Directors remain in office but cannot exercise a management power which would interfere with the administrators’ powers without consent. Administrators must consider requests for directors to resume management, but the court will not grant relief under paragraph 74 of Schedule B1 merely because the requested steps might benefit members. The applicant must establish unfair harm and show that the proposed steps accord with the administration’s purposes and approved proposals. A rescue as a going concern may require an effective handover of control, but the timing and means remain primarily matters for the administrators.

ASA Resource Group plc was in administration under the Insolvency Act 1986. The administrators expected to pay creditors in full and return control of the company to its remaining director. Mr Dearing, a member and creditor, sought directions under paragraph 74(1) of Schedule B1 requiring the administrators to consent to the appointment of further directors, permit preparatory and business steps, and agree a management protocol.

The administrators had refused consent because the proposals were nearing completion, the suggested steps were insufficiently particularised, and they could involve costs, liabilities and risks. A significant shareholder also disputed the proposed composition and role of the interim board. The central issues were whether the proposed powers were prohibited by paragraph 64(1), whether refusal of consent unfairly harmed Mr Dearing’s interests, and whether relief should be granted.

1. The application for relief under paragraph 74(1) of Schedule B1 was dismissed. The administrators had to consider the requests, but they had not adopted the simplistic view that the steps were irrelevant merely because the administration was nearing completion.

2. The statutory scheme places management of the company as a whole with the administrators. They must pursue the purposes of the administration, implement the approved proposals, and act in the interests of all creditors. They cannot perform functions merely because doing so would not conflict with the statutory purpose; their functions must be exercised for that purpose. The court applied the reasoning in Re Lehman Brothers Europe Ltd (in administration) [2017] EWHC 2031 (Ch), reported at [2018] 2 All ER 368.

3. Directors remain in office, but paragraph 64 prevents them from exercising a management power which could interfere with the administrators’ powers without consent. Their statutory and common-law duties continue, although their practical exercise is restricted by that prohibition. The court considered Re System Building Group Ltd (in liquidation) [2020] EWHC 54 (Ch), reported at [2020] 1 B.C.L.C. 205, and explained the scope of the restriction by reference to Closegate Development (Durham) Ltd v McLean [2013] EWHC 3237 (Ch), reported at [2014] Bus LR 405.

4. For paragraph 74 relief, Mr Dearing had to prove unfair harm to his interests and establish that the requested steps were consistent with the approved proposals and purposes of the administration. The evidence did not establish on the balance of probabilities that immediate action was required to protect the company’s assets or value. The proposed steps also lacked sufficient detail concerning their purpose, cost, risk and effect on the administration.

5. Rescuing a company as a going concern may require the administrators to leave it capable of effective re-control by its directors, rather than merely paying creditors. The administrators were directed in effect to review the position at an appropriate time, but the court declined to give directions because Parliament had entrusted the relevant decisions to them and the urgent application was determined without tested evidence.