Moulds Fencing (Torksey) Ltd & Ors v Butler & Ors

The statutory objectives of administration form a hierarchy, but the appropriate objective may change as circumstances develop. Objective C may properly be pursued even where unsecured creditors may ultimately receive a distribution, provided Objectives A and B cannot reasonably be achieved and continuation of the administration does not unnecessarily harm creditors. The illustrative terms of the explanatory notes do not limit Objective C. Where the administrator reasonably concludes that neither Objective A nor Objective B can be achieved, creditor approval of proposals is not required under paragraph 52(1)(c) of Schedule B1, subject to the statutory right of creditors meeting the prescribed threshold to request a decision. The court should not interfere with the administrator’s choice of objective unless the decision was made in bad faith or was clearly perverse.

Taylor Pearson (Construction) Limited entered administration during the Covid-19 pandemic. The administrators initially considered that a better result for creditors could be achieved through administration, but later concluded that the business could not be sold or completed profitably. They therefore proceeded on the basis of Objective C and treated their proposals as deemed approved without seeking a creditors’ decision.

A group of creditors challenged the administrators’ conduct under paragraphs 74 and 75 of Schedule B1 to the Insolvency Act 1986. They argued that Objective B remained applicable, that Objective C could not be pursued where unsecured creditors might receive a distribution, and that the company should be placed into liquidation. The administrators also sought permission to distribute £150,000 to unsecured creditors.

The court dismissed the creditors’ application and permitted the administrators to make the proposed distribution to unsecured creditors.

1. The objectives in paragraph 3 of Schedule B1 are hierarchical but not immutable. An administration may begin on the basis that one objective is reasonably likely to be achieved, yet later circumstances may require the administrator to change objective. The court applied the guidance in Key2 Law (Surrey) LLP v De’Antiquis and noted the similar approach in R. (on the application of Monarch Airlines Ltd (in admin.)) v Airport Coordination Ltd.

2. The administrators’ decision as to the appropriate objective should not be disturbed unless made in bad faith or clearly perverse. On the evidence, the initial decision to pursue Objective B and the later decision to proceed to Objective C were reasonable. The approach in Davey v Money was applied.

3. Objective C was available. The fact that unsecured creditors might ultimately receive a distribution did not prevent the administrators from realising property in order to distribute to secured or preferential creditors. The court rejected the argument that Objective C was limited to cases where unsecured creditors would receive nothing. The explanatory note relied on by the creditors described the main type of case but did not limit the statutory wording.

4. The continuation of the administration did not cause unnecessary harm. Any additional costs were projected and de minimis, and any possible timing issue could be managed by preparing a distribution application in advance. The court therefore rejected the argument that Objective C was unavailable under paragraph 3(4).

5. The court also rejected the argument that a creditors’ decision was required whenever a distribution to unsecured creditors was contemplated. Paragraph 52(1)(c) applied because the administrators reasonably considered that neither Objective A nor Objective B could be achieved. The earlier authorities relied on by the creditors concerned the predecessor regime and did not govern the present statutory scheme, which expressly permits distributions in an administration with court sanction.

6. Any challenge to the original placement of the company into administration was governed primarily by paragraph 81 and required an allegation of improper motive against the appointor. Complaints about conduct before appointment could not be brought under paragraphs 74 or 75. In any event, the evidence did not establish improper motive, bad faith or unreasonable conduct.

7. There was no practical justification for placing the company into liquidation or making a pre-emptive order preventing use of the deemed-consent procedure in relation to future proposals. The creditors retained their statutory rights to challenge later decisions.

First-instance decision. No prior judicial decision in the same proceedings is stated.