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

The court considered two competing applications in the administration of Taylor Pearson (Construction) Limited: (1) a creditors' application under paragraphs 74 and 75 of Schedule B1 seeking relief including revocation of proposals purportedly deemed approved and that the administrators place the company into liquidation; and (2) an administrators' application under paragraph 65(3) of Schedule B1 seeking permission to make a distribution of £150,000 to unsecured creditors. The principal legal issue was whether the joint administrators were entitled to treat Objective C (realising assets to make a distribution to secured or preferential creditors) as the proper administration objective and therefore to rely on paragraph 52(1)(c) to avoid submitting proposals to a creditors' approval procedure.

The judge held that administrators may change which objective in paragraph 3 of Schedule B1 they pursue as circumstances change and that the court should not interfere unless the choice was made in bad faith or was clearly perverse. Applying that principle, the court found on the evidence that the administrators reasonably concluded Objective C applied, that the proposals were validly dealt with under the rules (including deemed approval where applicable), and that the creditors had not established unfair harm, bad faith or perverse decision-making. The court granted the administrators' permission to make the proposed distribution and dismissed the creditors' application.

Background and procedural posture

The administration of Taylor Pearson (Construction) Limited commenced and the joint administrators, Messrs Butler and Nichols, formulated proposals. Two applications were heard: the Creditors' Application dated 3 September 2020 (brought by Moulds Fencing (Torksey) Limited and 11 other creditors) seeking, among other orders, revocation of proposals deemed approved, an order requiring the administrators to apply to place the company in creditors' voluntary liquidation and a prohibition on using the deemed approval procedure; and the Administrators' application dated 7 October 2020 under paragraph 65(3) of Schedule B1 seeking the court's permission to make a distribution of £150,000 to unsecured creditors.

Issues framed by the court

• Whether the joint administrators were correct to conclude that Objective C in paragraph 3(1)(c) of Schedule B1 applied when they put forward their proposals, and whether that justified not submitting the proposals to a creditors' approval process under paragraphs 51–53 and 52(1)(c).
• Whether the administrators acted so as to unfairly harm creditors or otherwise misapplied their powers such that relief under paragraphs 74 or 75 of Schedule B1 was appropriate.
• Whether the proposals were delivered within the statutory period and whether any procedural defects (including deemed approval) invalidated the proposals.
• Whether the court should order that the company be placed into liquidation.

Court's reasoning and conclusions

The judge set out the statutory hierarchy of administration objectives in paragraph 3 of Schedule B1 (Objectives A, B, C) and confirmed the established principle that the objective is not fixed immutably and may change as circumstances change. The court relied on authorities it was referred to (including Davey v Money) for the proposition that the court should not interfere with an administrator's choice of objective unless that choice was in bad faith or was clearly perverse.

On the facts, the administrators had initially considered Objective B possible but, after site work, agent reports and a quantity surveyor's assessment, concluded that completing or selling the business as a going concern was not viable and that, financially, unsecured creditors would not be better off in administration than in liquidation. The administrators therefore proceeded on the basis of Objective C and, in reliance on paragraph 52(1)(c) and the Insolvency (England and Wales) Rules 2016 provisions on deemed approval, did not put proposals to a creditors' decision procedure. The judge was not satisfied that the proposals had been delivered late.

The court rejected the creditors' propositions that (i) the administrators should have persisted with Objective B, (ii) pursuing Objective C necessarily caused unnecessary harm to unsecured creditors, and (iii) Objective C could not be pursued where a distribution to unsecured creditors might ultimately be made. The judge considered that, on the evidence, the administrators' approach was reasonably open to them and not irrational or made in bad faith. The administrators were permitted to make the proposed distribution; the Creditors' Application was dismissed. The judge declined to make pre-emptive orders restricting future use of the deemed consent procedure and observed that creditors retain statutory powers (including requisitioning decisions under paragraph 56 and invoking paragraph 83 if appropriate) to challenge future steps.

Contextual notes: the decision was taken against the background of practical constraints resulting from the Covid-19 pandemic (site closures, travel restrictions and auction sales), and the judge observed that much of the administrators' proposed strategy had already been implemented by the time of the hearing, reducing the utility of ordering further creditor processes.

First instance: The Creditors' Application is dismissed. The court granted the administrators permission under paragraph 65(3) of Schedule B1 to make the proposed distribution to unsecured creditors. Rationale: the administrators reasonably concluded that Objective C applied given changed circumstances, their decision was not shown to be in bad faith or clearly perverse, the proposals were properly dealt with under Schedule B1 and the Insolvency Rules (including deemed approval where applicable), and the creditors did not demonstrate unfair harm sufficient to justify relief under paragraphs 74 or 75.