Duffy & Anor v Mederco (Cardiff) Ltd

This case concerned the court's powers to cure or validate defects in the continuation of an administration. The administrators had been validly appointed on 17 January 2019 under Schedule B1 Insolvency Act 1986, but a creditor-led extension of their term was arguably defective because certain investors with equitable purchasers' liens had not been treated or asked to consent as secured creditors (s.248 IA 1986). The principal legal conclusions were:

• para. 77 Sch B1 bars a court order extending an administrator's term after expiry of that term; the court cannot exercise a power under paragraph 76 once the term has expired.
• The court has jurisdiction to make a retrospective administration order but its retrospective effect should not generally be backdated by more than 364 days; that limit preserves the statutory bar in paragraph 77 and the one-year initial term in paragraph 76.
• Where appropriate and just, the court may make a retrospective appointment (subject to the 364-day practical limit) and then extend the administration prospectively under paragraph 76(2).

Applying these principles the judge concluded there was an arguable case that the creditor extension to 17 January 2021 was invalid, that a retrospective validation beyond 364 days would be impermissible, and therefore made an administration order backdated 364 days and extended the administration until midnight on 17 January 2022; the November 2020 court order was set aside as a nullity.

Background and parties. The applicants were the joint administrators of Mederco (Cardiff) Ltd appointed on 17 January 2019 by a qualifying floating charge holder. The company owned a single material asset: development land and buildings at Mynachdy, Cardiff. During the administrators' initial 12-month term they marketed the property. An extension by creditor consent was purportedly obtained so that the administration would run to 17 January 2021, and in November 2020 the court granted a further extension to 17 January 2022. After obtaining advice in connection with another administration, the administrators realised investors who had paid sizeable deposits under contracts to buy long leaseholds might have equitable purchasers' liens and therefore should have been treated as secured creditors whose consent to the creditor extension should have been sought.

Nature of the application. The administrators applied for relief to regularise the position: they sought retrospective validation or re‑appointment/extension of the administration so as to avoid a gap in office, to protect the proposed sale of the Property (offer accepted for £1,550,000), and to address any procedural defects. The principal issues the court identified were:

1. Whether the court can make a retrospective administration order;
2. Whether the court can extend the period of administration with retrospective effect once the administration has expired;
3. Whether the court can make successive retrospective administration orders to cover successive years; and
4. What recitals or findings are appropriate in view of the UK’s exit from the EU and the retained EU Insolvency Regulation.

Issues and reasoning. The judge accepted the initial appointment was valid but concluded there was a real prospect that the creditor extension was invalid because certain investors likely held equitable liens and were not treated as secured creditors (s.248 IA 1986). The court accepted that it has a long‑recognised jurisdiction to make retrospective administration orders, but emphasised statutory limits. Paragraph 77(1)(b) Sch B1 prevents making an order under paragraph 76 after expiry of the administrator's term; the judge treated this as a jurisdictional limit rather than a mere directory provision. The practical consequence is that the court should not make an order purporting to extend an administration after it has expired. The authorities support that the court may, in appropriate cases, appoint administrators retrospectively but should not backdate their appointment so far that the statutory one‑year term has already expired; accordingly a 364‑day backdating practice has developed. The judge rejected the device of making two successive retrospective orders to avoid para. 77(1)(b), as that would subvert the statutory limit.

Outcome. The judge concluded the administrators had standing (including as creditors for unpaid work) and that the company had been insolvent throughout the relevant period with a real prospect of achieving administration purposes. He therefore made an administration order taking effect 364 days before the date of the judgment and extended the administration to midnight on 17 January 2022. The court set aside the November 2020 order as a nullity. On the EU insolvency regulation question, the judge recorded that the order would treat proceedings as opened on the date of the present order under the post‑transition regime, while noting alternative arguments as to whether the retrospective date might itself be treated as the opening date under retained EU law.

Application granted. The court held (1) the initial appointment of administrators was valid; (2) there was a real prospect that the creditor extension to January 2021 was invalid because relevant investors may have equitable liens making them secured creditors (s.248 IA 1986); (3) paragraph 77(1)(b) Sch B1 prevents an order under paragraph 76 being made after expiry of an administrator’s term and the court should not generally backdate an appointment so as to exceed a one-year retrospective period; (4) exercising its discretion and jurisdiction the court made a retrospective administration order backdated 364 days and extended the administration to midnight on 17 January 2022; the November 2020 extension order was set aside as a nullity. The order was made because the statutory conditions were met, administrators had locus and no injustice or relevant prejudice was identified.