IN THE MATTER OF E REALISATIONS 2020 LIMITED (IN ADMINISTRATION)

A failure to give reasons in a notice seeking creditors’ consent to extend an administration is a procedural irregularity, rather than a defect affecting the fundamental validity of the extension. The court may remedy it under Insolvency (England and Wales) Rules 2016, rule 12.64, where no substantial injustice has been caused. Consent obtained contingently before a final decision to extend may make compliance with the statutory and procedural requirements difficult, particularly the obligation to file notice of the extension promptly. The court’s discretion to extend an administration is exercised in the interests of creditors as a whole, having regard to all the circumstances, including the continuing purpose of the administration, prejudice to creditors and their views.

The joint administrators of the Company sought relief concerning their terms of office. They applied for a declaration that the administration had been validly extended by creditor consent to 7 June 2022, despite failing to state reasons for the proposed extension in notices issued under rule 3.54(2). They alternatively sought a retrospective administration order. A further application sought a 12-month court-ordered extension to 7 June 2023.

The issue was whether the failure to state reasons invalidated the consensual extension or constituted a remediable procedural defect, and whether a further extension should be granted.

1. Application 2 granted. The administrators’ terms of office had been effectively and validly extended to 7 June 2022 by consent under paragraph 76(2)(b) of Schedule B1 to the Insolvency Act 1986. The failure to state reasons breached rule 3.54(2) of the Insolvency (England and Wales) Rules 2016, but did not invalidate the extension.
2. The court adopted the distinction between procedural defects and defects going to fundamental validity. The former do not create a nullity and may be remedied. The latter result in an invalid appointment or extension and cannot be cured under rule 12.64. The relevant analysis asks: what statutory requirements apply; what is the consequence of breach; whether substantial injustice has resulted; whether any such injustice can be remedied; and, if there is a nullity, whether a retrospective order should be made.
3. The requirement in rule 3.54(2) to state the reasons why an administrator is seeking an extension was not satisfied. Nevertheless, the omission was procedural. The contingent nature of the consents did not convert the defect into one affecting fundamental validity. There was no substantial injustice because the relevant creditors had been paid or had confirmed their support, and the remaining secured creditor had reaffirmed its consent. The defect was therefore remedied under rule 12.64.
4. The judge observed that obtaining contingent consent before deciding whether an extension is required makes clear compliance with rule 3.54(2) difficult. It may also create uncertainty about the obligation under paragraph 78(5) of Schedule B1 to file notice and notify the registrar as soon as reasonably practicable after an extension by consent.
5. Application 1 granted. The court extended the administrators’ appointments for 12 months. The discretion is exercised in the interests of creditors as a whole, having regard to all the circumstances, including whether the purpose of the administration remains reasonably likely to be achieved, prejudice caused by the extension and creditors’ views. Outstanding asset realisations, distributions and closure tasks justified the extension; liquidation would increase cost and delay, while dissolution was inappropriate because assets remained.