Speciality Steel UK Limited v FGI Worldwide LLC & Ors

On an application under paragraph 81 of Schedule B1 to the Insolvency Act 1986, alleging improper motive is sufficient to found jurisdiction if the allegation is made honestly and on reasonable grounds. The applicant need not prove improper motive as a threshold condition at the substantive hearing.

Improper motive concerns misuse or abuse of administration for a purpose inconsistent with its statutory purpose. A qualified floating charge holder may properly be motivated by protecting creditors generally, securing independent control, or investigating misconduct, and is not limited to seeking repayment. The court retains a broad discretion, including where administration is likely to achieve its statutory purpose. It should not terminate an administration merely because an alternative rescue proposal appears preferable, particularly where that proposal can be pursued within the administration and carries material risks.

A creditor applied under paragraph 81 of Schedule B1 to the Insolvency Act 1986 for the appointment of administrators over Aartee Bright Bar Limited to cease to have effect. The appointment had been made out of court by a qualified floating charge holder.

The applicant alleged that the appointment was motivated by reputational concerns and was an abuse of the administration procedure. It also relied on a proposed rescue plan supported by major creditors and argued that the company should be returned to its directors. The respondents disputed improper motive and maintained that the administrators could achieve the statutory purpose by pursuing a sale of the business and assets. The central issues were the jurisdictional threshold for improper motive and whether the wider circumstances justified terminating the administration.

1. The application was dismissed. The court considered both whether the appointor had acted with an improper motive and whether, in all the circumstances, it was appropriate to terminate the administration.

2. The allegation of improper motive was a gateway to the jurisdiction. It was sufficient that the allegation was made honestly and on reasonable grounds. The applicant was not required to prove the allegation on the balance of probabilities as a threshold condition before the court could proceed. Nevertheless, the judge should ordinarily make a positive finding on improper motive where the evidence permits, because that finding is important in the discretionary balance.

3. Improper motive involved conduct amounting to an improper use or abuse of administration for a purpose inconsistent with, or not in harmony with, its statutory purpose. The court rejected the submission that a qualified floating charge holder could appoint administrators only to secure repayment. Administration is a class remedy directed to the interests of the general body of creditors. A legitimate motive could include improving creditors’ position, securing independent control of assets, or enabling investigation of alleged misconduct.

4. The court also rejected an absolute rule that paragraph 81 relief could never be granted where the statutory purpose was likely to be achieved. Such cases would be unlikely, but the jurisdiction remained broad and could require balancing disputed facts, uncertain opinions and competing consequences.

5. On the facts, the appointment was not shown to have been made for an improper motive. Reputational concern was only one, and probably minor, consideration among concerns about unpaid liabilities, the absence of credible funding, the risk that receivables would not be realised in full, and the need for independent control. The administrators’ proposed sale was consistent with achieving the statutory purpose.

6. The proposed rescue plan did not justify termination. It could potentially be implemented through a sale of the business within the administration. Its proposed funding was conditional on immediate termination, and returning a cash-flow insolvent company to its directors created material risks to creditors without adequate safeguards. The court would not second-guess the administrators’ commercial judgment or return the company to its directors on the basis of a late and insufficiently secured proposal.