Stephen Hobson & Anor v OAS Realisations (2022) Limited (formerly known as Open Administration Systems Ltd) (in Creditors’ Voluntary Liquidation)

For paragraph 83 of Schedule B1 to the Insolvency Act 1986, a preferential creditor is an unsecured creditor unless the statutory context requires otherwise. The expression refers to whether the creditor holds security over company property, not whether the creditor has preferential priority.

Paragraph 83 also applies where the administrator thinks that its conditions are satisfied. The administrator need not satisfy an objective reasonableness test. A genuine thought process directed to the statutory conditions is sufficient, although the administrator may in any event have reasonable grounds for that view.

The applicants were joint administrators of OAS Realisations (2022) Ltd. Their term of office was due to expire after one year. They sent the Registrar of Companies a notice under paragraph 83(3) of Schedule B1 to the Insolvency Act 1986, believing that paragraph 83(1) applied because a dividend would be paid to HMRC as a secondary preferential creditor.

The notice was registered. The applicants sought declarations that the company had moved into creditors’ voluntary liquidation, that their appointments as administrators had ceased, and that they had become liquidators. The central issues were whether a preferential creditor was an unsecured creditor for paragraph 83(1)(b), and whether the administrator’s belief had to be objectively reasonable.

1. The declarations were granted. The notice validly moved the company from administration to creditors’ voluntary liquidation on registration. The applicants’ appointments as administrators then ceased and they became liquidators under paragraph 83.
2. Under section 248 of the Insolvency Act 1986, an unsecured creditor is, unless the context otherwise requires, a creditor who does not hold security over company property. A preferential creditor has priority over other creditors but does not hold such security. It is therefore an unsecured creditor for paragraph 83(1)(b).
3. The context of paragraph 83 did not require “unsecured creditor” to be confined to ordinary, non-preferential unsecured creditors. Parliament had used express limiting language elsewhere, in paragraph 65(3), by referring to a creditor who was neither secured nor preferential. The absence of equivalent language in paragraph 83 was significant.
4. The statutory scheme had become less coherent after the restoration of secondary preferential status for certain HMRC debts, but that policy difficulty could not displace clear statutory wording. The definition had to operate consistently for all preferential creditors.
5. Alternatively, paragraph 83 is engaged where the administrator thinks that its conditions are satisfied. Following the approach in Unidair plc v Cohen [2005] EWHC 1410 (Ch), the administrator need not reasonably think that the conditions are satisfied by an objective standard. There must only be a thought process directed to that conclusion. In any event, the applicants had reasonable grounds, having relied on clear statutory wording and specialist legal advice.
6. The alternative application for a retrospective administration order therefore did not require determination.