Alldey Michael Loveridge v Craig Povey & Ors

Administrators must pursue the statutory objective of rescuing a company as a going concern unless that objective is not reasonably practicable or another statutory objective would produce a better result for creditors. In a balance-sheet solvent administration, the interests of members as a whole are relevant where the court assesses practicability and unfair harm.

The court may intervene under paragraph 74 of Schedule B1 to the Insolvency Act 1986 where an administrator’s decision lacks commercial justification or does not withstand logical analysis. A bidder has no standing in that capacity, but may apply as a member where the complaint concerns membership interests. An interim injunction is unnecessary where a later monetary award, including an adjusted share valuation, provides an adequate remedy.

These linked proceedings concerned the administration of Breton Park Residential Homes Ltd and competing proposals to conclude the administration. The administrators proposed accepting refinancing funded through Kingsford Caravan Park Ltd, which would rescue Breton as a going concern. Michael Loveridge sought directions preventing that course and requiring a sale of Breton’s business and assets. He also sought an interim injunction restraining the refinancing pending an unfair prejudice petition concerning Kingsford.

Melinda Doherty applied to be joined because the outcome could affect shares in Breton relevant to parallel matrimonial financial remedy proceedings. The court determined the joinder, administration-extension, paragraph 74 and interim-injunction applications.

1. Joinder and extension. Melinda was joined to both applications under CPR r.19.2, applied consistently with the Companies (Unfair Prejudice Applications) Proceedings Rules 2009. The administration was extended to 31 May 2024.
2. Statutory objective. Paragraph 3 of Schedule B1 to the Insolvency Act 1986 establishes a hierarchy. Administrators must pursue rescue as a going concern unless they think it is not reasonably practicable or that achieving a better result for creditors would be preferable. The use of “thinks” gives administrators wide latitude, but the court may intervene where no reasonable administrator could have considered rescue reasonably practicable. “Clearly perverse” and “irrational” describe the same high threshold and do not authorise substitution of the court’s commercial judgment.
3. Members’ interests and standing. In a balance-sheet solvent administration where creditors will be paid in full, members’ interests must be considered when practicability is assessed. Michael nevertheless lacked standing because he was debarred from contesting beneficial ownership of the Breton shares in the Financial Remedy Proceedings and was in substance pursuing the application as a prospective purchaser.
4. Unfair harm. Paragraph 74 is not confined to differential treatment. Where members are harmed collectively, intervention requires a decision lacking commercial justification or failing logical analysis. Differential treatment need not be perverse, but it must be unjustifiable by reference to the interests of members as a whole. The proposed rescue was commercially justified by Breton’s profitability, the creditors’ full repayment and the likely beneficiaries’ preference for preserving the business. Any future harm caused by management could be addressed under s.994 of the Companies Act 2006.
5. Injunction. The American Cyanamid test applied. There was a serious issue to be tried, but damages were adequate. Under s.996 of the Companies Act 2006, the court could adjust the valuation of Michael’s Kingsford shares on a hypothetical basis to reflect any loss caused by the refinancing. The injunction was therefore refused. Even if damages had been inadequate, the balance of convenience would have favoured refusal because of the potential financial prejudice to Melinda and Audey.
6. The Insolvency Application and Injunction Application were dismissed.