BTI 2014 LLC & Anor v Finbarr O'Connell & Ors

The court determined applications arising from the Administration of Windward Prospects Limited in which the majority creditors sought the removal of the joint administrators and their replacement on grounds of conflict of interest and loss of confidence. The judgment applies principles governing administration and removal of office‑holders under Schedule B1 to the Insolvency Act 1986 and the Insolvency Rules 2016.

The judge held that both BTI and BAT are properly to be regarded as creditors (their proofs remain to be adjudicated as to value) and together account for an overwhelming majority of creditor claims. The administrators accept an appearance of conflict arising from alleged prior advice given by one administrator to the Company and its directors and from related pleadings. The court concluded the conflict could not in practice be managed by appointing conflict administrators because the conflict related directly to the primary asset and litigation (claims against the directors) and any workable scope for conflict administrators would leave the current administrators with no meaningful role.

Separately, the administrators' conduct (including a series of communications) gave rise to a reasonable and legitimate loss of creditor confidence in their independence, objectivity and professionalism. The court therefore ordered removal of the administrators and indicated appointment of the applicants' proposed administrators was not impeded by any adverse interest of the applicants to the general body of creditors. The application to extend the administration was considered in context but the necessity for removal determined the principal outcome.

This was a first instance hearing of cross-applications arising from the administration of Windward Prospects Limited. The applicants (BTI 2014 LLC and BAT Industries plc), who hold the vast majority by value of creditor claims, applied to remove the joint administrators, Finbarr O'Connell and Colin Hardman, on grounds including an actual or apparent conflict of interest relating to prior advice by one administrator and recent conduct said to demonstrate lack of independence and professionalism. The administrators cross-applied for (i) appointment of separate "conflict administrators" to handle matters said to give rise to conflict and (ii) an extension of the administration period to permit completion of litigation against the directors.

Background and procedural posture

• Nature of proceedings: applications under para 88 and other provisions of Schedule B1 to the Insolvency Act 1986 challenging administrators' continuation in office and seeking alternative appointments.
• Key assets and disputes: major asset value was litigation claims against former directors (asserted c.£150m) and other recoveries; funding arrangements (the Funding Agreement) created payment and indemnity obligations; earlier dividend distributions and the Funding Agreement background informed complex contingent claims.

Issues framed by the court

• Whether the applicants were creditors for procedural and voting purposes.
• Whether the administrators had a conflict of interest and, if so, whether that conflict could be managed (notably by appointing conflict administrators) or was so fundamental as to require removal.
• Whether the administrators' conduct justified removal for reasonable loss of creditor confidence.
• Whether the applicants' proposed replacement administrators were unsuitable because the applicants had interests adverse to the body of creditors.
• Ancillary issues: valuation and provability of contingent claims, equitable set-off, effect of converting the administration into a creditors' voluntary liquidation and whether conversion would prejudice any claims.

Court's reasoning

• Creditors: the court applied the Insolvency Rules 2016 definitions and authorities (including Re T & N Ltd and Nortel) to conclude BTI and BAT are creditors until proofs are adjudicated. Contingent nature of BAT's claim (limited by a contractual "Windward Floor") did not mean BAT was not a creditor while claims against the directors remained pursued.
• Conflict: the court accepted there was at least an apparent conflict because of alleged pre-administration advice by one administrator and pleaded defences alleging reliance on that advice. The conflict related directly to the administration's key asset (director litigation) and could not realistically be carved out by appointment of conflict administrators without leaving the existing administrators with no meaningful functions.
• Conduct and loss of confidence: the administrators' emails and conduct after the conflict emerged were such that a reasonable majority of creditors could lose confidence in their future independence and objectivity. The court emphasised established removal principles (para 88 Schedule B1, authorities such as SISU, AMP) and found good and sufficient grounds for removal measured by the administration's real and substantial interests.
• Proposed replacements and adverse interest: the court considered authorities on disqualification of a proposer with interests adverse to creditors (Fielding, Med‑Gourmet, Raithatha) and concluded on the facts the applicants were not in an adverse position to the body of creditors; no bar to appointing the applicants' nominees was established.

Relief and outcome

The court ordered removal of the current administrators and indicated replacement by the applicants' nominated administrators was appropriate. The reasons were a non-manageable conflict affecting primary litigation and a reasonable loss of creditor confidence in future conduct.

The court ordered that the current administrators be removed and that administrators proposed by the applicants be appointed. The court found (i) both applicants are properly treated as creditors until their proofs are adjudicated; (ii) there is at least an apparent conflict of interest linked to pre‑appointment advice that relates to the administration’s principal asset (the director claims); (iii) that conflict could not be managed by appointing conflict administrators without leaving the existing administrators with no meaningful role; and (iv) the administrators’ subsequent conduct produced a reasonable loss of creditor confidence. The applicants’ status as overwhelming majority creditors was a factor but not determinative; the court was satisfied there was good and sufficient cause to remove the administrators in the interests of the administration.