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

An administrator may be removed only where there is good or sufficient cause, assessed by reference to the real, substantial and honest interests of the administration and the purpose of the office. The court must distinguish legitimate loss of confidence from ordinary disagreement or criticism. A conflict does not automatically require removal if it can be effectively managed, but a conflict-management structure is inadequate where it would leave the existing administrators with no meaningful role. Majority creditor status is relevant but not determinative. The proposed replacement must also be independent and suitable; disputes between the applicant creditor and the administrators do not, without more, create an adverse interest against the general body of creditors.

BTI 2014 LLC and BAT Industries plc, creditors of Windward Prospects Ltd, applied under paragraph 88 of Schedule B1 to the Insolvency Act 1986 for removal of the administrators, alleging conflict of interest, loss of independence and poor conduct. The administrators cross-applied for appointment of conflict administrators and extension of the administration.

The applicants’ claims represented at least 93% of the creditor claims. The principal conflict arose because the administrators were pursuing claims against former directors concerning transactions in which one administrator had previously advised. The central issues were whether the applicants were creditors, whether the conflict could be managed, whether there was good cause for removal, and whether the applicants’ nominees had interests adverse to the general body of creditors.

1. Creditor status. A person who has submitted a proof of debt which is prima facie valid should be treated as a creditor for procedural purposes before adjudication. The wide definitions of debt and liability in rules 14.1 and 14.2 of the Insolvency Rules 2016 include contingent, future, uncertain and unliquidated claims. BAT was therefore a contingent creditor, although its claim would later require valuation. BTI was a creditor for at least £27.9 million, subject to any valid set-off.
2. Majority creditors. The wishes of majority creditors must be considered but are not determinative. A majority has no general right to remove an administrator. Conversely, a large majority should not be disregarded where its concerns are legitimate and reasonably held.
3. Conflict. Administrators are fiduciaries and must guard against actual and apparent conflicts. Conflict administrators can be used only if they provide an effective solution. Here they would have to control the director claims, possible claims against the administrator and his firm, a possible section 213 claim, and adjudication of the applicants’ proofs. Almost no meaningful role would remain for the existing administrators. Removal was therefore the only satisfactory response.
4. Removal. The court must examine the allegations, decide whether they amount to good or sufficient cause, and then exercise its discretion in all the circumstances. The relevant focus is the future conduct of the administration, although past conduct may establish a real risk of future failure. The administrators’ conduct gave the majority creditors reasonable grounds to lose confidence that the administration would be conducted solely in the real, substantial and honest interests of the estate.
5. Replacement administrators. The applicants’ disputes with the administrators, including disputes over fees, conversion to a creditors’ voluntary liquidation, assignment of claims and a proposed tax investigation, did not establish an adverse interest against creditors generally. The applicants’ nominees could therefore be appointed. Professional reputational harm was not a reason to refuse removal where good cause existed.
6. Order. The existing administrators were removed and the administrators identified by the applicants were appointed.