Challenge to Administrators’ Conduct

We’ve heard that some of the UK’s largest landlords have written to the administrators of Optical Express Group expressing concern that the optician is seeking to influence the outcome of the insolvency process of one of its subsidiary companies.  The landlords are concerned as to whether the administration procedure is being used as an abuse of process to restructure its business, and increase group profits, rather than to rescue a business in trouble.

On 30 September this year Optical Express Group filed a notice of intention to appoint administrators over its DCM Optical Clinic business.  The Group announced it intended to acquire 16 of its 19 stores.  Almost a year ago the Group completed a similar transaction in relation to another subsidiary, Optical Express (Southern) Limited.

We understand the landlords’ letter to the administrators, from the British Property Federation’s Insolvency Committee, has requested clarification on various issues. One issue of concern is whether the administration process is being abused in a way which allows the Group to restructure its business at the expense of creditors, including landlords. The British Property Federation’s Insolvency Committee is made up of the property industry’s insolvency experts.

Administrators are officers of the court and, in addition, owe fiduciary and statutory duties to the general body of creditors, including landlords.  They therefore must act independently in the best interests of the creditors.  In the case of Optical Express, we understand the British Property Federation is concerned that Optical Express may be trying to influence the administrators to not necessarily act independently in the best interests of creditors. Reassurance from the administrators has been requested.

Whilst many creditors believe it would be improper to use insolvency procedures in order for companies to pick and choose which parts of their contractual commitments they would like to walk away from, that view is not necessarily the whole story. Often companies and insolvency practitioners will work together using a particular insolvency procedure as a vehicle for restructuring the business. Such conduct is usually entirely lawful in circumstances where the business in question is insolvent.  Financial difficulty is not a difficult thing to demonstrate in the current climate.  However, if a profitable solvent company is seeking to use an insolvency process in order to improve profits within its wider group, questions will need to be asked, as such conduct may be an abuse of process.

The issues are often complex as there are competing interests and competing duties.  With that in mind, if you have any queries relating to tenant, landlord or supplier insolvency or restructuring our retail insolvency specialists would be pleased to assist.

For more information, please contact sacha.pickering@michelmores.com