Following an application for directions by joint administrators, the court ordered that a company be placed into liquidation as the purpose of the administration had been achieved and the investigation of potential claims against the company’s bank was a matter which could be concluded during a subsequent liquidation.
The company had been placed into administration and two sets of administrators appointed. The relationship between the different sets of administrators was governed by a memorandum of understanding (Angelic MOU). The Teneo administrators had general conduct of the administration. The Quantuma administrators were appointed by a former director and shareholder of the company and were responsible for investigating potential claims against the company’s bank. The terms of the Angelic MOU carved out the Quantuma administrators’ responsibilities (and provided that the director/shareholder would be responsible for their costs and expenses) and meant that the Teneo administrators had no visibility over the investigations and the potential claims to which they related.
The purpose of the administration was to make a distribution to the preferential and secured creditors. The bank was the company’s only significant creditor and had received £19.4 million. There was a further £500,000 which was to be distributed to the bank, leaving a shortfall of £17 million for the bank. Once the £500,000 had been paid to the bank, there would be no further assets to distribute (other than any funds potentially recovered as a result of any claim brought following the Quantuma administrators’ investigations).
Directions were sought from the court as to whether the administration should come to an end (and if so, how) or whether it should continue on the basis there were still assets to distribute.
Prior to the hearing, the Quantuma administrators sought to extend their appointment by one year to continue their investigations following further evidence received from the bank.
The court considered the following issues.
The court considered the purpose of the administration, being the realisation of property to make distributions to one or more of the secured/preferential creditors. £19.4 million had already been paid to the bank and there was a further £500,00 which had been recovered and just needed to be paid over to the bank. Once this final payment was made to the bank, there would not be any further assets available to distribute. Therefore, the purpose of the administration would have been achieved.
There was still the investigation into the claims against the bank, but this did not constitute assets of the company to be distributed. The potential claims had not been pursued to date and there was also some uncertainty over both the merits of the claims and whether they had been validly assigned. The court considered it right that these claims be investigated but saw no reason that the administration be extended to allow this. The claims could be investigated in another insolvency procedure, i.e. liquidation.
In light of this, the court decided not to continue the administration. However, in order to allow the potential claims to be investigated, the Court also ordered that the company should be placed into compulsory liquidation with both the Teneo administrators and the Quantuma administrators continuing to act jointly.
This case is a reminder of the court’s supervisory jurisdiction. It also shows that when considering whether to end or continue an administration the court will look closely at the stated purpose of the administration. In this case, that purpose was to make a distribution to secured and preferential creditors and therefore, once such a distribution had been made the purpose was met. Administration is not intended to be an open-ended procedure; where another insolvency procedure is available (and more appropriate) the court will turn towards that.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.