Financial Administrators duty to apply to the Court for directions where creditors reject proposals.
17th February 2013
In the recent case of Lavin and others v Swindell  EWHC 2398(Ch) (23 August 2012) the High Court has confirmed that pursuant to paragraph 55 of Schedule B1 to the Insolvency Act 1986 (the “Act”) the Administrator has a duty to apply to the court for directions where the initial creditors’ meeting fails to approve the Administrator’s proposals or revised proposals.
The Court has wide powers to act in an application under paragraph 55 of Schedule B1 to the Act and can make any order that the Court thinks appropriate such as:
- terminating the Administrator’s appointment;
- adjourning the hearing to give directions to the Administrator;
- ordering the Administrator to apply for a winding up order; or
- in exceptional circumstances making a winding up order on its own initiative (Lancefield v Lancefield  B.P.I.R. 1108.)
In the Lavin case an Administration Order was made on 16 December 2011 in respect of BTR (UK) LTD (“BTR”). It transpired that BTR was insolvent with the Statement of Affairs revealing assets of only £56,726 and an estimated deficiency of £464,194. The Administrator sent out his proposals to creditors. In them he envisaged that there would be insufficient funds to pay unsecured creditors and he proposed to dispense with the initial meeting of creditors.
However some of the creditors requisitioned a meeting. The majority voted to reject the Administrator’s proposals and also voted for a resolution requiring the Administrator to petition for the compulsory winding up of BTR. The Administrator rejected the proposal to wind the company up and argued that there were insufficient funds to cover the petition costs.
The applicant and other creditors then issued proceedings to compel the Administrator to apply for the compulsory winding up of BTR.
Behrens J considered that whilst Paragraph 55 of Schedule B1 to the Act does not expressly require the Administrator to bring the matter before the Court, Paragraph 55(2) implied that there must be a hearing and there could only be a hearing if an application was made. That application would ordinarily be made by the Administrator. If, as in this case, the Administrator does not make the application, there is no reason why it should not be made by a creditor. He went on to say that if the creditors reject the Administrator’s proposals it is difficult to see how the Administrator can manage the company’s affairs without making an application to the Court.
The Court terminated the Administrator’s appointment with immediate effect and ordered a compulsory winding up order to be made.