Achieving the purpose of an administration—Re BW Estates; Randhawa v Turpin

Will the courts reject a challenge to the administrators’ fees and disbursements where an administration could achieve one of the purposes of administration? Stefan Ramel of Guildhall Chambers comments on a ruling that he says will be a comfort to administrators.

Original news

Re BW Estates Ltd; Randhawa and another v Turpin and another [2015] EWHC 517 (Ch), [2015] All ER (D) 27 (Mar)

The applicant creditors of a company in administration applied for orders that:

  • the remuneration of the respondent administrators was excessive and should be either disallowed entirely or reduced; and
  • that the administrators should pay the costs of the application personally and not as an expense of the administration

The Companies Court rejected the contention that the administrators, appointed under Insolvency Act 1986 (IA 1986), could not or should not have made the statement as to the statutory purpose, as required under IA 1986, Sch B1, para 29(3)(b), which had led to their appointment. Further, the argument that they should not be entitled to any remuneration at all for their services was rejected. Once the decision to appoint administrators had been made, the responsibility on the prospective administrator in considering whether the statement as to the statutory purpose could be made was to look ahead at what would or might happen during the administration if he was appointed, and not behind at the motives which might have led the directors to choose to make the appointment.

What was the background to the case?

The wider background to this case arises from a dispute between the Randhawas and Mr Robert Williams which resulted in a substantial judgment in favour of the Randhawas. One of Mr Williams’ assets, over which the Randhawas obtained a charging order, was a shareholding in the company. The company in question was a property investment company which owned several properties. The properties were secured in favour of Nationwide Building Society. As a result of their charging order over the shares, the Randhawas had an economic interest in the company. As a result, partly of a freezing order which the Randhawas obtained which affected the company’s property, the company missed mortgage payments to Nationwide. That prompted Nationwide to appoint receivers under the Law of Property Act 1925.

The company’s director (Mr David Williams) then made an out-of-court administration appointment. It is clear from reading the judgment that the Randhawas considered that the administration was deployed by the Williams’ as a tactical device to deplete the company’s assets (and thus render the Randhawas judgment less valuable) by causing administrators to incur fees and disbursements. The Randhawas therefore bought (at full value) the debt of a creditor of the company so that the Randhawas would have the locus to challenge the administrators’ fees and disbursements. It was no part of the application that the administrators were complicit in any scheme by the Williams’ to deplete the company’s value.

What were the legal issues that the judge had to decide?

Although the claim was initially put both on the basis of rule 2.109 of the Insolvency Rules 1986, SI 1986/1925, and IA 1986, Sch B1, para 74, the latter claim was effectively abandoned and in any event refused by the judge. The creditor’s main argument on rule 2.109 was that, because the administrators were never in a position to confirm that one of the purposes of administration could be achieved, they should not be entitled to any remuneration. The sole issue for the judge was therefore whether, at the time that the administrators were required to state their proposals, they could properly have taken the view that one of the purposes of administration could be achieved.

By a letter and report dated 4 November 2013, the administrators expressed their opinion that either the administration would achieve a better outcome for creditors for the purposes of IA 1986, Sch B1, para 3(1)(b) or, in the alternative, that the company might be rescued as a going concern for the purposes of IA 1986, Sch B1, para 3(1)(a).

Why did these issues arise?

The issues arose in the context of the creditors’ claim that the administrators should not be entitled to any remuneration.

What were the main legal arguments put forward?

The creditors relied on Doltable Ltd v Lexi Holdings plc [2005] EWHC 1804 (Ch), [2005] All ER (D) 100 (Jun) which was a case in which Mann J had concluded that, in a case where a company owned a single property and that its business involved the management of that property, if the property were sold by administrators (given that the property was the only asset), it could never be said that the company’s business could be rescued as a going concern. The creditors sought to apply that case by analogy.

What did the judge decide, and why?

The judge refused the creditors’ application. He ruled that it was conceivable, in this case, that an administration could achieve one of the purposes of administration. Therefore the sole criticism advanced by the creditors was not made out and the application failed.

To what extent is this judgment helpful in clarifying the law in this area?

The facts of the case are unusual. The application was also unusual—two creditors by assignment were engaged in a dispute by proxy with a former shareholder/director of a company over the acts of independent third parties (the administrators). In reality, to the extent that there is a claim arising from the facts, as pointed out by the judge, it lies in asserting that the company’s director acted improperly and in breach of duty. In my view, because the case is quite unusual, it is unlikely that it will turn out to be of great assistance to practitioners in the future.

What practical lessons can those advising them take away from the case?

The case will be of comfort to administrators. Even in circumstances where it is unclear exactly what strategy they should follow to achieve one of the purposes of administration, the court is likely to approach their opinion with some deference and is unlikely to hold that they had no basis whatsoever for reaching it.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Out of court appointments—who can apply and in what circumstances?

Office-holder remuneration

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First published on LexisPSL Restructuring and Insolvency

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