Court dispenses with duty to send administrator's proposals and hold initial creditors meeting

Did commercial necessity permit the administrators to dispense with the duty to send administrator’s proposals and hold an initial creditors meeting?

Case

In the matter of UK Coal Operations Ltd and other companies [2013] EWHC 2581 (Ch), [2013] All ER (D) 71 (Sep)

How did the issue arise in this case?

The closure of Daw Mill mine following a fire in March 2013 had threatened the ongoing viability of UK Coal Operations’ remaining operations and a restructuring plan had been agreed with the creditors of the companies, including the Industry Wide Pension Funds. The restructuring involved the companies firstly entering administration before moving to a creditors’ voluntary liquidation a few days later where onerous liabilities would be disclaimed by the liquidators.

The applicants in the case were the administrators of the companies who requested the permission of the court to dispense with the duty to send administrator’s proposals and hold an initial creditors meeting pursuant to IA 1986, Sch B1, paras 49 and 51. Pursuant to paras 49(7) and 51(5) respectively, an administrator commits an offence if he fails without reasonable excuse to comply with these requirements.

 

What was decided?

Purle J had previously expressed the view in Gould v Itmo Advent Computer Training Ltd [2010] EWHC 459 (Ch), [2010] All ER (D) 53 (Jun) that commercial necessity might amount to a reasonable excuse for not complying with the requirements of paras 49 and 51. In those circumstances the court should direct the administrators to act in a particular way, rather than leave the administrators wondering whether they were liable to a criminal process.

Purle J felt that the same reasoning applied in the current case. As the administration was to last no more a few days, it was reasonable for the administrators not to comply with paras 49 and 51 and avoid the pointless expense of making formal proposals, sending copies of the proposals out and considering the proposals at a creditors’ meeting when, by the time the meeting takes place, the companies will no longer be in administration. The proposals had also in this case been explained to the court when the administration orders were made and Purle J considered this sufficient.

Why is the issue important to restructuring professionals?

The case is an example of the pragmatic approach of the courts to restructuring solutions that have been designed to produce better results for creditors of a company. Administrators can take comfort from the certainty of knowing they will not be liable to a criminal process in similar situations.

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