What to do when creditors fail to participate in an administration (Parmeko case)

What to do when creditors fail to participate in an administration (Parmeko case)
When is an application to the court under the Insolvency Act 1986, Sch B1, para 55(2) necessary? In Re Parmeko Holdings Ltd (in liquidation) and other companies [2013] Lexis Citation 120, [2014] All ER (D) 39 (Jan) the court considered what administrators can do if creditors fail to vote on the administrators’ proposals.

How did the issues arise in this case?

The administrators of the four companies entered into pre-pack sales in respect of some (but not all) of the business and assets of the companies upon their appointment as administrators. Following this, creditors' meetings were arranged at which the administrators' proposals were to be put to the creditors for approval.

No creditors either attended the meetings nor sent any written proxy or vote so there was no vote cast in favour or against the proposals.

What are the relevant statutory provisions in this case?

The Insolvency Act 1986, Sch B1, para 49(1) (IA 1986) requires the administrator of a company to put together proposals for achieving the purpose of the administration. The proposals must include the information set out in the Insolvency Rules 1986, SI 1986/1925, r 2.33 (IR 1986) and be sent to the creditors of the company as soon as reasonably practicable after the company enters administration and in any event, within eight weeks of the company entering administration (IA 1986, Sch B1, para 49(5)).

The proposals are sent to creditors together with an invitation to attend an initial creditors' meeting where the creditors may vote to approve the administrator's proposals or approve the proposals with modifications to which the administrator consents (IA 1986, Sch B1, para 53(1)). Where the creditors fail to approve the administrator's proposals, the court has discretionary powers to order any of the below (IA 1986, Sch B1, para 55(2)):

  1. provide that the appointment of an administrator shall case to have effect from a specified time
  2. adjourn the hearing conditionally or unconditionally
  3. make an interim order
  4. make an order on a petition for winding up suspended by virtue of IA 1986, Sch B1, para 40(1)(b)
  5. make any other order that the court thinks appropriate

What were the proposals in the current case?

The proposals were in a relatively standard form covering the matters required by IR 1986, SI 1986/1925, r 2.33. The first objective was for the administrators to 'continue to manage the business affairs and properties of the all the companies in the group in accordance with objectives 2 and 3 of the statutory purposes of administration'. The court understood this to mean that the administrators intended to continue

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