England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
(Chancery Division)

		Birmingham District Registry Birmingham Civil Justice Centre 33 Bull Street Birmingham B4 6DS
		6th September 2013

JUDGE COOKE:

1. This is an application before the court by the administrators of a number of Companies within a group. The Holding Company is Parmeko Holdings Limited.
2. It arises in circumstances in which the administrators, on their appointment, entered into a pre-pack sale in respect of the business of certain of the subsidiaries, but not all, and thereafter creditors' meetings were arranged, at which proposals were put, or were to be put, to the creditors for approval.
3. The proposals are in substantially similar form. The set that I am looking at, on page 24 of the bundle, relates to the Holding Company. It is in paragraphs A to K, spread over two pages.
4. The first is that the administrators "continue to manage the business affairs and properties of all the Companies in the group in accordance with objectives 2 and 3 of the statutory purposes of administration". What that reflects, but does not expressly state, is that it was the intention of the administrators to continue to trade those parts of the business that they had not sold, and otherwise simply to realise such assets as were remaining and then take a view as to whether there were funds available to allow distributions to be made to unsecured creditors, and what the exit route should be, so the following paragraphs of the proposals were in entirely permissive terms:

(b) that the administrators should make payments, when and if available, to the secured and preferential creditors;

(c) f realisations were sufficient to allow a distribution to made to unsecured creditors the administrators "may arrange for the Companies to exit administration by way of creditors voluntary liquidation" and (I paraphrase) procure their own appointment as liquidators; (d), (e) and (f) dealt with alternative forms of exit, also in permissive terms;

(g) purported to provide a proposal as to their discharge from liability, as provided by paragraph 98 of schedule B1;

(h) records what would be the obligation in any event that if a dividend was paid to unsecured creditors, any unclaimed amount would be paid into the Insolvency Services account;

(i) is a proposal, and I am not sure whether this ought to be a proposal at all rather than simply an agenda item, that creditors should consider appointing a creditors committee. ;

(j) is expressed to apply in the absence of a creditors' committee, and it is a proposal that creditors approve the remuneration of the joint administrators on a time cost basis. There is then set out a table of the amounts said to have been incurred, down to the date of the proposals;

(k) is a proposal that creditors approve disbursements in specific amounts set out in the table there.

5. What in fact happened was that no creditors either attended the meetings or sent any written proxy or vote, so there has been no vote cast either in favour of or against these proposals. In those circumstances the administrator is obliged to report to the court the outcome of the creditors' meeting; in this case, that nobody attended and there was no effective vote. Paragraph 55.1 applies, then, where a report has been made to the effect that a creditors' meeting has failed to approve the administrator's proposals, and 55.2 provides that the court may make various orders.
6. The invitation to the court is to make an order which approves the proposals. Mr Weaver draws my attention to the decision of His Honour Judge Behrens in Re BTR (UK) Limited [2012] EWHC 2398 (Ch), in which Judge Behrens held that in circumstances in which the creditors have rejected proposals there is an obligation on the administrator to seek the direction of the court as to what to do pursuant to paragraph 55.2.
7. I do mean to cast any doubt on that, but I am bound to say that it seems to me that the purpose of the court's powers under paragraph 55.2 is to give directions to the administrator in circumstances where there may be some real question as to the course that he should follow, and that it unnecessarily incurs expenditure in the administration if the court is asked to give directions when no effective purpose is to be served by those directions.
8. If the proposals that are put to creditors are specific as to what the administrator is going to do, and have the effect that he is mandated to exercise his powers in one particular way rather than in another, then of course the fact that the proposals have not been approved or have been specifically rejected by the creditors may give rise to a real question as to what the administrator is to do.
9. In the present case, however, it seems to me that it is highly doubtful whether there is any such real question. It seems to me the only choice the court is being asked to exercise, effectively, by the reference that has been made to it today is whether or not the court should exercise its power to put the Companies immediately into liquidation in circumstances in which the administrators do not propose that. No creditor appears before the court to propose it, and the administrators' view is that it would not be in the interests of the creditors and certainly not a decision that they would take themselves if they are left to administer the affairs of the Company in accordance with their own powers and discretion.
10. The formal position, it seems to me, is that unless and until proposals have been approved by the creditors, or directions have been given by the court, an administrator has the extensive powers that are given to him by schedule B1, and the authority to exercise them in such a manner as he considers best for fulfilling the purposes of the administration.
11. If and when proposals are approved then he is required by paragraph 68 to manage the affairs of the Company in accordance with those proposals, but if no such proposals are approved then he is not so constrained and he must act in accordance with his own discretion.
12. Similarly, if the court has given directions pursuant to paragraph 68 (and it could do so on an application such as this, pursuant to paragraph 55.2(e)) then the administrator must exercise its powers in accordance with that direction, but unless and until such directions are made the administrator continues to have all those powers and must exercise them in accordance with his own discretion in pursuit of the statutory purposes.
13. The effect, it seems to me, of the request that has been made to the court today is for the court to confirm that the administrator should continue to manage the business and affairs of the Company at his discretion and in accordance with his powers and those objectives. A direction to that effect serves little if any purpose. I cannot see any point in asking the court to direct the administrator to carry on at his discretion unless some specific question arises as to what he should do.
14. In this case, insofar as there is a choice at all, it is essentially only between the administrator continuing to act at his discretion or and putting the Companies immediately into liquidation. But this does not seem to me to be a case where the choice of putting the Companies into immediate liquidation realistically arises. There could, of course, be cases where it does arise; if, for instance, an opinion had been expressed by a creditor without voting on the proposals that that was the proper course to take, or if there was some real doubt about the course to be followed, or perhaps if the directors of the Company were urging that the Company should go into liquidation, then I can quite see that the administrators may want to seek the direction of the court as to whether that should be done, or even to offer the court the opportunity to exercise that power for itself.
15. But none of that appears to apply in the present case, and it therefore seems to me to be largely futile for the court to be asked to make a direction confirming that the administrator should simply continue to manage the affairs of the Company in the extremely unspecific way that would be provided for by these proposals.
16. As to the proposal to make payments, when and if available, to the secured and preferential creditors it seems to me that no purpose would be served at all by making a direction to the effect that the administrators be obliged to do so. They do not need the sanction or direction of the court to do that (see para 65 of Sch B1). Nor do they need the approval of the creditors in the form of proposals.
17. So far as the provisions of the proposals in relation to exit procedures are concerned, I am bound to say that I have grave doubts as to the utility of placing such proposals before the creditors, in the form that they were in this case, in any event. Mr Weaver makes the point that the proposals must by R 2.33(m) include a statement of "how it is envisaged the purpose of administration will be achieved and how it is proposed the administration shall end". But the proposals as set out in this case do no more than set out the mechanisms provided by Sch B1 for exit, and leave it to the discretion of the administrator to make any choice between them that may be available in the circumstances as they transpire. That is not, in any positive sense, a proposal at all, nor does it in truth set out anything the administrator "envisages".
18. The proposals state that in the event the company goes into CVL the administrators would become the liquidators. That however is the default position unless the creditors nominate someone else, see Sch B1 para 83(7), so putting such a proposal to the creditors achieves little more than conveying information. There would be no purpose in the court approving such a proposal now when it is known that the default position will apply.
19. Likewise, it appears to me that a permissive proposal that the administrators may apply to the court for sanction for a dividend to unsecured creditors serves very little purpose other than an indication to the creditors of an available option, and absolutely no purpose if it said that the court should approve that as a proposal now. It adds nothing to the consideration that the court would be required to make, if and when an application is made for permission to make an unsecured distribution.
20. I need not, I think, go through each of the following proposals. I would mention the discharge from liability. It seems to me that there must be some doubt as to the appropriateness of inviting the creditors at the commencement of the administration to agree a date upon which the administrators should be discharged from liability. As and when the administrators cease to hold office, their discharge is provided for by paragraph 98. Mr Weaver makes the point that Sch B1 para 98 (2) provides that the creditors may resolve to fix the time at which the discharge takes effect, but it seems to me that the creditors can only sensibly consider this question when they know what the effect will be, which in turn means that they should be in a position to know what has gone on in the administration and form a view as to what if any potential claims might be affected by the release. They plainly cannot in most cases do this at the first meeting of creditors.
21. Whereas here the creditors have not fixed a discharge date, an application must be made to the court. It is certainly not a matter which I would be prepared to make any order on at this stage; rather, than in the circumstances in which the release eventually comes to be sought. It would be no more appropriate for the court now to approve the same matter in the form of a proposal.
22. The final two paragraphs deal with the basis for remuneration in the absence of a creditors' committee. Whether or not those are appropriately dealt with by way of proposal or by separate resolution to be put before the creditors, it seems to me I can set to one side. It is entirely appropriate that in the circumstances of this case I should make an order exercising the court's powers to approve the basis of remuneration since the creditors have failed to that themselves, and failed to appoint a creditors' committee. That I can do without it being expressed in the form of approval of proposals.
23. The order I propose to make on this application is only as to the approval of the basis of remuneration. I indicate for the avoidance of doubt that I do not consider it appropriate to exercise the court's powers to make an order winding the Company up, nor do I consider it appropriate to make any other order pursuant to paragraph 55.2.
24. I only finish with this remark, that in my view administrators ought to consider carefully what is the utility of an application to the court for directions under paragraph 55.2, and say that in my view it would be appropriate, if the administrator has to report to the court that his proposals have not been approved by the creditors, simply by virtue of what has been described as "creditor apathy" in that the creditors did not express a view one way or the other, to say in that report whether he considers that anything useful would be served by seeking an order of the court pursuant to paragraph 55.2, and that if he does not, that he does not intend to make such an application.
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