A recent English High Court decision has held that prospective Administrators do not need to look behind the directors’ motives in appointing them; they need to look ahead as to what might happen in the administration and consider whether the statutory purpose of the administration can be achieved.
The Administrators in this case got caught in the crossfire of fraud proceedings brought by the Randhawas against the director of the company, Mr Robert Williams. The Randhawas obtained a freezing injunction against Mr Williams which included the assets of his property investment company, BW Estates Ltd (“Company”). The freezing injunction caused Nationwide to appoint LPA Receivers over five of the Company’s properties and the directors appointed Administrators. The Randhawas purchased a debt owed to the Company’s former solicitors in order to acquire creditor status and commence proceedings against the Administrators arguing that their remuneration should not be allowed and was excessive.
The Randhawas argued that (1) the directors had only appointed the Administrators in order to frustrate their attempts to enforce their judgment against Mr Williams; (2) there was no good reason for the Company to go into administration; (3) despite the freezing injunction, the directors could have asked the Randhawas for permission to continue to make payments to Nationwide which they claim they would have agreed to; (4) there was no other creditor pressure and (5) because the LPA Receivers were selling the properties which were the Company’s main assets there was nothing that the Administrators could do to achieve the statutory purpose of the administration and rescue the Company as a going concern.
The Judge held that it “is not necessarily improper to appoint an administrator in circumstances where the directors could equally have properly taken some other course of action. Even if the Administrators take the view that the directors are being unnecessarily timid in seeking to make an appointment when bolder directors might have carried on …… it is not the function of the prospective administrator to refuse appointment so as to compel them to take risks they are unwilling to do”. The Judge also held that the statutory purpose was met as the Company could still continue to trade after the charged properties had been sold by the LPA Receivers.
Consequently, the Judge found that the Administrators were entitled to their remuneration, but did say that he thought that it was excessive as they had unnecessarily continued to investigate a liability owed to an entity called Belvadere which initial enquiries suggested was under the control of Mr Williams, who failed to provide the Administrators with any information surrounding it.