- Administrators are not required to look behind a director's motives for appointment of administrators, but they must consider whether the statutory purpose can be achieved
- Rescuing a company as a going concern does not necessarily require some positive act or improvement
As a result of freezing injunctions obtained by the applicants in relation to a fraud committed by a shareholder of BW Estates Limited (the "Company") which also affected the Company's accounts, the Company was unable to make loan payments to its secured lender. The sole director of the Company (the shareholder's son) appointed administrators (the respondents), the secured lender having appointed receivers to properties owned by the Company. The administrators investigated creditors' claims and then exited the administration without any distribution being made. The applicants argued that the administration was unnecessary (suggesting that the director had put it into administration as a delaying tactic in relation to the fraud claims being brought) and simply depleted the assets of the Company because of the remuneration and costs incurred. The applicants applied under paragraph 74 of schedule B1 of the Insolvency Act 1986 and rule 2.109 of the Insolvency Rules 1986 for an order that the administrators' remuneration be partially or entirely disallowed and that the administrators pay the costs of the application personally on the basis that the administrators should not have made the statement the statutory purpose of the administration could be achieved.
The application was refused. The decision to appoint administrators ultimately falls on the directors. Once that decision has been made, the proposed administrator is not required to look back at the motives for the directors' decision but he must look forward at what might happen during the administration when considering the statutory purpose. On the facts the court found that the administrators were entitled to make the statement as to achievement of the statutory purpose. Rescuing the company as a going concern did not necessarily require the administrators do to something; it was sufficient to preserve the company as a going concern when it otherwise would not be whilst creditor claims were analysed.
Obiter comments suggested that if a director had made the decision to appoint administrators based on bad advice given by the proposed administrators, a claim in negligence against the administrators' firm may be possible.