Procedural framework

Paragraphs 49 to 55 of Schedule B1 to the Insolvency Act 1986 provide the statutory framework within which administrators seek approval of their proposals.

An administrator must make a statement setting out proposals for achieving the purpose of the administration within eight weeks of the company’s entry into administration and the administrator must seek a decision from the company’s creditors as to whether the creditors approve those proposals or not.

The Insolvency Rules 2016 brought into force a series of new creditor ‘decision making processes’ which mean it is no longer the norm that a physical meeting be called to consider administration proposals. These new decision making processes can be found in Part 15 of the Insolvency Rules 2016 and include options such as virtual meetings and electronic voting, in line with an increased emphasis within recent legislation on the efficiencies that can be achieved by properly utilising modern technology.

Commonly, the requisite majority of creditors of a company approve the proposals in the form put forward by the administrator. The administrator then reports the creditors’ decision to the body of creditors, the Court and the registrar of companies, and then gets on with the job of administering the company’s affairs.

This article considers the steps an administrator should take following a failure by the creditors to approve the administrator’s proposals which leaves the administrator in a position whereby he / she remains administrator but lacks the authorisation from creditors to proceed with the administration in the manner proposed.

Steps following rejection of proposals

Regardless of whether the proposals are approved or not, Paragraph 55 of Schedule B1 provides that the administrator is still required to report the rejection to the creditors, the registrar of companies and the Court. The administrator cannot simply put forward a revised set of proposals in the event the original proposals have been rejected. Although Paragraph 55 does not expressly require the administrator to apply to Court for directions when he reports his proposals have not been approved, HHJ Behrens in Lavin v Swindell [2012] EWHC 2398 (Ch) held that this was implicit in the language of Paragraph 55(2).

Notwithstanding this, practitioners should be wary of the decision of HHJ Cooke in Re Parmeko Holdings Ltd [2014] BCC 159, where the Court ruled that an application for directions should not be made in circumstances where there would be no effective purpose in the Court giving directions. In Re Parmeko Holdings Ltd, no creditor attended the meeting of creditors and there did not appear to be any obvious alternative to the administrator continuing to run the affairs of the company in the manner of the specific proposals put forward to the creditors. The Court held that in circumstances where an administrator reports to Court that proposals have not been approved simply by virtue of “creditor apathy” in that the creditors did not express a view on the proposals, it would be prudent to say in that report whether the administrator considers that anything useful would be achieved by seeking an order of the Court pursuant to Paragraph 55(2), and that if the administrator does not think anything useful would be achieved, it should be stated in the report that he / she does not intend to make such an application.

However, there will often be some useful purpose in an application for directions being made and administrators may be understandably nervous about proceeding with the administration of the company without express authorisation to do so from the Court or from the creditors.

Relief sought

There are a range of orders a Court may make following rejection of administrator’s proposals. These include:

1.An order that the appointment of the administrator shall cease to have effect from a specified time;

2.An adjournment of the hearing;

3.An interim order;

4.An order on a petition for the suspended winding up of the company; or

5.Any other order that the Court deems appropriate.

Administrators and their advisors will need to consider the circumstances of their administration before deciding whether to make an application for directions and what relief they will seek. In determining an application for directions in such circumstances, it would be unusual for a Court to impose on the creditors a set of proposals to which they have not agreed. Typically, the order sought from the Court is that the administrator be permitted to go back to the creditors again for a further decision as to the approval of proposals, which may involve an amendment to the proposals previously sent.