The Facts

Mr Tailby and Mr Courtman were appointed Administrators over three connected companies: TPS Investments (UK) Ltd; ABC Prop Co Holdings Ltd and CP Investment Holdings Limited. TPS was a property developer and owned a number of properties; two of these were transferred to ABC and one to CP.

Hutchinson was a creditor of TPS who held security over four of TPS', properties including those which TPS had transferred. Hutchinson sought permission to enforce its security over one of the properties, and also sought the removal of the Administrators. The basis for the removal application was that the transfer of the two properties had been at an undervalue ("TUV").

As the transferors and transferees were connected parties that shared the same Administrators, Hutchinson asserted that there was an inherent conflict of interest in the Administrators properly investigating the TUVs, and that they should therefore be removed. They argued that the interests of the Administrators of TPS (the potential claimant) in reversing the TUV would conflict with the interests of the Administrators of ABC and CP (the potential defendants) as recipients. As such it was simply not possible for the Administrators to carry out their duties.

The Administrators argued that the TUV claims were not straightforward. They confirmed that they were aware of the potential TUVs and had already begun investigating them, and that in any event there was no inherent conflict in the position. They further argued that they would apply to the court to resolve the issue if necessary.

The Decision

Hutchinson's application to enforce their security was granted, as it would not prejudice the purpose of the Administration in achieving a better outcome for creditors.

The application to remove the Administrators, however, was rejected.

The judge took a pragmatic approach in prioritising cost-efficiency in Administrations. He noted that in situations involving a group of related companies in Administration, the appointment of a single Administrator was likely to be less costly and therefore in the interests of the creditors than having separate office holders for each company. As such, for Hutchinson to assert that this scenario led to an inherent conflict of interest was erroneous.

The judge explained that in any event the existence of a potential conflict of interest, particularly one of this nature, was not in itself a reason to remove Administrators. Removal would turn on the facts of the Administration and the nature of the conflict itself. As well as the costs consequences of removal, the point at which the conflict was being addressed, and whether it could be properly managed, should also be considered.

It was held that, in the circumstances, the conflict was not clear cut enough to justify an immediate removal of the Administrators, and that replacing them would incur significant duplication of time and cost. Even if a conflict in relation to the TUV claim did arise, the judge agreed that it would not necessarily preclude the Administrators from acting because it could be contested if necessary between the creditors of the two separate parties.

The judge noted that in his view the application for removal had been made as a tactical move as part of the aggressive approach taken by Hutchinson in the proceedings. It was held that removal applications should not be made without considering the potential consequences carefully, and that in this instance, that had clearly not been done.

Our Comment

This case follows hot on the heels of the recent removal application in VE Vegas v Shinners (covered in our March bulletin). In that case, which involved a pre-pack Administration, it was held that a clear conflict existed which the Administrators should have known about and resigned their appointment.

The facts of this case were substantially different, but both show that where Administration is concerned, courts will expect to see creditors and office holders ultimately pursue a common interest: that of achieving the purposes of an Administration. The Administrators must take potential conflicts seriously, but equally a removal application should not be pursued tactically and without due consideration as to cost and time efficiency.