Should an administrator’s appointment be terminated where the motives of the appointor are improper but the statutory purpose of the administration can still be properly achieved?

The case of Thomas and another v Frogmore Real Estate Partners [2017] EWHC 25 (Ch) ( judgment available here) concerned the administration of three companies whose registered offices were in Jersey and which were all part of a larger company structure which specialising in real estate investment and management in the United Kingdom. The three companies (the Companies) operated as SPVs within the corporate structure, each owning a shopping centre in England. The shopping centres were managed by another company in the group which had its registered office in London.

Administrators had been appointed by Nationwide Building Society in November 2016, following the Companies’ failure to pay outstanding loans totalling over £106million. There was an on-going dispute (dating back to 2014) between the Companies and the management company as against Nationwide, arising out of the Nationwide’s decision to transfer its economic interest in the loans to a third party.

Issues

The two issues the court had to decide were whether:

• the Companies’ centre of main interest (COMI) was in England & Wales, such that the conditions for appointment of the administrators in paragraph 14 of Schedule B1 of the Insolvency Act 1986 (IA 1986) were satisfied. The Companies denied that their COMI was in England & Wales on the basis that their registered offices and board meetings were in Jersey. As a result they asserted that the IA 1986 provisions were not engaged 

• the court should exercise its discretion to order that the appointment of the administrators should cease to have effect as a result of improper motives of the appointor. The Companies argued that Nationwide’s decision to appoint administrators was a cynical attempt to stifle the ongoing 2014 dispute and the administrators’ appointment should be terminated for improper motive under paragraph 81 of Schedule B1.

Decision as to COMI

The Court held that the COMI for each of the Companies was in England & Wales because irrespective of the fact that board meetings were held in Jersey, the day-to-day conduct of the business and activities of the Companies was in the hands of the management company appointed in England and governed by a contract with an exclusive English law and jurisdiction clause. The management company provided a very large range of services to the Companies, including day-to-day management of the shopping centres and dealing with their financing, accounting, marketing and formulation of their business strategy; and included the “types of function that one would expect a head office to discharge”.

Decision as to improper motive

The court held that improper motive did not necessarily thwart the appointment of the administrators but merely “engages the jurisdiction” of paragraph 81 of Schedule B1. The court has a wide discretion and should look to whether the statutory purpose of the administration can be achieved rather than the motives for appointment. The judge held that where paragraph 81 of Schedule B1 is invoked “it is unlikely to lead to an order that the administration cease where the statutory purposes could properly be achieved irrespective of the appointor’s motivations”.

Key points for practitioners

This judgment will be of some comfort to practitioners that, regardless of the motives of the appointor, the court will not as a matter of course hold that the appointment is invalid. In reaching its decision, the court considered a decision of the High Court of Northern Ireland which stated that “aggressive and, indeed, malevolent motivation would not, per se, undermine the (proposed) administrator’s statutory statement of opinion”1 . Provided the objectives of the administration can be achieved by the appointment, practitioners will likely have good reason to continue with the administration, irrespective of the appointor’s motives.