Key point

Where in a UK administration an action would give some benefit to creditors, and risk neither detriment to them nor impede the administration's progress, the court may be willing to intervene and support a challenge to the administrator's actions.

The facts

The directors of a company in administration asked the administrators to assign to them a cause of action that the company had against its bankers. The administrators had decided not to bring such proceedings themselves but refused to assign on the basis that the consideration offered was, in their view, unlikely to result in any material return to the company's creditors. 

Paragraph 74 of Schedule B1 to the Insolvency Act 1986 provides that if the conduct of an administrator unfairly harms the interests of a creditor, the creditor may apply to court for relief compelling the administrator to act in a certain way. One of the directors was also a creditor and made an application under paragraph 74 for an order compelling the administrators to assign the cause of action to her.

The decision

The Court ordered the administrators to assign the cause of action to the creditor as the refusal to do so caused unfair harm to her and to creditors as a whole.

Comments

Usually an applicant must demonstrate that the administrator has treated it unequally or differently from other creditors. But differential or unequal treatment is not unfair if, for example, it is the result of a commercial and reasoned decision taken to benefit creditors as a whole. This decision is seen as an exception to other authority on this issue as the court is seen to have interfered with a commercial decision of the administrators.

Hocking and others v Marsden and another [2014[ EWHC 763 (Ch)