Background

Over the past year the Courts in Scotland have been tightening up their procedures in relation to the granting of extensions in administration. This note sets out the various issues that have arisen and considers the best ways to ensure that applications of this type proceed without unnecessary costs.

In terms of paragraph 76 of Schedule B1 of the Insolvency Act 1986 an administrator's term in office automatically expires at the end of the period of one year beginning with the date on which the administration takes effect unless the administrator takes steps to extend it. The administration can be extended by the Court or by "consent". Given the difficulties in obtaining "consent" as defined in paragraph 78 of Schedule B1 of the Insolvency Act 1986, it has become common for administrators to seek an extension by order of the Court.

Intimation to creditors

The Court of Session has made it known that it expects creditors to be given notice of any intended extension application. If this has not been done in advance of an application being made then the Court will not grant the extension until creditors have been made aware of the application. In circumstances where there is not time to do this before the expiry of the administration, a short extension to the administration will be given in order to allow time for intimation. Such intimation can be by email, fax or by letter. However, it will be necessary for the administrator or his solicitor to certify to the Court that this has been done.

The Court will not require intimation to creditors where it is satisfied that the creditors have already been made aware of the intended application and that they have been given an opportunity to advise the administrator if they oppose it. Accordingly, in order to avoid the costs associated with intimation, the first Progress Report sent to creditors could contain a section (i) advising creditors of the intention to seek an extension to the administration, (ii) providing details of the reason for this and the period to be sought and (iii) explaining that any opposition to this should be made to the administrators in writing prior to a specified date. Provided that no response is received, the Court has indicated that further intimation will not be required.

Length of extension

Paragraph 76 does not provide a minimum or maximum period for an extension granted by the Court. However, the Court of Session has indicated that extensions of over 1 year will no longer be granted. Where a longer period can be justified it will still be possible to request the longer extension. In these circumstances the Court will grant a one year extension and give the administrator the power to apply for further extensions by a short form process. The idea is that this will give the Court control over the length of the extensions being granted whilst reducing the costs that would otherwise be incurred if the administrator had to make numerous applications.