Key points

  • Court reiterated circumstances in which it will sanction a proposed course of action by administrators

  • Requirement that the course of action be “particularly momentous”

  • Court sanctioned proposed settlement in the circumstances

The Facts

The administrators of four English incorporated Lehman entities sought to progress negotiations in respect of a proposed settlement of inter-company claims. The settlement would permit distributions to be made to unsecured creditors without the need to create reserves in respect of future intercompany-claims. The administrators applied to court for sanction of the proposed settlement.

Decision

The judge reiterated that, in the ordinary course, administrators were expected to exercise their own judgment in relation to commercial matters and not seek approval of the court but that in certain circumstances it was appropriate for administrators to seek the court’s sanction.

Those circumstances included situations where the relevant power of the administrators was clear, the administrators had decided how they wanted to exercise those powers, which was for the benefit of the company and its creditors, the administrators were acting rationally and without risk of conflict but, because the decision was “particularly momentous”, the administrators were seeking the court’s blessing.

The judge held that these circumstances applied given the size and complexity of the claims, the unique nature of the Lehman group and the explanation provided by the administrators for the rationale and benefits of the settlement. The proposed settlement was duly sanctioned.

Comment

The decision confirms that in certain circumstances a court will sanction administrators’ proposed actions. While it will not form a view on whether the settlement is the best available option, neither will it refuse approval merely because it would not have exercised the power in the way proposed.

Re LB Holdings Intermediate 2 Ltd [2017] EWHC 2032 (Ch)