The court has power to make a conditional order for an administrator’s discharge from liability under paragraph 98 of Schedule B1 to the Insolvency Act 1986 but the question of whether or not to make such an order is in the discretion of the court.
In Re Central Properties Holdings Ltd (in administration) [2023] EWHC 829, the court decided that it would not be appropriate to make such an order.
CPHL was a property development company. In 2017 it negotiated unsecured borrowings of £10m from UB Group which it used to purchase properties.
It entered into loan agreements with other companies in May 2018 and April 2019.
When CPHL encountered liquidity difficulties later in 2019, UB Group learned of the subsequent loans and in February 2020 obtained an administration order.
UB Group accounted for at least 94.82% of unsecured claims of almost £13m.
The administration involved the completion of development works, sales and lettings of properties, and investigation work relating to the conduct of CPHL’s sole director and shareholder.
Three annual extensions to the administration were required to facilitate this work.
It was proposed that CPHL would make a solvent exit from administration via a CVA which was approved in December 2022.
Successful completion of the CVA was dependent on adjudication of the unsecured creditor claims – apart from UB Group. It was anticipated that this process would be completed by 23 June 2003.
The administrators sought to avoid the need for a further application to court.
They invited the court to make a prospective order conditional on the successful completion of the company’s CVA to take effect on the administrators filing notice to that effect and notice of termination of the administration under para 79 of Schedule B1 and a conditional order discharging them from liability on a date to be fixed under para 98 of Schedule B1.
While the court acknowledged the jurisdiction to make such an order (Re Lehman Brothers International (Europe) (in administration) [2022] EWHC 2995), it was not appropriate to do so in this case.
There was the possibility of delay in achieving a distribution to unsecured creditors by 23 June 2023 if a creditor challenged the adjudication of their debt which the evidence indicated was a real prospect.
Consequently, the administrators could remain officers of the company for a significant period.
Such challenges also had a bearing on the question of whether the CVA could complete successfully and the discharge of the administrators could become a bargaining chip in negotiations with unsecured creditors.
Louise Clark is a property law consultant and mediator
