Administration petition — Property company — Petition presented by directors of property development group — Petition in respect of holding company and subsidiaries — Voluntary arrangement for more advantageous realisation of assets — Properties of subsidiaries charged to lender — Lenders opposing petition — Petitions in respect of subsidiaries abandoned at hearing — Petition dismissed — Directors ordered to pay costs of certain creditor — Court of Appeal allowing an appeal against order for costs — Directors acting in good faith in interests of company
The director of LPT presented an administration petition in January 1991 together with 29 other petitions in respect of 29 LPT subsidiaries. LPT’s principal assets were its shareholdings in the subsidiaries, which were all property development companies. The properties held by the subsidiaries were charged to lenders, Norwich Union and Manufacturers Hanover, on mortgage, with LPT as guarantor of the indebtedness. The lenders had appointed Law of Property Act receivers of the charged properties and opposed the making of an administration order.
The LPT petition was also opposed by a creditor, John Lelliot Management Ltd, which had presented a winding-up petition in November 1990. A number of other creditors gave notice of their intention to support the winding-up petition. The petition sought an administration order for the statutory purposes of the approval of a voluntary arrangement and a more advantageous realisation of the assets than would be achieved in a winding-up.
At the hearing the petitions in respect of the core subsidiaries were abandoned. The High Court dismissed the remaining administration petition on the ground that none of the statutory purposes for which an administration order could be made was likely to be achieved. It further ordered that the costs of certain of the opposing creditors should be paid by the directors of LPT personally, since it seemed that the administration petition had been resolved upon by the directors of LPT without prior consideration of the purposes and they had persisted in the face of overwhelming opposition and without reason. The directors of LPT appealed against the order for costs.
Held The appeal was allowed. The order for costs against the directors was discharged.
1. The judge had erred in principle in refusing the directors an adjournment and making the order for costs only on the evidence before him. That evidence was clearly inadequate for the purpose of making a decision on the application against the directors.
2. The issue for decision was whether the making of an administration order would be likely to achieve one or more of the statutory purposes: see section 8(3) of the Insolvency Act 1986. The issue for decision in the application against the directors was whether they had acted properly in causing LPT to present the petition. The latter issue was not one to which the existing evidence could have been directed.
3. A quite separate issue having been raised against them, the directors were entitled to a proper opportunity to put in evidence of their own. The consequences for them were serious and deserved to be fully investigated. The question of costs could have been put to one side and dealt with later.
4. In deciding whether an order for costs ought to be made against the directors personally, the appeal court had to exercise an original discretion of its own after considering the fresh evidence put before it.
5. A director having sought appropriate professional advice must make his own judgment as to what was in the interests of the company. In this case the directors had observed all the requirements of the Insolvency Rules supported, at all material times, by experienced insolvency practitioners. When they were advised that the unremitting opposition of the major secured creditors had rendered the petitions in respect of the cores subsidiaries hopeless, it was immediately agreed that they should be abandoned. In spite of the opposition, leading counsel still thought that a coherent case could be made for an administration order in the case of LPT alone and that it had some chance of success.
6. On the strength of the evidence the directors had acted throughout in good faith in the interests of LPT. In the circumstances there was no ground on which they could properly be ordered to pay the costs personally.
Nicholas Stewart QC and Jennifer Lemkey (instructed by Kanter Jules Grangewoods) appeared for the appellant directors; Richard Ritchie (instructed by Masons) appeared for the respondents.
