Arden J was asked to approve aproposal that the company should go into voluntary liquidation, on the basis that, prior to that happening, the administrators would pay into a trust account in their own name a sum equal to the total amount owing to the preferential creditors, from which account the preferential creditors would be paid, leaving the balance of the money in the administrators’ hands to be passed on to the voluntary liquidators for distribution pro rata to the unsecured creditors. The purpose of this was that a voluntary liquidation was the preferred exit route for the administration, but the preferential creditors would otherwise have been prejudiced by that course, as their preferential status would only arise under a compulsory liquidation.
Held: Section 18(3) could only be relied on to support a provision ‘which results directly or indirectly in the discharge of the administration order’. However, the purpose of the administration had effectively come to an end, and ‘[A] provision is consequential even though it will have to take effect immediately before the discharge because it is a direction which is being made to the administrators and they of course will cease to hold office on discharge of the administration order. As I see it, this particular direction is necessitated by the application for discharge since there will have to be a liquidation, and voluntary liquidation is the preferred route.’
Arden J therefore considered that the Court had ‘power to make the proposed direction provided that the administrators have power to make proposed payments to themselves on trust’. The combination of section 14 of, and paragraph 13 of Schedule 1, to the 1986 Act did enable the court to make such an order: ‘part of the function of the administrators is to bring the administration to a conclusion . . in the best interests of the creditors . . Under Schedule 1 the Administrators have the power to present a petition for the winding up of the company, in other words, the functions extend to bringing the administration to a conclusion and ensuring that the company is put into a position from which it can make distributions to creditors. As I see it, it is part of their function to put the company in that position and in a manner which is most advantageous to the creditors. In this particular case, this is achieved by first putting the company in a position whereby it can enter into voluntary liquidation. As I see it, the proposed payment to the administrators as trustees is a payment which will enable that process to be achieved and therefore comes within paragraph 13.’
Judges:
Mrs Justice Arden
Citations:
[2001] 1 WLR 436
Statutes:
Jurisdiction:
England and Wales
Cited by:
Approved – In re Luna Metal Products Ltd (in Administration) CA 14-Dec-2006
The administrators held cash. They proposed a distribution giving creditors who would on a winding up be preferential, full preference. They appealed refusal by the court to sanction the proposal.
Held: The court had no power to make such an . .
Cited – In re Nortel Companies and Others SC 24-Jul-2013
The court was asked as to the interrelationship of the statutory schemes relating to the protection of employees’ pensions and to corporate insolvency.
Held: Liabilities which arose from financial support directions or contribution notices . .
Lists of cited by and citing cases may be incomplete.
Insolvency
Updated: 10 May 2022; Ref: scu.247767