Stephen Baister Writes On.. Helping the Officeholder

The courts are not generally there to help or hinder anyone in particular: they are there to largely to resolve disputes. But in some cases the courts perform a wider function: trustees and others may seek directions from the court, and the Insolvency Act 1986 contains a number of provisions enabling insolvency office-holders to do so as well. There are, however, limits to that jurisdiction.

There has been a long tradition of the court not second-guessing office-holders’ commercial decisions or relieving them of the burden of making such decisions. The view has traditionally been that they are employed to exercise commercial judgment, and it is not for the court to provide them with “a bomb shelter” (Re T & D Automotive Ltd (in administration). Conversely, the courts recognise that that means giving office-holders a wide discretion: they cannot do their job properly if they are looking over their shoulder all the time (Re Dodwell and a range of later cases). In spite of that, in recent times the courts have gone out of their way to assist, albeit in response to unusual circumstances.

Re Baglan Operations Ltd (in compulsory liquidation) decided last year by Sir Alastair Norris is one recent case that comes to mind. The court was asked to rule on whether, under the Insolvency Act, a liquidator’s power to carry on the business of the company for its beneficial winding up could include taking into consideration environmental and public interest factors. In that case the official receiver was the office-holder, acting as liquidator of a company operating an electricity generating plant. He wanted to avoid environmental damage by  decommissioning it, adversely affecting supply to certain businesses and others. The court’s decision, in complex circumstances, was pragmatic and helpful, though it remains to be seen how it fares on appeal.

The court was helpful too in the case of  Re Petropavlovsk Plc. Petropavlovsk operated gold mines. It got into difficulty as result of sanctions against Russia and went into administration. The administrators considered that it was not reasonably practicable to  rescue the company as a going concern. Instead they proposed a sale to another entity that would achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up. Time was of the essence as the value of the assets was diminishing and there was a risk that Russian creditors, including the proposed purchaser, might enforce their rights against group assets in Russia, which would prejudice the position of non-Russian creditors. The principal issue for the judge was the test applicable in determining whether the administrators should be granted the relief they were seeking. They had power to enter into the proposed sale because para 60 Sch B1 and para 2 Sch 1 Insolvency Act expressly provided that  administrators had power to sell or otherwise dispose of company property by private contract. The judge held that the test as to whether the court should bless an administrator’s decision was the test applicable to a trustee, and he went on to bless the course proposed by the office-holders. Help indeed.

Re Edengate Homes Ltd, not to be confused with Re Edennote Ltd,, although the subject matter was the same, was a challenge to an office-holder’s decision to assign a cause of action. The decision at first instance and on appeal was again helpful to the office-holders, although the application of the law was more conventional than in the other cases I have mentioned.

Although the law on defective administrator appointments remains in a state of unhappy confusion, the courts have a history of trying to be helpful and pragmatic when they see that the office-holder is trying to so the right thing. A similar approach can be seen in cases such as  Re Caversham Finance Ltd and Re E Realisations 2020 Ltd, although both were about extensions rather than appointments.

Is there a trend here? Perhaps, but it is not a wholly consistent one. The Court of Appeal decision on the status of a witness in a private examination in Al Jaber v Mitchell  seems likely to make life more difficult for office-holders in their investigations. Perhaps, as so often, the case law is a mixed bag…

Stephen Baister - Board Director