Conditionally terminating an administration

Overview

This case considers the circumstances in which a court may conditionally terminate an administration and conditionally discharge administrators, obviating the need for a further court attendance and associated costs.

Background

Central Properties Holdings Ltd (the "Company") is a property development company incorporated in Guernsey in April 2017. It entered administration in February 2020 after encountering liquidity difficulties in the summer of 2019, with James Money and Steven Butt of Rollings Butt appointed as Joint Administrators.

At that time, the company owed approximately £10 million on an unsecured basis to its majority unsecured creditor UB Group FZE ("UB Group"), along with other unsecured debt, as well as certain secured debt to Knightsbridge Property Holdings Limited ("Knightsbridge"), a company associated with the UB Group.

The administration has involved the completion of development works, sales and lettings of properties, and investigation work relating to the conduct of its sole director and shareholder. The administration has been extended on a few occasions, most recently to 5 August 2024.

It is proposed that the Company should make a solvent exit from administration via a CVA, which was approved on 23 December 2022. Under the CVA, Knightsbridge will pay £57,580 to the supervisors (who are the same individuals as the Administrators) within one month of its approval. UB Group will release its claims against the Company, although neither Knightsbridge nor UB Group will participate in any dividends in the CVA.

Following payment of the remaining costs and expenses of the administration and of the CVA, the unsecured creditors other than UB Group will have their claims adjudicated and paid pari passu. The Administrators have advised that there may be a dispute over the adjudication of certain unsecured claims in the CVA.

The Administrators sought a prospective conditional order providing for the administration to terminate automatically on the successful completion of the Company's CVA and taking effect on the filing of various documents by the Administrators. They also sought a prospective conditional order discharging them from liability 28 days following the termination of the administration.

The basis for seeking these orders was to avoid the need for a further application to court and the associated costs in the event that the CVA is successfully implemented.

The High Court’s Decision

The Court relied on the analysis of Hildyard J in Re Lehman Brothers International (Europe) (in administration) to find that it has jurisdiction to make the conditional order sought. However, the Court ultimately declined to exercise its jurisdiction for the following reasons.

First, although it is anticipated that the Administrators will have little further function to perform by reason of the existence of the CVA, the Administrators nonetheless remain officers of the Company and have all the powers of management of it. The Company is not under the control of its directors and one of the reasons identified by the Administrators for continuing the administration while the Company is in CVA is precisely in order to maintain the directors' disability from exercising their powers.

While the CVA is expected to lead to a distribution within six months of approval (by 23 June 2023), the Administrators anticipate at least the possibility of a delay in achieving this if any creditor challenges the adjudication of their debt. It is accordingly possible that the Administrators will remain the officers of the Company for a significant period, and the Court concluded that it was not appropriate to provide a prospective discharge from liability for such a potentially lengthy period.

Second, if the Court made an order that the Administrators' discharge from liability were conditional upon successful completion of the CVA, then the issue of the Administrators’ discharge from liability without a further visit to court has the potential to become bound up with any dispute over the adjudication of claims in the CVA. It is possible that a creditor in dispute with the Administrators might attempt to use this as a bargaining chip in negotiations, and the Court did not consider this to be desirable. Notwithstanding that this was not likely to happen, it was sufficient to persuade the Court that this was not an appropriate case to make a conditional order.

Judge: Deputy ICC Judge Curl KC

Counsel: Morgan Bowen of Mills & Reeve LLP for the Administrators