New Year, New Expectations: A Fresh Look at Administration Extensions

In a recent judgment from the Court of Session, the case of PSL2021 Realisations Limited (in Administration) (formerly known as Peacocks Stores Ltd) [2024] CSOH 105 has cast a spotlight on considerations relating to the extension of an administration's term. Presided over by Lord Braid, this case not only reaffirms the essential role of creditor engagement but also highlights the paramount importance of providing substantial and meaningful progress reports.

Resolutions and Revelations: The PSL2021 Case Unwrapped

The noters, Anthony John Wright and Alastair Rex Massey, acting as joint administrators, sought a 12-month extension to the administration period, which would take the administration into its fifth year. The complexity of the administration and the initial approach to informing creditors about the extension were key points of consideration.

In his judgement, Lord Braid addressed two issues in particular:

1. Notification to Creditors: Emphasising fairness, His Lordship highlighted the expectation of Scottish Courts, set previously by former commercial judges Lord Hodge and Lord Glennie, that all creditors, including those unlikely to receive a dividend, should be informed of and given the opportunity to object to the proposed extension, despite no statutory requirement to obtain their consent.

2. Criteria for Extension: The court must exercise discretion in deciding whether to grant an extension, considering whether the administration's purpose remains achievable, any potential prejudice to creditors, and creditors' views. Administrators must justify the need for an extension convincingly, and to this end substantive progress reports are of central importance.

Auld Acquaintances Not Forgotten: Creditor Engagement in the Spotlight

Tackling the topic of creditor notification first, it's important to note a significant aspect of Scottish legal practice: even though there's no strict legal mandate to inform unsecured creditors who might not see a return, the Scottish Courts have established a clear expectation that all creditors should be informed about any proposals to extend administration periods. This approach ensures every creditor has the chance to voice objections, regardless of their financial interest in the outcome. While some may view the requirement to inform all creditors of potential extensions and invite their objections - particularly when they stand to gain nothing - as an undue hassle, Scottish judges have firmly upheld this practice for over a decade.

In the present case, His Lordship accepted that notification ('intimation', in Scots law) could be effected by use of an online portal, assuming it is accompanied with a thorough explanation for the extension request and a clear deadline set for objections. The acceptance of online portals by administrators and creditors alike has been the norm in recent years; as such, Lord Braid's opinion in this regard does not seek to break new ground. It may be said, however, that His Lordship's comments effectively shut the door to any suggestions that the creditor notification requirement is an unduly onerous one.

His Lordship's comments on creditor engagement serves as a reminder that while the methods may evolve, the core principle of transparency with creditors remains non-negotiable.

Resolutions for Reporting: The Need for Meaningful Progress

Of arguably greater significance to insolvency practitioners (IPs) are His Lordship's insights on the need for evident progression in administrations and, correspondingly, the need for substantive progress reports. Given that extension proposals are often included in progress reports, Lord Braid expresses concern at the pattern of extension requests submitted on similar (or even identical) grounds year after year, often with no discernible sign of progress made yet with an expectation nevertheless of the Court's approval.

A nod to the complexity of the case at hand notwithstanding, with recognition that it is not one of the usual suspects, His Lordship's caution is clear: administrators must delve deeper than mere surface-level content in their progress reports. This becomes particularly paramount when such reports inform creditors about potential extensions. The Court's evaluation of an extension hinges on a thorough examination of the administrators' progress, the justification for the extension, and its continued value to creditors. Likewise, creditors should receive adequate updates of an administration's progress if they are to be expected to make informed decisions and consider raising any objections. Progress reports must therefore clearly articulate such progress as has been made since the last report and clarify the need and advantages of any proposed extension.

Lord Braid's caution against progress reports that are either lacking in depth or simply reiterate past updates is a stark warning. IPs and their advisors are reminded that extension requests are not mere formalities but require substantial justification.

The Court's Decision

Lord Braid opted to grant a 12-month extension based on a balanced consideration of the administration's complexity, the progress made, and the tasks remaining. However, His Lordship's opinion also rings as a stark reminder, and forewarning, of the stringent expectations placed on administrators regarding creditor communication, the justification for administration extensions and the necessity for clear and comprehensive communication with creditors.

From Last Year's Lessons to This Year's Practices: Insights from PSL2021 Realisations Limited (in Administration)

It would be sensible, in light of the points highlighted in this opinion from Lord Braid, for firms to review and refresh their progress reporting templates and content, ensuring they align with the judicial expectations and satisfy the requirement for creditor engagement. The Institute of Chartered Accountants of Scotland (ICAS) has previously noted that case progression remains a central concern during monitoring visits to IP firms.

Lord Braid's judgment serves as a pivotal guide for IPs and advisers, heralding the need for renewed efforts as we step into the new year. It's a timely reminder that continuous improvement in our approaches to creditor communication and managing administration processes is not just beneficial but essential. In the spirit of new year resolutions, let us all ensure that progress, reporting and creditor engagement become the benchmarks for excellence in Scotland's insolvency profession.

Tim Cooper and Kelvin Riley of Addleshaw Goddard