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In this case before the Birmingham
District Registry (before His Honour Judge Norris QC) heard on 26
March 2007, the court gave consideration to the consequences
of the decision of Mr Justice David Richards in the case of Exeter
City Council v (1) Bairstow, (2) Martin and (3) Trident Fashions
plc (Trident).
One of the consequences of the decision in
Trident was that insolvency practitioners would need to consider
whether administration was the most appropriate insolvency
procedure or whether it might be better to put the company into
liquidation (where the liquidator would not be liable for rates in
respect of unoccupied properties and where he would be able to
exercise his powers of disclaimer if considered necessary) or, if
available as an option, for the floating charge holder to appoint
an administrative receiver who would not be personally liable for
rates.
Another consequence, like that faced by the
office holders in the T M Kingdom Limited (in administration) case,
was the need to consider whether it remained appropriate to
continue an administration in light of the decision or whether an
alternative insolvency procedure might now be more appropriate.
T M Kingdom Limited was a toy retailer which
went into administration by way of an out of court appointment
under paragraph 22 of Schedule B1 of the Insolvency Act 1986 (the
Act). The company operated a number of stores and the
administrators successfully traded the company whilst they sought
to dispose of the business and, insofar as necessary, the company's
premises. The company ceased trading in January 2007.
The administrators had been able to sell some
of the stores as going concerns. They were also able to
negotiate the surrender of most of the company's other leasehold
premises but the company still had two premises where matters were
still outstanding and where the liability for business rates was
accruing at a rate of approximately £5,000 per month.
The realisations in the administration were
sufficient to discharge the modest preferential creditors (who have
been paid in full) but were insufficient to discharge all the sums
due to the secured creditor. There was no prospect of a
dividend for unsecured creditors.
Although realisations in the administration
were largely complete, there were a number of outstanding matters
to be addressed before the company could be dissolved.
Although those were all matters which could be dealt with by the
administrators if the administration were to continue, the
administrators had formed the view that it would be preferable, in
light of the decision in Trident, if those matters were attended to
by a liquidator (since, in liquidation, unoccupied property rates
would not be an expense of the liquidation and, if necessary, the
liquidator would have the power to disclaim onerous property).
One route available to the administrators
would have been to apply for a compulsory liquidation but a
consequence of so doing would be to incur ad valorem
charges of approximately £100,000 to the prejudice of the secured
creditor. The administrators, therefore, had a preference to
move to a creditors' voluntary liquidation (CVL).
They faced, however, a number of difficulties
in that paragraph 42(2) of Schedule B1 of the Act provides that no
resolution for a CVL may be passed whilst the company is in
administration. It was also not possible for entry into the
CVL to be gained by service of a notice under paragraph 83 of
Schedule B1 because the administrators did not think (as is
required by paragraph 83(1)(b) of the Act) that a distribution
would be made to the unsecured creditors of the company.
The administrators took the view that they
could apply to the court under paragraph 79(1) of Schedule B1 to
bring their appointment to an end. Paragraph 79(1) provides
that, on the application of the administrator of a company, the
court may provide for the appointment of an administrator to cease
to have effect from a specified time. Paragraph 79(4)
provides that the court may, on such an application, make any order
it thinks appropriate.
The judge agreed that the application was the
correct one in the circumstances.
The court held that the language of paragraph
79(1) was very broad and was not constrained by the provisions of
paragraph 79(2) and 79(3) of Schedule B1 which set out
circumstances where an administrator is obliged to make an
application.
The judge held that paragraph 79(1) meant
exactly what it says, namely that upon the application of the
administrator, the court may provide for the appointment of an
administrator to cease to have effect. He went on to say that
paragraph 79(1) does not prescribe the only circumstances in which
an application can be made by the administrator and that whilst
paragraphs 79(2) and 79(3) oblige the administrator to make an
application in specified circumstances, they do not disempower him
from making an application in other circumstances.
Even though all of the outstanding matters
could be dealt with by the administrators in the administration,
the judge agreed that there was good reason for granting the
application as the penalty for continuing the administration would
be an exposure to an unoccupied business rates charge and an
inability to disclaim onerous property (both of which would not be
the
case in liquidation).
This is a welcome decision where the court
took the view that the provisions of Schedule B1 had to be
approached on their face but guided by the policy considerations
behind the amendments affected by the Enterprise Act 2002.
For more information on this topic, please
contact Theo Anderton or Nick Keitley of Blake Lapthorn's Insolvency & Business Recovery team.
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