The long held view of the Insolvency Service is that once a creditor, always a creditor. In other words, it is the fact that an entity is a creditor of the company or debtor as at the commencement of the insolvency procedure that is important and determines their status throughout that insolvency procedure. This has generally not caused any problems for IPs, other than occasionally in the context of Administrations. If the Administrator is pursuing objective b) and has made a paragraph 52(1)(b) statement, i.e. that there will be no return to unsecured creditors other than by way of the prescribed part, then in the absence of a committee it falls to the secured creditors, together with the preferential creditors where there is likely to be a return to them, to approve remuneration, pre-administration expenses and an extension of the Administration. This will not normally cause a problem where the secured creditor is still owed money, but where they have been paid in full they have sometimes been reluctant to engage with the Administrator and give their approval to any of the decisions sought from them.
In the context of an extension of the Administration, while only the deemed consent of the
preferential creditors is required, the positive approval of all secured creditors is necessary. In the absence of any engagement that will mean making a Court application, with the resultant cost implications. That was then, but two recent decisions have given Administrators a helping hand when it comes to getting extensions agreed by the creditors. The first of those was the first instance decision of Pindar Scarborough Ltd which was decided in March 2024, but only came to wider attention earlier this month. You can read the judgement on the website of the solicitors who represented the Administrators by clicking here. While that Judgement was welcomed, it was seen as turning on its specific facts, including that a memorandum of satisfaction had been filed by the Administrator at Companies House, and was not seen as a precedent that could be applied in all cases where a secured creditor had been paid in full. Fortunately for the profession it was almost immediately followed by a second decision, this time of HHJ Paul Matthews sitting in the High Court in Boughey & Anor v Toogood International Transport and Agricultural Services Ltd [2024] EWHC 1425 (Ch). You can read the judgement by clicking here but the key section of it is:
28. […] If the Government wishes there to be a different result, then it must legislate more clearly than it has done, and moreover explain why those with economic interest in the outcome of an administration should nevertheless determine what happens. In the meantime, I hold that a secured creditor whose debt is paid off ceases to be a secured creditor for the purposes of Schedule B1 of the 1986 Act, and its consent is no longer needed for any decision requiring the consent of such a creditor. No prejudice can be or is caused to such a person by not obtaining its consent.”
That is clear and unequivocal and can safely be relied on unless, or until, it is overturned by the Court of Appeal, or The Insolvency Service do decide to legislate. It will be interesting to see what they say, if anything, in the next edition of Dear IP.
While the decision in Boughey relates only to approval in the case of an extension, logic suggests that it might also be extended to approval in respect of remuneration and
pre-administration costs. However, we are not prepared to suggest that you go that far at present, since if it does not work your remuneration will not have been approved with all the resultant problems that would bring. Try and seek fee approval early on in the Administration while the secured creditor is still a creditor, but if that is not possible then unless there has been a judgement in the meantime applying Boughey to the approval of remuneration, or your solicitors are brave enough to say that you can apply the principles in Boughey to fee approval, your only alternative is to apply to Court for approval. If you have to resort to that, which is very unusual in Administrations, you could then ask the Court to apply Boughey in that situation in order to create a precedent.
