Court Allows Insolvency Practitioners To Carry On Investigating Overview
This is a post that sprouted from the case of Angelic Interiors Ltd (In Administration), Re (Rev1) [2022] EWHC 2974 which was heard by Insolvency and Companies Court Judge Frith (“the Judge”) in which the court said the Insolvency Practitioners can carry on investigating.
Typical of litigation generally, this was a case in which the Conflict Administrators had to sing for their supper in what perhaps might appear from the judgment to be something of a close run thing.
There was no shortage of Insolvency Practitioners in this case. Appointments of Administrators over Angelic Interiors Limited (“the Company”) involved two Administrators from one firm (“the T Administrators”) joined at the table by two Administrators from another firm (“the C Administrators”). The C Administrators were appointed as conflict Administrators (hereinafter the C Administrators are referred to as the Conflict Administrators for convenience) to consider claims against a Bank (“the Bank”) and other parties.
Application For Directions
An application was made for directions under paragraph 63 of Schedule B1 of the Insolvency Act 1986 by the T Administrators who it appears thought it was time to call it a day so that the Administration of the Company be dissolved as provided for by paragraph 84(1) of Schedule B1 of the Insolvency Act 1986.
However, the Conflict Administrators considered claims could exist which might enable a further distribution to be made to creditors. They suggested the company could go into Liquidation with further investigation work undertaken.
The Bank had a material interest in the case and did not float the idea the Company should go into Liquidation with much enthusiasm. Instead, it seems they said it should be dissolved but if the Court ordered Compulsory Liquidation it objected to the Conflict Liquidators having complete control as sole Liquidators.
The T Administrators wanted the Court to look into the matter of the rationale for the Conflict Administrators’ observations that there was the prospect of further returns to creditors. It seems that to the T Administrators’ knowledge, there was no such prospect.
The Administration had been alive and kicking for 6 years.
The Conflict Administrators Appointment
The Conflict Administrators were appointed by virtue of the efforts of an individual who was a Director of the Company who it seems was to be personally responsible for their fees but they were then later the subject of a Bankruptcy Order.
In this case, an Administrator Order was made which largely confined the scope of the Conflict Administrators’ duties to investigating claims against the Bank and some other parties.
The Conflict Administrators referred to matters such as the veracity of signatures on documents, procedural irregularities and documents awaited from the Bank that might potentially highlight the further prospect of swelling the Company’s assets through claims that might stoke up a funder’s enthusiasm.
It appears the Bank argued a Liquidation had no purpose:
- It would delay distributions to creditors;
- Result in further officeholder fees;
- Potential claims were statute barred.
The Conflict Administrators were not singing from the same hymn sheet as the Bank and floated the suggestion the Bank might be looking to “stifle litigation”. However, the Court appeared to struggle with that proposition:
I had some trouble in reconciling this submission with the way in which the Bank had, through its solicitors, consistently and properly addressed the requests for information when they received them. In their measured submissions they had focussed their intentions on pointing out the significant evidential and procedural problems that the potential claims involved.
The Conflict Administrators Investigation Position
The Conflict Administrators sought to extend the Administration for a year with them solely in the driving seat, presumably with the T Administrators relieved of office.
The Judge said Counsel for the Conflict Administrators submitted that delays were due to:
… a perceived unwillingness on the part of the Bank to provide certain documentation
The Judge was not convinced:
In response, Mr Amey took me to the inter-partes correspondence which clearly show that rather than there being a consistent push for information by the Quantuma Administrators, the requests that were made were sporadic. When they were made, they were promptly and comprehensively dealt with by the Bank, only for there to be further lengthy periods of silence from the Quantuma Administrators. He went on to submit that the Bank received a request relating to original documents shortly before the hearing before me.
Use Of Insolvency Practitioner Investigation Powers By The Conflict Administrators
Leaving aside the question of the notion of Insolvency Practitioner powers which in general terms was considered in an earlier article How To Vault The Section 236 Investigation Hurdle on this site, the Judge articulated a position about the Conflict Administrators’ use of the same as follows:
To the extent that there was any refusal to provide documents (which I do not accept), I expressed my surprise during submissions that the investigative powers conferred by Act on the Quantuma Administrators were not deployed by them. They rely on an inability to fund as their reason. I do not find that to be persuasive. The importance of the funding arrangements provided to them by Ms Davey was critical to their being appointed in the first place and their clear recitation in the Administration Order underlines their importance. Once the bankruptcy order was made against her, it was clear that the only source of funds for the payment of their costs, expenses and disbursements would be from the proceeds of a successful claim or from the funding of the potential claims from an alternative source. This is not a case where the inability to fund is due to the lack of realisable assets in their hands. The lack of funding was caused by the bankruptcy of the sole funder of the Quantuma Administrators. Once that occurred, there was a choice. Either the Quantuma Administrators could resign by giving notice in writing to the Court under Sch. B1, para 87(2)(a) or, if they decided to remain in office, they would have to fund their costs and expenses personally to the extent they were unable to obtain litigation funding from the market. They elected not to resign but to continue in office at their own expense. Having adopted that course, it is simply not open to them rely on an inability to fund an application to justify a delay in making progress in the delivery up of documents and to place the blame on the Bank for that delay. The decision not to pursue an application to utilise the investigative powers conferred upon them by the Act was down to a decision not to fund such an application themselves. Whilst that is an entirely understandable commercial decision that they are perfectly entitled to take, it is no justification for failing to utilise the powers conferred upon them under the provisions of the Act and subsequently then to attempt to blame the Bank for a lack of perceived cooperation as the true cause of the delay.
What Should Happen To The Teneo Administrators?
The judgment said the Bank “vigorously” contested the suggestion that the T Administrators should step down and leave the Conflict Administrators in sole charge.
The Judge acknowledged the importance of the views of the Bank as a secured creditor. In this case, the Judge said they had a direct economic interest in matters notwithstanding that they were potential respondents to possible claims:
The conspicuous delay in prosecuting those claims is at the very least, noteworthy. There is some doubt as to whether the potential claims will ever be pursued. In the meantime, the Bank are, in reality the secured creditor and the only party with an economic interest. There is no justification for disregarding their views. There is no evidence of the Bank seeking to impede the investigation. Indeed, the reverse is true by the continuation of its engagement with the requests for information raised by the Quantuma Administrators. There is no evidence of them seeking to adopt anything other than a constructive engagement with the process, which I find is driven by a desire to recover what they are entitled to receive from the insolvent estate and then to move on.
As a result, the Court rejected the proposition that the Conflict Administrators should have sole control of the case:
To the extent that Mr Mace pressed the point, I decline to follow his invitation to place the Company into liquidation and to appoint the Quantuma Liquidators as sole liquidators.
Should The Insolvency Practitioner Investigations Be Allowed To Carry On?
In the build up to the climax of this judgment, an observer could have started to speculate the Conflict Administrators might struggle to convince the Court they should carry on investigating. However, they prevailed and succeed in continuing with their Insolvency Practitioner investigations:
The recent searches are directed to a new investigation concerning the allegation of forgery some time ago in respect of signatures on significant documents. The Bank have quite rightly engaged with this request and produced a wet ink version of the original ISDA Agreement. The Quantuma Administrators do not accept that the signature on that agreement is genuine. They wish to continue their investigations into the potential claims. Whilst there are several compelling reasons to believe that the claims are speculative to say the least, the issues over the veracity of signature of the ISDA Agreement just get over the line for me to allow the investigations to continue. I must bear in mind that they are before me in the context of a submission that their pursuit by the Quantuma Administrators would be irrational. This is not an application to strike out on the grounds of limitation. Such an application may be issued in due course if the circumstances deem it appropriate to do so. Whilst their pursuit by the Quantuma Administrators might be described in all the circumstances as ambitious, I cannot dismiss it as irrational
… I feel that in the interests of justice, I should allow these investigations to continue.
…
Having considered all the points above, it does seem to me that I should not order dissolution at this stage. Whilst I note with some concern the length of time this administration has taken, the comments that other judges have made on the extension applications, the fact remains that enquiries are continuing. I should allow them to continue. Given that the administrators performing their functions, have achieved the third objective listed in in Para. 3 of Sch. B1 of the Act and that the only matters that remain are the enquiries to which I have referred, the administration should now come to an end and any investigations should be allowed to continue, but in a subsequent liquidation.
I will make a compulsory winding up order …
Both the T Administrators and the Conflict Administrators were appointed as Joint Liquidators of the Company by the Court.
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