Application For Removing Administrators Dismissed

An application to remove an Administrator might conceivably not be one to be rushed into but rather one of last resort after exploring the other options.

The case of Re Fox Street Village Ltd [2020] EWHC 2541 (Ch) had a number of matters before the Court involving the company’s  Administrators, who had been appointed. Some of the other creditors had tried to appoint their nominated Administrator and HMRC had issued a Winding Up Petition.

The company that had gone into Administration was involved in a partially developed property site. The Administrators had been appointed out of court by a holder of a floating charge.

The Court considered the difference of views about the disposal of the site, the communication between the Administrators and certain of the creditors, and their concerns in respect of the performance of the Administrators.

As a matter of general principle about Administrator removal (similar to an application to remove a liquidator), the Court had this to say:

No doubt, in considering whether there are “good grounds” for removing an administrator from office, the Court can take into consideration his conduct generally. If an appointment is made with an improper motive and the administrator colludes with the persons who appointed him to achieve it, this could also constitute good grounds for removal. However, as a general rule, the grounds for removal must arise from the conduct of the administrator or matters personal to him.

In relation to the case itself, the following was mentioned:

In the present case, many of the creditors – in particular, the purchasers of units in Block D – are aggrieved by the conduct of the Company prior to administration and they are suspicious that, having been appointed by PHI, the Administrators seek to enter into a transaction which will secure most of the net proceeds of sale for the benefit of PHI. Whilst the purchasers of units in Block D are entitled to an equitable lien in respect of their notional interest in the building, their security is limited and, when the net proceeds of sale are apportioned to reflect the value of their respective interests, their security will yield considerably less than the amount owed to PHI notwithstanding that the overall indebtedness to the purchasers of Block D is significantly higher than the debt to PHI. If the creditor purchasers have thus formed the impression that the Administrators are determined to pursue a transaction which will be to the advantage of PHI, it is not difficult to see why. Viewed from their perspective, the creditor purchasers are also aggrieved that the Administrators have declined to proceed or otherwise co-operate with them in ensuring that the development is completed so as to provide them with the opportunity to acquire the residential units they originally contracted to buy under Mr Ip’s build out plan.

Points of contention had broken out about the strategy of the Administration but the removal application was dismissed:

1. Firstly, the critical issue between the parties is as to the basis on which the Administrators should dispose of the Property. This issue has generated most of the acrimony between the parties. For the reasons already given, I am satisfied that, on this issue, the Administrators’ strategy is sound and they are entitled to an order authorising the sale of the Property as a whole upon the basis sought.

2. Secondly, whilst it does appear there have been difficulties of communication between the Administrators and the purchasers for which it is likely the Administrators are at least partly culpable, it would be disproportionate for the court to make an order removing the Administrators from office on this ground alone. To the extent this remains a serious matter of concern, the creditors are entitled to establish a creditors’ committee under Paragraph 57 of Schedule B1 of the Rules to require the Administrators to attend to provide them with information about the performance of their functions. In his submissions before me, Dr Steiner suggested that the Administrators were themselves culpable for the failure of the creditors to establish a creditors’ committee. However, even now, there is nothing to preclude the creditors acting pro-actively to do so. In itself, this aspect of the case does not furnish the creditors with a good reason for removing the Administrators.

3. Thirdly, if and to the extent that the purchasers have specific concerns, in their capacity as creditors, about the performance of the Administrators’ functions and they believe the Administrators have thus acted or intend to act so as to harm their interests, they would be entitled to apply for specific relief under the provisions of Paragraph 74 of Schedule B1. However, in such circumstances, the Administrators should not be removed without first exploring the alternative possibilities.

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