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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

19 SEP 2012

Lavin & Ors v Swindell [2012] EWHC 2398 (Ch) (23 August 2012) - Sealy & Milman v. Lightman & Moss - liquidation as an investigation tool due to pre-administration activity

His Honour Judge Behrens has hand down his judgment in Lavin & Ors v Swindell [2012] EWHC 2398 (Ch) (23 August 2012). The case concerns a company in administration. In particular Judge Behrens had to consider an application by 8 creditors of BTR who" are concerned at events which took place immediately before the events leading to the administration. They suspect that assets which should have belonged to BTR have been transferred to ITAS . They are seeking an order that the Administrator petition for a compulsory winding up of BTR in order that the liquidator can carry out a proper investigation."

As the judge then notes: "The applications accordingly raise questions concerning the duty of the Administrator in cases where there are limited funds and his proposals have been rejected by the creditors. It also raises questions as to the power of the Court in such situations. As will appear later the authors of two leading text books have expressed different views and the authorities are not wholly consistent."

The two authors to which Judge Behrens refers are Professor Len Sealy and Professor David Milman and Sir Gavin Lightman and Mr Gabriel Moss QC. The judge notes: 

"Mr Brown submits that where the proposals are rejected the Administrator is bound to apply to Court for directions under paragraph 55. Mr Groves on the other hand does not accept this. He submits that the Administrator has a discretion as to whether to make such an application.

Mr Groves's submission is supported by the note of the editors (Sealy and Milman) in the current (15th) edition of the Annotated Guide to the Insolvency Legislation 2012:

"This provision gives discretionary powers to the court in the event that proposals or revised proposals are not approved at the creditors' meeting. Although the administrator is required to report the failure to gain approval to the court, it does not appear to be essential that he should seek any ruling from the court: in particular, if revised proposals are not approved, he is surely free to continue to act under the original proposals or to draw up a new set of revised proposals and summon a further creditors' meeting. But despite the wide wording of para.(2)(e), the court's powers must be of a limited nature: it could not, for example, impose on the creditors a set of proposals to which they have not agreed."

Mr Brown's submission is supported by paragraph 12-047 in the current (5th) edition of Lightman & Moss the Law of Administrators and Receivers:

"The administrator is under specific duties to seek directions from or the permission of the court in the following circumstances:

(ii) where he finds that his proposals, or any revisions to them, are not approved at a creditors' meeting."

The judge then concludes: 

"Whilst I see the force of the points made in Sealy & Milman I prefer the views of Lightman & Moss and Mann J.

Whilst it is true that paragraph 55 does not expressly require the Administrator to bring the matter before the Court, to my mind the language of paragraph 55(2) contemplates that there will be a hearing and indeed necessarily implies that there must be a hearing. There can only be such a hearing if an application is made. That application must ordinarily be made by the Administrator. If, as here, the Administrator does not make the application, I see no reason why it should not be made by a creditor."

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