Can a Creditor challenge the Administrators’ fees and conduct?

April 8, 2016

In the recent case of BW Estates Ltd [2015] EWHC 215(Ch), a Creditor sought to challenge the Administrators’ fees and conduct.

Background

BW Estates Limited (“the Company”) was in the business of property investment and owned five properties. The creditor, who brought the application to challenge the Administrator’s conduct and fees, obtained a freezing injunction which affected the assets of the Company.  As a result, the Company’s Bank refused to pay Nationwide Building Society (“Nationwide”) who held fixed and floating charge securities.  Nationwide appointed LPA Receivers[i] (“Receivers”) in respect of each of the properties.  Following this, the Directors of the Company issued a Notice of Intention to Appoint Administrators.  They received no reply from Nationwide so they appointed Administrators.

Issues

The creditor was of the view that the Directors’ decision to appoint the Administrators was to deplete the assets of the Company and urged the Court to accept that the administration was designed to frustrate the creditor and reduce assets by incurring costs. The creditor argued that the Company’s position post-administration had not been improved but instead the assets had been depleted by the costs of the administration.

The creditor further argued that there was no good reason for the Company to enter into Administration because:

  • The Company could have continued to make payments to Nationwide, who had already appointed Receivers over the majority of the assets;
  • The sale of the properties would leave a surplus (subject to a dubious creditor claim to the Company which appeared to be under the control of the Directors);
  • No creditors’ requested payment;
  • There was sufficient cash at the Bank to discharge all other outstanding debts.The creditor sought an Order providing that the remuneration of the Administrators’ is deemed excessive and is either disallowed in its entirety or reduced to such extent as the Court thinks appropriate and that the Administrators pay the costs of the application personally and not as an expense of the administration.

Judgment

HHJ Cooke:

  • Rejected the argument that the Administrators should not be entitled to any remuneration at all for their services as the Administrators could not and should not have made a statement as to the statutory purpose which led to their appointment. However, he commented that he did not approve of all time spent on costs accrued in doing so.
  • Considered the Directors’ motive in appointing Administrators. He held that it did not matter that the Director may have acted for the improper motive alone so long as the Administrators could properly have made the statement that the statutory purpose of administration was reasonably likely to be achieved.
  • Rejected suggestion that once appointed, Administrators should have brought the administration to an end immediately, or continued only for the purpose of complying with statutory obligations. Whilst an Administrator must be able to ascertain the purpose of the administration, the Administrator does not need to know precisely how the administration will unfold. The crucial point for prospective Administrators is that the statutory purpose is assessed at the time the Company is placed in administration and not assessed after the event.

The Judge did not decide on the level of the Administrators’ costs which were in the region of £80,000.00 and noted that if the costs couldn’t be agreed between the parties, then he would carefully consider these on another occasion. Furthermore, the Judge did not grant an Order directing the Administrators to pay the costs of the application personally.

[i] NI equivalent is a Fixed Charge Receiver