Thursday, 26 November 2009

Purposes of Administration Considered - BLV Realty Organization Ltd & Anor v Batten & Ors [2009] EWHC 2994 (Ch)

"The purposes of an administration are stated in paragraph 3 of Schedule B1 to the Insolvency Act 1986. They form a hierarchy. The administrators must perform their obligations with the objective (first) of rescuing the company as a going concern (paragraph 3(1)(a)): but if it is not reasonably practical to achieve that objective (or that objective would not achieve the best result for the creditors as a whole), then (second) with the objective of achieving a better result for the company's creditors as a whole than if the company were immediately wound up (paragraph 3(1)(b)). Whilst pursuing either of these objectives the administrators must perform their functions in the interests of the company's creditors as a whole. If the administrators form the view that it is not reasonably practicable to achieve either of those objectives then (third) they may seek simply to realise property in order to make a distribution to one or more secured creditors, but only if by so doing they do not unnecessarily harm the interests of the creditors of the company as a whole (paragraph 3(1)(c)). (Leading Counsel for BLV submitted that this hierarchy reflected scenarios in which the unsecured creditors would receive 100p in the £1, in which they would receive a dividend, and in which they would receive nothing. But I do not agree.)... administration is a form of class remedy. The obligation of the administrators is to perform their functions in the interests of "the creditors as a whole". That does not mean that the obligation falls to be performed in an identical way in relation to each and every constituent of the class. It may be in the interests of the creditors as a whole that one particular contract with one particular creditor is terminated (even wrongfully): for example if the administrators thought that a particular service could be provided more cheaply or to a higher standard than was currently being done by a creditor with a continuing contract for a service necessary to the ongoing trading, with a beneficial result to the creditors as such. Or it may be that whilst in general ongoing contracts with creditors were being terminated (even wrongfully), one particular contract (e.g. to maintain the principal asset) was kept in being, with a beneficial result to the creditors as such. It would in each case be the interests of the creditors as a whole that would have to prevail over the particular interest of individual creditors: and that might result in different treatment. In the instant case, the administrators think that BLV is doing a less satisfactory job than other team members and that the other team members do not have confidence in BLV. That perception is not without foundation. What the administrators decide to do about it is a matter of commercial judgment. They have decided to terminate the relationship. The different treatment of BLV is not a breach of the obligation to the creditors as a whole."
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