Vol 1 (2004) - Issue 4

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The Powers of Administrators under Schedule B1 Prior to the Creditors’ Meeting - Transbus International Limited

Introduction

The recent decision of Mr Justice Lawrence Collins in Transbus International Limited [2004] EWHC 932 (Ch) provides clarification on an important question for administrators appointed under the provisions of Schedule B1 to the Insolvency Act 1986 (i.e., the new provisions introduced in September 2003 by the Enterprise Act 2002). The question was whether administrators were required, before selling the business of the company in advance of their proposals being approved by a creditors’ meeting convened under paragraph 53, to obtain the directions of the court. In fact no particular sale was identified in Transbus, the application being made in order to obtain a determination of this question preliminary to a subsequent application if the answer was ‘yes’.

To many this will be a familiar question, and one which it is perhaps surprising needed to be asked, given the relatively recent decision of Mr Justice Neuberger in Re T&D Industries Plc [2000] 1 WLR 646, in which he held that administrators did indeed have the power to sell the whole of the assets and business of the company in advance of convening a creditors’ meeting without the need to go to the court for directions. That decision was, however, given in relation to administrators appointed by the court under part II of the Insolvency Act 1986. The relevant provisions of Schedule B1 (principally paragraph 68), whilst broadly re-enacting the earlier provisions (principally section 17 of the Insolvency Act), differ from those earlier provisions in two respects. First, the structure and precise wording of paragraph 68 of Schedule B1 is slightly different from the structure and wording of section 17. Secondly, under Schedule B1 administrators may be appointed out of court.

This latter difference means that an interpretation of paragraph 68 of Schedule B1 consistent with the decision in Re T&D Industries could lead to administrators being appointed to the company and entering into an immediate sale of the entirety of the business of the company without any involvement either of the court or of the creditors. Accordingly, notwithstanding the likelihood that in view of the broad similarity between the new and the old provisions, the draftsman of Schedule B1 had not intended to effect any substantive change in the law, the fact that the new provisions differed in these two ways gave rise to the possibility that a change in the law had indeed taken place.

The issue is one of considerable importance in practice. Administrators will often be placed in a situation where they have to decide very quickly (and certainly more quickly than the time it takes to convene a meeting of creditors) whether the business of the company over which they are appointed should be sold and, if so, to whom. The consequences of a sale made when the administrators lacked the power to do so could be very serious.

In the Transbus case Mr Justice Lawrence Collins concluded that neither the change in the structure and wording of the provisions nor the change in circumstances that administrators can now be appointed out of court was sufficient to warrant a different approach to that taken by Mr Justice Neuberger in T&D Industries. Accordingly it remains the case that administrators have the power to sell the assets and business of the company (including the whole of the assets and business) in advance of convening a creditors’ meeting without obtaining the directions of the court. As before, however, it is important to appreciate the limits on this decision - in particular the confirmation that the administrators have the power to sell the assets says nothing about whether it is appropriate in any given case for the administrators to exercise that power. In relation to the exercise of the power, the administrators remain fully accountable to creditors.

Following a comparison of the old and the new provisions, this article seeks to explain the sense of the Transbus decision and the attendant importance of the administrators’ accountability to creditors.

Part II of the Insolvency Act 1986
Prior to the decision in T&D Industries there was considerable uncertainty, assisted by conflicting first instance authorities, on the extent to which administrators could act in the absence of court directions prior to the approval of their proposals.