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HCR Law Events

9 June 2022

Applications to extend administrations

One of the key questions for a court to consider when there is an application to extend an administration is whether there is, in fact, an administration to extend.

Accordingly, where an administration has previously been extended with creditor consent, the court will want to see the evidence confirming that the extension was properly obtained before moving on to consider whether a further extension is appropriate.

This is something we are seeing the courts consistently insisting on.

Term of administration

An administration will automatically end after 12 months without being extended. Initial extensions for up to 12 months can be obtained with the consent of creditors. Any longer or subsequent extension must be granted by the court.

Extensions with creditor consent

If the administrators included a statement that the company has insufficient property to make distributions to unsecured creditors, then the administrators require the consent of each secured creditor of the company.

If the administrators have not included such a statement, then consent is required from both the secured and unsecured creditors of the company.

If consent is required from unsecured or preferential creditors, the administrators are required to seek a decision from them.

This can be done via the formal decision procedure in accordance with the Insolvency Act, or the deemed consent procedure. A notice to creditors in such circumstances must state the reasons why the administrator is requesting the extension.

The consent of secured creditors must be obtained separately and there is no specific format for this.

The case of Caversham Finance

The case of Caversham Finance Limited (In Administration) [2022] EWHC 789 concerned an application to court seeking an order that the administrations in question had been validly extended and that they could therefore be extended for a further 12 months.

The issue was that notices sent to secured and preferential creditors seeking consent to the initial extension did not state the reasons why the administrators were seeking an extension and omitted certain statements required in respect of opted out creditors and those with small debts.

The administrators asserted that the creditors had been provided with a covering letter which referred to the progress report, explaining the requirement for an extension. They also noted that there were no creditors which fell into the categories in relation to which the necessary statements had been omitted.

The judge noted that the progress report was available to creditors, however, as the notice did not contain the required information. The court concluded the notice was defective, albeit that it was capable of remedy pursuant to rule 12.64 and so the insolvency proceedings would not be invalidated.

The court further concluded that the notice was probably not defective in respect of the omitted creditor statements, as it could not have been intended that redundant information should be included. However, in any event, even if it did amount to a defect, it was also capable of remedy pursuant to rule 12.64.

Accordingly, the court found that the administrations had been rightly extended by creditor consent and proceeded to grant further 12-month extensions.

It should be noted that the recent government report reviewing the Insolvency Rules also asked whether it is necessary to include redundant information in the notices to creditors. The report suggested that it was, but that the wording should be revised to reflect the circumstances.

Extensions by court order

If a subsequent extension is required following one with creditor consent, or if the administrators are seeking to extend by a longer period than 12 months, then an application must be made to court.

Any application should be made at least one month before the end of the administration or should explain why the application is being made late, together with supporting evidence.

If anyone is served with the application, they should be given at least 14 days’ notice of the hearing. In this respect, there is no requirement to serve anyone. However, it is wise for an administrator to consult with the company’s major creditors before issuing the application and it would make sense to give anyone objecting to the extension notice of the hearing so that they can attend and make formal representations if they would like to.

As set out above, the court can only extend an administration that is still ongoing. However, the court was willing to make an exception in the case of Re TT Industries Ltd, where the court staff had failed to list the application for hearing in time.

In Baker and another v Biomethane (Castle Easton) Ltd, the administrators had incorrectly sought to include secured creditors in the deemed consent procedure. It was accepted that the administration had ended and was not capable of being extended retrospectively. However, the court was prepared to grant a second administration order and make it effective from the end of the previous administration.

Conclusion

While it may seem a mere formality, care must be taken to ensure any extension obtained by way of creditor consent is done properly. This will avoid any question as to whether the administration remains ongoing or not.

Any applications to court for an extension should be made in good time, set out the reasons a further extension is required, and include the necessary documentation to confirm that any previous extension was obtained properly in order for the court to be willing to consider granting an extension.

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About the Author
Hayley Phelps, Partner

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