IP Briefing: Extensions to Administrations not a foregone conclusion

Introduction

This week Lord Braid issued his opinion in an application in terms of paragraph 76 of Schedule B1 to the Insolvency Act 1986 to extend the term of an administration for a period of 12 months. As this application was to take the administration into a fifth year, and the initial approach to the level of information given to creditors about the extension was said to be “somewhat blasé”, Lord Braid issued a written opinion despite extending.

Background

The Noters are the joint administrators of PSL2021 Realisations Ltd (formerly Peacocks Stores Ltd, part of the Edinburgh Woollen Mill group).  The Noters were appointed as joint administrators on 19 November 2020. The administration is not yet complete and has already been extended on three occasions. During the course of this application, Lord Braid identified key issues with the intimation given to creditors: first, creditors were not told the length of the extension which would be sought; and second, no communication invited creditors to write to the administrators by a specified date in the event that they wished to object to a further extension.

Decision

The Order was granted by Lord Braid. However, he made a number of key observations. Firstly, administrators need to bear in mind that an extension of an administration should never be applied for, or granted, as a matter of formality. There is evidence of serial applications being made, often on the same grounds from year to year, with no discernible sign of progress being made. The Court is concerned that if there is an expectation that extensions will be granted without difficulty, there is a danger that administrators will not be incentivised into completing the administration within the existing deadline, confident that another one will be along in the fullness of time.

Secondly, if the progress report in an administration is to be relied upon it is essential that it contains meaningful information, rather than in this application which initially failed to provide creditors with a sufficient level of information about any proposed purpose of an extension, and simply repeated what had been said in previous reports. Reports which simply repeat what was in the previous report, which itself repeated what was in the report before that, are less than satisfactory. It is also essential that creditors are given a meaningful opportunity to intimate any objections by a specified date.

Finally, Lord Braid made comment on the perception that the administration is “losing days” as previous extensions had been granted for a day short of a year. For example, If a year-long extension is sought, it should be to 31 December. If the extension is sought from 31 December 2024, then it would expire on 30 December 2025, resulting in a day being lost. Whilst appreciating that it may make little difference; then again, if an administration is to be continued year on year, it is neater all round (including for reporting purposes) if it expires on the same date in each year.

Comment

This is crucial guidance for IPs and their advisors. It may appear to be relatively simple, but complacency cannot be allowed to set in when applying for extensions to an administration. Consideration must be given to what the purpose of the extension is, and whether it can be achieved. Clear information must be given to creditors to allow for informed consent to said application. If not, there is a risk extensions will not be granted.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 22 November 2024  and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).