IP Briefing : MHA Auchlochan – Retrospective Administration Orders

The Court of Session recently considered the competency of making an administration order with retrospective effect, where an administration had inadvertently come to an end due to a failed attempt to extend it. In Re. MHA Auchlochan, Lord Braid made a retrospective administration order in response to an unopposed petition and, in light of the lack of Scottish authority on this point, has helpfully opted to issue a full written opinion with reasons. 

MHA Auchlochan was a charity (and was therefore limited by guarantee, rather than by shares); its sole member was the petitioner, itself a charity, which was also its largest creditor. It was originally placed into administration on 2 May 2023. In February 2024, the joint administrators gave notice of the extension of their appointment. However, some of the company’s assets were subject to standard securities (for a small proportion of the overall indebtedness) which had not been registered at Companies House. Due to this unusual set of circumstances, it was not noticed that consent of these individuals would be required for an extension; as such, no consent was sought and the extension was therefore invalid. The administration thus ended on 2 May 2024. However, in the bona fide belief that the extension had been validly made, the administrators continued to act as though they were in office. Upon discovering that the extension was invalid, they sought legal advice and, at their request, the petitioner raised a fresh petition seeking a retrospective administration order.

Having first determined a procedural issue (whether service of the petition was necessary in the circumstances, where all necessary parties had received notice of the petitioner’s intention to lodge it and had consented), the court turned to the principal questions before it. These were: whether it was appropriate to make an administration order; and, if so, whether it was competent (and appropriate) for that order to be made retrospective. Regarding the appropriateness in general of an administration order, the requirements were the same as for any other such order – in particular that the court had to consider the position as at the time the petition was presented, rather than considering the position before the original administration order. In short, the court determined that the statutory criteria were met and that (assuming it was competent to do so) it would have been appropriate to make an administration order pursuant to the new petition.

Turning to the question of retrospective effect, the statutory authority for this was found in paragraph 13(2) of Schedule B1, which allows for an administration order to take effect at a time appointed by the order. Lord Braid noted that there is English authority which has (albeit reluctantly) concluded that this allows for retrospective orders. In particular, concerns have been raised that “strong and explicit words are required before a statute can be interpreted so as empower a person to alter vested rights with retrospective effect”. Lord Braid himself also observed that the natural reading of paragraph 13(2) only allows it to have prospective effect. However, the court recognised that, in the present circumstances, the only party whose rights might be affected was the petitioner, and that retrospective orders make for a convenient and pragmatic solution to situations such as this one. As such, he made the relevant order, as well as a number of ancillary ones to allow the administrators to behave as though it was an extension of the original administration.

In summary, practitioners will be heartened to see the court adopting pragmatism, rather than a dogmatic adherence to statute, as a guiding principle in this case. While administrators should take care to avoid errors in extending administrations, this case suggests that the court is willing to consider making orders to remedy the situation – at least, where there is consensus among the relevant parties.

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 10 January 2025 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).