IP Briefing: Note in the Petition of Ultimate Invoice Finance Limited for an Administration Order in respect of MCC Building Services Limited

The Background

The Petitioner in this case, Ultimate Invoice Finance Limited (‘UIFL’) had entered into a debt purchase agreement with MCC Building Services Limited (‘MCC’), prior to MCC becoming insolvent. When this agreement was entered into, MCC had granted a floating charge in favour of UIFL. Although UIFL would ordinarily be able to seek an ‘out-of-court’ administration appointment by virtue of its status as floating charge holder, in this case that was not possible because a provisional liquidator had already been appointed to the company, on the application of the company directors. 

As a result of the provisional liquidator’s appointment, UIFL had to make an ‘in-court’ application to seek an Administration Order in respect of MCC. The purpose of the Administration was to realise property in order to make a distribution to one or more secured/ preferential creditors. Although the petition seeking the Administration Order referred to the provisional liquidator, there was a lack of detail in relation to the circumstances surrounding that appointment (made in the Sheriff Court) and its interaction with the proposed Administration Order. 

The Note issued by Lady Wolffe

Lady Wolffe issued a Note to address the issues created by the apparent lack of uncertainty regarding the interaction between the provisional appointment and the administration application. Lady Wolffe noted that an application for an Administration Order which is made while a company is in compulsory liquidation is governed by paragraph 37 of Schedule B1 to the Insolvency Act 1986. It was recognised that upon making an Administration Order, a court shall discharge the winding up order and make provision for other (related) matters. The court noted that no reference had been made in this petition to paragraph 37 of the Schedule or rules 2.5 to 2.7 of the Insolvency Rules, which are also highly relevant.

It was noted that the court is under an obligation to preserve (as far as possible) any rights and obligations which may have accrued during the course of the liquidation proceedings despite the fact that they come to an end on the making of an Administration Order. The court granted the Administration Order in this case on the basis that (i) the requirements for the appointment of an administrator had been met; and (ii) that administration was preferable to liquidation. Lady Wolffe decided, however, to reserve consideration of matters such as the release of the provisional liquidator and their expenses and remuneration on the basis of insufficient information.

Advice

This case highlights the importance of fully considering the interaction of other insolvency proceedings which are ongoing at the time that an Administration Order (or any other related order) is sought from the court. In the case of an Administration Order when a company is already in liquidation, it is important to consider how the discharge of a Provisional or Interim Liquidator will be dealt with and what should happen with recovery of fees and expenses incurred by that Liquidator during their appointment. Insolvency Practitioners should have particular regard to Rules 2.5 to 2.7 of the Insolvency Rules which helpfully set out matters which the court should consider when making an Administration Order in these circumstances. Separately, the case also highlights the importance of considering liaising with any floating charge holder prior to taking an appointment as liquidator because there is always a risk that the floating charge holder will try to step in at a later date to appoint an administrator.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc [AT] bbmsolicitors [DOT] co [DOT] uk). This briefing note is current as at 9 May 2017 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).

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