Holding the court to ransom -Administration and Practice
On 3 September 2020, at 11.56 pm following an urgent telephone hearing, Fancourt J made an order appointing administrators over nine companies. On 8 December he gave judgment setting out his reasons for doing so (Re Nationwide Accident Repair Services Ltd & Ors [2020] EWHC 2420 (Ch)). His reasons were conventional. He found each of the companies substantially insolvent on both a balance sheet and cash flow basis, enabling him to conclude that the first jurisdictional condition for the appointment of administrators was satisfied.
A sale of the businesses had been negotiated. He accepted evidence that if the sale proceeded there would be an immediate return to secured lenders of about £26.7 million, with further contingent, deferred consideration of £5 million, but nothing for unsecured creditors other than a share of the statutory prescribed part (which he noted would result in a payment into the companies’ pension scheme of about £96,000). Of the 2,890 employees affected, however, the jobs of 2,350 would be preserved. If the sale did not proceed, the companies would be forced into liquidation. In that event the secured creditors would be likely to receive a smaller return of £19 million, and there would be a similarly smaller share for unsecured creditors and the pension scheme. There was, then, a proper basis for the exercise of the court’s discretion to make the orders sought.
An apparent impediment to appointment by a single director was likewise overcome on a tested basis (see the judgment in Re Brickvest Ltd [2019] EWHC 3084 (Ch) on which he relied).
The interest in the judgment lies not in what the judge said about the law but in what he said about the conduct of the application.
The sale had been negotiated between 30 August and 3 September 2020. The court had been notified on 1 September 2020 that an urgent application might need to be made that day, or out of hours. The court had been told that, if no hearing was required by 8 pm that day, the matter could be heard at 9 am on 2 September. Thereafter nothing further had been heard from the applicants’ lawyers until at 7:52 pm on 3 September an email was sent to the duty judge’s clerk asking for an urgent hearing that evening. The applicants’ lawyers were told that the applications would be heard at 10 am the following morning. But at 9.16 pm a further message was sent saying that the deal agreed with the purchaser (conditional on administration appointments being made) was only on the table if it was completed that night, and that the purchasers would pull out if unless completion took place by 11.59 pm. “It transpired, in a conversation between me and [counsel for the applicant] after I had been sent that warning, that a deadline of 11.59 pm on 3 September 2020 had been included by agreement in the contract documents that had been negotiated over the previous days”, the judge noted. And it was that that annoyed the judge.
Devoting the closing paragraphs of his judgment to the conduct of the application, the judge said:
“[I]t is wholly unacceptable for clients and lawyers and other professionals acting for them to negotiate terms that have the effect of presenting the Court will an artificial ultimatum and require important matters affecting the livelihoods of thousands of people to be decided under undue pressure of time. There was, objectively, on the evidence filed, nothing in the circumstances of the Companies’ affairs that required the applications to be heard at 9pm on 3 September rather than 10 am on 4 September. The need was created only by the terms that were agreed with the buyers”.
He went on:
“If, which is unclear, the deadline was inserted in the contracts at an earlier stage, the Applicants should have sent the draft application documents to the Court much earlier, with the caveat that the deal had not yet been finally concluded and might not be, but drawing attention to a likely deadline for completion that might necessitate an urgent hearing. If the parties agreed the deadline for the appointment of administrators when terms were finally agreed they were wrong to do so. The exercise of the Court’s discretion in such important matters is not to be treated as if it were a rubber stamp. Intending applicants must expect that time required properly to prepare and conduct a fair hearing and reach a decision will not be abridged solely to accommodate their preferences”.
A warning to practitioners.