Elgin Legal Ltd v the Insolvency Act 1986
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 25 August 2016 |
| Neutral Citation | [2016] EWHC 2523 (Ch) |
| Docket Number | Case No: CR-2016-004053 |
| Court | Chancery Division |
| Date | 25 August 2016 |
[2016] EWHC 2523 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Rolls Building,
7 Rolls Building, Fetter Lane, London,
EC4A 1NL
Mr Justice Snowden
Case No: CR-2016-004053
Mr M Watson appeared on behalf of the Applicant
The Third Party appeared in person
(As Approved)
This is an application for an administration order in respect of Elgin Legal Limited ("the Company") by Mr. James Stares ("Mr. Stares") pursuant to paragraph 12 of Schedule B1 to the Insolvency Act 1986. The application has been the subject of two hearings: the first was on 15 August 2016 when it was adjourned for further evidence to be obtained and notice to be given to various parties potentially affected by the order sought; the second hearing was today.
The facts in outline
The circumstances giving rise to the application are unusual. The Company was incorporated on 14 April 2010 as a vehicle through which its sole director and shareholder, a Mr. Roy Morgan, provided legal services. Mr. Morgan was a solicitor and focused primarily on legal aid work.
On 29 August 2013 a Mr. Kevin Weir was appointed as an administrator out of court by Mr. Morgan. The purpose of the administration, as subsequently approved by the creditors, was for the administrator to engage former employees to reconcile the Company's outstanding work with the files and to render proper bills so as to enable applications to be made for payment in respect of the work done from the Legal Aid Agency. This was considered likely to achieve a better result for creditors as a whole than would be the case if the Company were wound up. That was primarily because it was understood that the Solicitors Regulatory Authority would have required delivery up of the Company's client files in a liquidation, thus making it more difficult for claims against the Legal Aid Agency to be prepared and pursued under the control of the office-holder.
The term of the administration was extended once by the creditors in August 2014 for six months until 1 March 2015, and again by the court in February 2015 to 4 pm on 1 March 2016. In January 2016 Mr. Stares replaced Mr. Weir as administrator as part of a block transfer of appointments after Mr. Weir arrived at the firm at which they both now practice. Unfortunately, due to an administrative oversight, Mr. Stares' term of office was then allowed to expire unintentionally on 1 March 2016.
The primary purpose of the application for an administration order is to resolve what should happen to the Company for the future. However, in addition to seeking a new administration order, Mr. Stares' application also seeks an order that I should specify that the appointment of the administrator should take effect retrospectively with effect from 4 pm on 1 March 2016 in order, in effect, that there should be no gap in time during which the Company was not in administration.
I should record that Mr. Watson, who has appeared for Mr. Stares on this application, has dealt efficiently and comprehensively with the significant number of legal and factual points which are raised by the application. I am grateful for the considerable assistance that he has given me.
Standing
The first question is whether Mr. Stares has standing to apply for an administration order. The problem is that in his capacity as an ex-administrator per se, Mr. Stares does not have any standing to apply for an administration order. The list of persons in Schedule B1 who are entitled to apply for an administration order does not include former administrators.
However, Mr. Stares does, in my judgment, have standing to apply for an administration order in his capacity as a creditor. His claim as a creditor arises out of the fact that he has unpaid fees due to him in respect of his time in office until 1 March 2016. Although Mr. Stares would benefit from the statutory charge on the assets in his hands to secure payment of that amount as an administration expenses, he is also nonetheless within the wide meaning of the word "creditor" in paragraph 12(1)(c) of Schedule B1 to the Insolvency Act 1986.
In forming that view I have considered the decision of HHJ Norris QC (as he then was) in Re Lafayette Electronics Europe Ltd [2007] BCC 890 to the effect that the former administrators in that case had standing to petition for the winding up of a company on the basis that they were creditors in respect of their unpaid fees. It seems to me that there is no logical reason why the same analysis should not apply in relation to standing to petition for an administration order.
Two cases, Kaupthing Capital Partners II Master LP Inc [2011] BCC 338 (Proudman J) and Re Frontsouth (Witham) [2012] 1 BCLC 818 (Henderson J) contain statements that suggest that former administrators have no standing to apply for an administration order. Those cases are, however, readily distinguishable from the instant case. Kaupthing Capital Partners was a case in which there had been no valid appointment initially at all, and hence the purported administrator had no obvious basis for a claim to be paid for work done in respect of the company and hence no standing as a creditor to make an application for an administration order. In Re Frontsouth (Witham) it does not appear that any argument was addressed to the judge on the question of whether a former administrator with an outstanding debt had standing to apply for an administration order in his capacity as a creditor.
The grounds for an administration order
The second issue is whether the relevant requirements under the Insolvency Act 1986 for the making of an administration order are satisfied. Whether or not I were to make an administration order with retrospective effect, I am required to apply the statutory requirements to the facts as they now stand: see Re Care Matters Partnership [2012] 2 BCLC 311 at [10]–[11].
On the evidence I am satisfied that the Company is plainly insolvent, and that as of today an administration order would still be likely to achieve the purpose of obtaining a better result for creditors than a winding-up. In particular, I am satisfied that the right to make an application for payment from the Legal Aid Agency is properly to be regarded as property of the Company within the meaning of section 436(1) of the Insolvency Act 1986, and that an administration order will give the office-holder greater access to the client files than would be the case in a winding-up, and hence greater practical ability to pursue such applications successfully to the Legal Aid Authority. I am also satisfied that the Company's centre of main interests as defined by the European Insolvency Regulation (EC 1346/2000) is in England and Wales and that an administration will be main insolvency proceedings as defined therein.
I am therefore willing to make an administration order. The two other alternatives, namely either doing nothing, or appointing a liquidator under paragraph 13(1)(e) of Schedule B1, would be considerably less advantageous to creditors than making an administration order.
Should the administration order be made with...
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