Re GHE Realisations Ltd ((in Administration))

JurisdictionEngland & Wales
JudgeMR JUSTICE RIMER
Judgment Date04 November 2005
Neutral Citation[2005] EWHC 2400 (Ch)
CourtChancery Division
Docket NumberCase No: 912 of 2005
Date04 November 2005

[2005] EWHC 2400 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before

The Honourable Mr Justice Rimer

Case No: 912 of 2005

In the Matter of Ghe Realisations Limited (Formerly Gatehouse Estates Limited)
and
In the Matter of the Insolvency Act 1986

Mr David Eaton Turner (instructed by Howes Percival) for the Applicants, the joint administrators

Hearing date : 17 October 2005

MR JUSTICE RIMER

MR JUSTICE RIMER:

1

This application is by the joint administrators of GHE Realisations Limited. They are Peter Windatt and Gavin Bates. The administration order was made on 21 February 2005 by Lewison J on the application of the company, which was then known as Gatehouse Estates Limited. By the application, made by a notice dated 7 October 2005, the administrators ask for the court's directions as to the making of a distribution to creditors and, subject to that, the manner in which the company can exit from the administration.

2

The company formerly carried on business as an estate agency. Mr Windatt's evidence is that at the time of the administration order it was not regarded as reasonably practicable to achieve a rescue of the company but that the administrators did consider that they would be likely achieve a better result for the company's creditors as a whole than if the company were to be wound up without first being in administration. In these circumstances the administrators had to perform their functions with that objective (see paragraph 3 of Schedule B1 to the Insolvency Act 1986: all subsequent paragraph references are to that Schedule). Mr Windatt believes they have now achieved that objective and has explained that by reference to two progress reports to creditors dated 13 April and 16 August 2005.

3

The first report set out the administrators' statement of proposals and accompanied the convening by the administrators on 28 April 2005 of the initial meeting of creditors (see paragraphs 49 to 55). It explained that a review of the company's affairs showed that a going concern sale was possible but only if it was concluded within a matter of days of the administration order; and that within three days of the order the business was sold to Mr Osborne, a director of the company, for £131,000, with £80,000 being paid immediately and the balance of £51,000 being payable in specified instalments by 31 July 2005. Independent valuers appointed by the administrators had assessed that price as fair. By their proposals, the administrators invited the creditors to endorse the sale of the business and stated that they intended to realise the company's remaining assets. They said that they intended to obtain the court's permission under paragraph 65 to make distributions to non-preferential unsecured creditors without first placing the company in voluntary liquidation. They said that, subject to effecting any such distribution, they proposed to give notice to the registrar of companies to the effect that the company was to be dissolved in accordance with paragraph 84. Those proposals were approved at the meeting by all the creditors who voted, representing some 72.6% of the claims to which I next refer.

4

The second report to creditors explained that all but £11,000 of the sale price of the business had been received, with the balance being expected shortly. It said that, as originally reported, preferential creditors would be paid in full and that there would be a dividend for non-preferential creditors; that claims from non-preferential creditors totalling £1,177,385 had been received, of which about half were the subject of inquiry, and that other creditors totalling some £130,000 had not yet submitted claims; that an application was to be made to the court under paragraph 65; and that directions might also be sought regarding the release of the administrators after the completion of the distributions. That application is now before me.

Permission to make a distribution to creditors

5

Paragraph 65, headed "Distribution", provides:

"65. (1) The administrator of a company may make a distribution to a creditor of the company.

(2) Section 175 shall apply in relation to a distribution under this paragraph as it applies in relation to a winding up.

(3) A payment may not be made by way of distribution under this paragraph to a creditor of the company who is neither secured nor preferential unless the court gives permission."

6

No floating charge relates to the property of the company and so the provisions of section 176A of the 1986 Act do not apply. The only question under this part of the application is whether it is appropriate to give the administrators permission to make the distribution for which they ask. The evidence in relation to that is that the company ceased to trade upon the sale of its business, that the administrators presently have some £194,393.28 in hand, with a further £3,500 due from the purchaser of the business. Preferential creditors amount to about £1,200 and will be paid in full. Claims from non-preferential unsecured creditors are likely to amount to £1,177,385. The administrators wish to advertise for creditors to submit proofs of debt, give notice of their intention to make a distribution, pay the preferential creditors in full and then declare and pay a dividend to the non-preferential unsecured creditors.

7

Whilst paragraph 65(3) imposes the need for administrators to obtain the court's permission to make the proposed distribution to non-preferential unsecured creditors, Schedule B1 provides no express guidance as to the criteria the court has to apply in considering whether or not to give permission. Mr Eaton Turner, for the joint administrators, pointed out that Rule 2.41(4) of the Insolvency (Scotland) Rules 1986 imposes express limitations on the administrator's power to make such distributions. The sense of that provision appears to be that even in a case in which the administrator has the prior leave of the court, he may only make such a distribution if (i) he has sufficient funds for the purpose, (ii) he does not propose that the exit from the administration should be into a voluntary liquidation pursuant to a notice given under paragraph 83, (iii) his statement of proposals to creditors, as approved by them, included a proposal to make the relevant distribution, and (iv) the payment of a dividend is consistent with the functions and duties of the administrator and any proposals made by him or which he intends to make.

8

Mr Eaton Turner did not suggest that I should regard those four factors as constituting pre-conditions to the giving of permission by this court pursuant to paragraph 65(3), and nor do I propose so to hold, although it does seem to me that a consideration of each of them is likely to be material to whether or not the court is disposed to give such permission. The submission that Mr Eaton Turner did advance was the more general one that, before giving the permission, the court should be satisfied that the making of the proposed distribution is in the best interests of the creditors as a whole, an approach which he said was consistent with an administrator's objective in paragraph 3(1)(b) of:

"achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), …".

9

I am not convinced that paragraph 3(1)(b) itself provides the key to the suggested basis on which, in the present case, the court should grant or withhold permission to the making of distributions to non-preferential unsecured creditors, although I accept that in principle that is the consideration which should ultimately the govern the matter, and in this connection paragraph 3(2) is to be noted, which provides that:

"Subject to sub-paragraph (4) [which is not material in the present context], the administrator of a company must perform his functions in the interests of the company's creditors as a whole."

10

As to the sort of questions which might arise in applying that principle, Mr Eaton Turner referred me to Corporate Administrations and Rescue Procedures, 2004, Fletcher, Higham and Trower, in which the authors point out, at page 355, that the case may be one in which particular categories of creditors will be either adversely or beneficially affected according to whether any distribution is made in the administration or in a subsequent liquidation, and they give illustrations as to how this may arise. Mr Eaton Turner recognised that in cases such as that it will or may be difficult to determine whether or not a distribution by administrators will satisfy the general principle upon which he relies, but he submitted that in this case there is anyway no such difficulty. Mr Windatt's second statement of 13 October 2005 confirms that the joint administrators have expressly considered whether any unsecured creditors would be either particularly advantaged or disadvantaged by a distribution through an administration rather than a liquidation and have concluded that there are no creditors, or classes of creditors, who would be so affected. In addition, the first report to creditors stated expressly that the administrators intended to seek the court's permission to make a distribution and the administrators' proposals in that report were approved by the creditors on 28 April 2005. The administrators' evidence is also that they cannot think of any function that could usefully be carried out by a liquidator were the company to go into liquidation, and their proposal is that, subject to making the distributions, they should give notice to the registrar of companies under paragraph 84(1), with the intention of thereby bringing their appointment to an end and achieving the dissolution of the company (see paragraphs 84(4) and (6)). Their intention to take that course...

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