Re Lune Metal Products Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Lord Justice Neuberger,Lord Justice Tuckey |
| Judgment Date | 14 December 2006 |
| Neutral Citation | [2006] EWCA Civ 1720 |
| Docket Number | Case No: A2/2006/2089 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 December 2006 |
[2006] EWCA Civ 1720
Lord Justice Tuckey
Lord Justice Carnwarth and
Lord Justice Neuberger
Case No: A2/2006/2089
IN THE SUPREME COURT OF JUDICAT
COURT OF APPEAL (CIVIL DIVISI
ON APPEAL FROM THE HIGH COURT OF JUST
LIVERPOOL DISTRICT REGISTRY (Chancery Division)
His Honour Judge David Hodge QC
No. 890A OF 2003
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Cawson QC and Mr Giles Maynard-Connor (instructed by Messrs Bannons) for the Appellants
Introduction
The issue raised on this appeal relates to the powers of administrators under the Insolvency Act 1986 prior to its amendment by the Enterprise Act 2002 ("the 2002 Act") . I shall refer to the Insolvency Act 1986, prior to its amendment by the 2002 Act, as "the 1986 Act", and as amended by the 2002 Act, as "the 1986 Act as amended".
The issue arises from the following relatively simple facts. On 16 April 2003, Mr Recorder Allen QC appointed Mr Mark Getliffe and Ms Diane Hill ("the Administrators") as administrators of Lune Metal Products Ltd ("the Company") for two purposes, namely (i) approving a company voluntary arrangement ("CVA") and/or (ii) a more advantageous realisation of the Company's assets than would be achieved on a winding up. Three months later, the Administrators' proposals were approved at a meeting of the Company. The conduct of the administration in accordance with those proposals has been delayed owing to issues relating to VAT. However, now that all outstanding matters have been resolved, the Administrators hold a fund of £485,237 available for distribution to the creditors of the Company.
The Administrators' proposals, as approved, envisaged the Company entering into a CVA once the assets had been realised. However, the Administrators have now concluded that it would be better for the creditors if the Administrators were to pay out the creditors early, paying the preferential creditors (as defined in section 386 of, and Schedule 6 to, the 1986 Act) in full and the unsecured creditors pari passu (i.e. on the same basis as if the payments had been made in the course of a compulsory liquidation) .
On this basis, it appears that the unsecured creditors would receive 35p in the pound, whereas, if the company went into a CVA or into liquidation, the unsecured creditors would only get 31p in the pound. This difference is explained by the fact that the cost of taking the proposed course (including the costs of making the instant application) would be £40,000, whereas the cost involved if the Company first went into liquidation or into a CVA would, in each case, be £70,000.
The Administrators accordingly applied in the Liverpool District Registry of the High Court, for the proposed distribution to be sanctioned by the Court. The reason that they made this application was that it was by no means clear to those advising the Administrators that the proposed distribution, however sensible and desirable it may be, would be one which it would be open to the Administrators to make, or, indeed, open to the court to sanction under the 1986 Act.
The issue is one upon which there are a number of first instance decisions, some reported and some unreported, whose reasoning is often impossible to reconcile, even in the case of some decisions which reached the same result. The point has been put to rest for the future by the provisions of the 1986 Act as amended. Indeed, it appears that part of the purpose of the pretty sweeping amendments effected to the administration regime by the 2002 Act was to enable an administrator to make a distribution to a creditor of the company: see paragraphs 65 and 66 of Schedule B1 to the 1986 Act as amended. Unfortunately, the administration of the Company in the present instance, as in the case of many current administrations, is governed by the 1986 Act, and the amendments effected by the 2002 Act have no application.
The instant application came before His Honour Judge David Hodge QC on 8 September 2006. It was at that time simply an application by the Administrators to obtain the sanction of the court to their proposed distribution of the cash in their hands to repay the preferential creditors in full and the unsecured creditors 35p in the £.
In his clear and careful judgment, he came to the following conclusions:
a) If he had jurisdiction to do so, he would have sanctioned the proposed distribution, on the basis that the creditors either supported it or had not objected to it, and it would result in "an enhanced payment… at least to the unsecured creditors";
b) There were a number of first instance decisions, some of which suggested that he had no jurisdiction to sanction the distribution, and others of which suggested that he had, albeit that the cases in the latter category are not all consistent in their reasoning;
c) The most recent fully reasoned decision on the point was re The Designer Room Ltd [2005] 1 WLR 1581 where, after a considered review of the previous authorities, Rimer J concluded that the 1986 Act gave neither the administrators power to make such a distribution nor the court power to sanction or order the making of such a distribution;
d) In those circumstances, in accordance with what I suspect would have been his conclusion in the absence of authority, he considered that he should follow the approach in the Designer Room case.
Whether or not the decision is ultimately upheld in this court, I consider that Judge Hodge was entirely right to follow the decision of Rimer J. Where a first instance judge is faced with a point on which there are two previous inconsistent decisions from judges of co-ordinate jurisdiction, then the second of those decisions should be followed in the absence of cogent reasons to the contrary: see Colchester Estates (Cardiff) –v- Carlton Industries Plc [1986] Ch 80 at 84E-85H per Nourse J. The present case appears to me to be a fortiori. There were a number of inconsistent first instance decisions on the point, which Rimer J considered, and came to a clear conclusion as to which line of authority he agreed with. In those circumstances, very convincing reasons indeed would have had to have been put before Judge Hodge before he could sensibly have departed from the reasoning and conclusions of Rimer J.
It is obviously desirable that the law on any topic is as clear as reasonably possible, and that is as true in insolvency as any other field. Those administering and advising on insolvencies, and those with interests in insolvencies, need to know where they stand as certainly, cheaply and promptly as possible. Albeit that any well advised person will always be aware that a decision at first instance can be overruled by this Court, that cannot possibly justify Judges effectively ignoring decisions of their colleagues, even though they are not, of course, bound by them.
The provisions of the 1986 Act.
Section 8 of the 1986 Act set out the circumstances in which the Court could make an administration order in relation to a company. Four possible purposes were envisaged, as set out in section 8(3) , namely:
"(a) The survival of the company, and the whole or any part of its undertaking, as a going concern;
(b) The approval of a [CVA];
(c) The sanctioning under section 425 of the Companies Act of a compromise or arrangement between the company and any such persons as are mentioned in that section; and
(d) A more advantageous realisation of the company's assets than would be effected on a winding up".
The subsection also required an administration order to "specify the purpose or purposes for which it is made".
The effect of an administration order was explained in section 11 of the 1986 Act: in effect, it prevents, at least in most circumstances, rights and claims, including proprietary ones, being enforced against the company concerned.
Section 14 of the 1986 Act set out the "general powers" of administrators. Relevantly, it provided as follows:
"(1) The administrator of a company –
(a) may do all such things as may be necessary for the management of the affairs, business and property of the company, and
(b) without prejudice to the generality of paragraph (a) , has the powers specified in schedule 1 to this Act…
(3) The administrator may apply to the Court for directions in relation to any particular matter arising in connection with the carrying out of his functions."
14. Section 17 of the 1986 Act was concerned with "general duties". It provided, so far as relevant, that, once proposals for the course of the administration had been approved by the creditors at a meeting (pursuant to the provisions of sections 23 and 24 of the 1986 Act) the administrator should "manage the affairs, business and property of the company… in accordance with those proposals as from time to time revised"—see sub-section (2) (b) .
Section 18 of the 1986 Act provided as follows:
"(1) The administrator… may at any time apply to the Court for the administration order to be discharged, or to be varied so as to specify an additional purpose.
…
(3) On the hearing of an application under this section, the Court may by order discharge or vary the administration order and make such consequential provision as it thinks fit…".
Section 20 of the 1986 Act contained provisions for the release of an administrator.
Schedule 1 to the 1986 Act was headed "Powers of Administrator…", and they...
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