The Secretary of State for Education v The Corporation of Hadlow College
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 22 May 2019 |
| Neutral Citation | [2019] EWHC 2035 (Ch) |
| Docket Number | Case No: CR-2019-003244 |
| Court | Chancery Division |
| Date | 22 May 2019 |
[2019] EWHC 2035 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London EC4A 1NL
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2019-003244
Ms L Anderson QC (instructed by Womble Bond Dickinson UK LLP) appeared on behalf of the Applicant
EXTEMPORE JUDGMENT
(As Approved)
(Please note that due to the poor standard of audio recording it has not been possible to produce a high quality transcript in this case)
The Secretary of State for Education makes an application, dated 14 May 2019, for an Education Administration Order within the provisions of Chapter 4 of the Technical and Further Education Act 2017 (Ch. 19) (the “Act”) in respect of Hadlow College, a further education corporation whose principal operating address is at Hadlow, Tonbridge, Kent TN11 0AL.
Ms Anderson QC represents the Secretary of State. She informs the Court that application is the first application made under the Act which came into force on 31 January 2019.
Insolvent companies that face the prospect of creditor action usually seek advice from a qualified insolvency practitioner who will advise on a number of options. Such companies may enter immediate liquidation which will usually, but not always entail a cessation of operations, and will involve a sale of its assets on a break-up basis; seek to trade out of its financial difficulties, or sell its business. These last two options can be achieved through a scheme of arrangement pursuant to Part 26 of the Companies Act 2006, a Company Voluntary Arrangement under the Insolvency Act 1986 or by securing a moratorium by entering into administration remodelled by the Enterprise Act 2002 and embodied in Schedule B1 to the Insolvency Act 1986. The 2002 brought about many changes, chief among them the prospective abolition of administrative receiverships save in specific cases; it enabled applicants to enter administration without a court order; defined the purpose; provided greater flexibility for exiting the process; and enabled distributions to be made to creditors. The purpose of an administration is set out in paragraph 3 of Schedule B1 and provides that
“The administrator … must perform his functions with the objective of—
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company's creditors as a whole than would likely be the case if the company were wound up … or
(c) realising property in order to make a distribution to one or more … creditors.”
Section 249(1) of the Enterprise Act 2002 carved out special administration regimes so that the introduction of the re-modelled administration scheme did not affect, for example, a company holding an appointment under chapter 1 of part II of the Water Industry Act 1991, a company within the meaning of section 26 of the Transport Act 2000, Building Societies under the Building Societies Act 1986 or railway companies under the Railway Act 1993 which prescribes a special regime for protected railways.
The legislative purpose of a special administration regime differs from that of an administration governed by Schedule B1. In Re Railtrack Plc [2002] EWCA Civ 955 Lord Woolf observed:
“The legislative preference is that the company should not be wound up and that all or part of its undertaking should be transferred to another company as a going concern, its relevant activities having been carried on in the meantime…The reasons for the preference is obvious. It is because it is in the national interest that the railways should continue to function as effectively as possible, even if it is necessary for the railway company to be subject to a railway administration order.”
The observation of Lord Woolf in 2002 is an observation that holds good for the vast majority of the special regimes. Generally, an application for special administration (sometimes referred to as SARs) may only be made by a defined appropriate authority, may be made for reasons unrelated to insolvency, and it will generally have the aim of maintaining services to the community. An order will result in the appointment of a “special Administrator” who must be a qualified insolvency practitioner with a licence. The special administrator manages the company in administration for the special purposes of the legislation under which he or she was appointed. None of the regimes prioritise the creditors but prioritise the social interests.
With that introduction I turn to the framework of the Act which is best explained by providing an overview through its sections. By section 6 of the Act:
“For that purpose, the relevant insolvency legislation applies in relation to further education bodies that are statutory corporations as it applies in relation to companies, subject to—
(a) any modifications or omissions specified in regulations made by the Secretary of State, and
(b) sections 9 to 12 (restrictions on normal insolvency procedures to facilitate special administration).”
Section 9 of the Act provides that the court must dismiss an ordinary administration application if
(a) an education administration order is in force in relation to the further education body, or
(b) an education administration order has been made in relation to the further education body but is not yet in force.”
The objective of an education administration order is set out in section 16, and is to:
“(1) (a) avoid or minimise disruption to the studies of the existing students of the further education body as a whole, and
(b) ensure that it becomes unnecessary for the body to remain in education administration for that purpose.
(2) The means by which the education administrator may achieve that objective include—
(a) rescuing the further education body as a going concern,
(b) transferring some or all of its undertaking to another body,
(c) keeping it going until existing students have completed their studies, or
(d) making arrangements for existing students to complete their studies at another institution”
Section 26 of the Act provides for the conduct of the education administration and applies Schedule 3 of Schedule B1, which, with modifications. Thus paragraph 1(2)(j) and 1(3)(a) of Schedule 3 to the Act applies the applicable provisions of Schedule B1 as to the conduct of the administration including, importantly, the provisions of paragraph 42 (moratorium on insolvency proceedings) but modifies that paragraph by removing references to sub-paragraphs (4) and (5).
The grounds for making a SAR under the Act are not unfamiliar to those who are have experience of the ordinary administration process. Section 19 of the Act provides that the “court may make an education administration order on an application only if satisfied that the further education body—
“(1) (a) is unable to pay its debts, or
(b) is likely to become unable to pay its debts.
(2) The court has no power to make an education administration order in relation to a further education body which—
(a) is in administration under Schedule B1 to the Insolvency Act 1986, or
(b) has gone into liquidation (within the meaning of section 247(2) of the Insolvency Act 1986).”
Subsection (3) provides that “a further education body is unable to pay its debts if it is...
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: Bulb Energy Ltd
...to make a special administration order: see the observations of ICC Judge Briggs in Secretary of State for Education v Hadlow College [2019] EWHC 2035 (Ch) at [20]. I agree with that analysis, and it makes it appropriate at this stage to analyse briefly the Funding Agreement with the Secre......