Applications for Administration Orders – A pragmatic approach
The High Court provides guidance for directors seeking administration orders, noting the impact of the COVID-19 pandemic.
In the matter of Nationwide Accident Repair Service Ltd  EWHC 2420 (Ch)
The turmoil caused by the COVID pandemic has inevitably triggered a wave of insolvencies. In a welcome judgment, the High Court has taken a pragmatic approach to the exercise of its discretion in insolvency matters, particularly when this may save jobs in the context of an extreme economic crisis.
Nationwide Accident Repair Services Ltd is a non-trading holding company for a group of companies (“the companies”) which provide car crash repair facilities. As the Government’s lockdown measures reduced the number of car journeys being made, the number of car accidents also declined with the result that the companies lost some of their principal insurer customers. The companies became unable to service secured debts of £31.7 million. In addition, the Companies’ pension scheme had a deficit of almost £49 million.
The sole director of each of the companies, Mr. Wilmshurst, worked with PwC in an attempt to rescue the businesses and a buyer was found. The sale would result in an immediate return to secured lenders of about £26.7 million, with further contingent and deferred consideration of £5 million. The pension scheme would receive about £96,000. Also, the jobs of 2,350 of the companies’ 2,890 employees would be preserved.
Mr. Wilmshurst sought an administration order from the High Court to enable the sale to proceed. Under the Articles of Association of all but one of the companies, a quorum of at least two directors was required to make resolutions on behalf of the companies. Arguably, therefore, Mr. Wilmshurst did not have authority to seek the administration order or the appointment of an administrator.
Mr. Justice Fancourt, presiding in the High Court, followed the judgment in Lumineau v Berlin Hyp AG (Re Brickvest Limited and others)  EWHC 3084 (Ch) which had held that a sole director could make an application to the court as “the directors of the company”, under paragraph 12(1)(b) of Schedule B1 to the Insolvency Act 1986. In that case the court had held that the term “directors” in paragraph 12(1)(b) included the singular “director”, by virtue of section 6 of the Interpretation Act 1978.
Mr. Justice Fancourt exercised his discretion and granted the administration order. In doing so, he took into account all of the relevant circumstances, including the reasons why there was a sole director (Mr. Wilmshurst was not at fault in this regard) and the effect of the companies’ Articles as to the relevant powers of their respective boards. Additionally, Mr. Justice Fancourt stated that “Perhaps the most material consideration is that, by appointing administrators, 2,350 jobs may be saved, at least in the short term, at a time of looming economic crisis and potential financial hardship to anyone made redundant.”
However, Mr. Justice Fancourt criticised the applicants for writing to the court at 7:52 pm on 3 September asking for an urgent hearing that evening, absent which the sale would fall through. On closer inspection, Mr. Justice Fancourt noted that the contract for the sale of the Companies had included a deadline for completion of 11:59pm on 3 September 2020. He stated that 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 drawing attention to a likely deadline for completion that might necessitate an urgent hearing. Mr. Justice Fancourt went on to say that “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”.
While this decision is a victory for common sense, it also serves as a lesson to directors and their advisers to ensure that they allow for a timely court application to be made in advance of a potential material insolvency event. In light of this judgment, the legitimate urgency of similar applications will likely be further scrutinised since Mr. Justice Fancourt was clearly unimpressed with the terms of a deal being thrust before the court where serious considerations over people’s livelihoods were at stake. Directors who fail to make applications in good time may also find themselves facing claims from liquidators, which will be of concern to D&O insurers.