Administrators and the statutory objective

Following the approval of a scheme of arrangement, the administrators of Lehman Brothers Investment (Europe) (“LBIE”) received a request from the directors of LBIE to distribute the surplus to the sole shareholder. The administrators had surplus cash of £29m, with a further £145m expected by the end of 2020. Administrators have no power to distribute to shareholders, but they do have a power to permit the company to exercise a management power. Could that be done here?

Although Paragraph 3 Schedule B1 says an administrator must perform his or her functions with the objective of one of the statutory purposes of administration, Sir Geoffrey Vos considered this did not mean a causative analysis had to be carried out for each and every function. The objectives go only to what the administrators, as officers of the court, should be trying to achieve – an overall “goal”. They do not limit the powers of the administrators once appointed. A great many powers exercised are ancillary to the overall objective. Here, a distribution did not impact creditors’ claims since all had been provided for but as there were still some outstanding creditors’ claims, the administration could not be brought to an end.  The Court accepted the request did further the purpose of the administration and there were good reasons here to accede to it otherwise the shareholder would be deprived of funds for no good reason.

Despite the outcome this is not a signal that administrators can simply make distributions to impatient stakeholders. What no doubt influenced the outcome was that the administration could not be ended – in many cases that will be possible and the most likely proper course.

In the matter of Lehman Brothers Investment Europe Limited (in administration) [2020] EWHC 1932 (Ch)


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