Pursuing the third way

Published on
2 min read

The company concerned had been crippled by the pandemic and was placed into administration in anticipation it might be possible to market it as a going concern.

Within days, an agent advised a sale was unlikely and four weeks later it was established a project, which initially looked possible to complete, was not viable. That meant the estimated outcomes in administration or liquidation were the same. The administrators concluded they should pursue the third objective – realising property for one or more secured creditors – even though that would result in a distribution to unsecured creditors, something normally achieved by a liquidation. The proposals were prepared reflecting that and were deemed approved.

12 creditors objected arguing the Company should have been put into liquidation and they sought a series of orders to cause that to happen. The administrators cross-applied for permission to distribute to unsecured creditors under Paragraph 65(3). In rejecting the creditors’ application and granting permission to distribute, the Court held:

  • Nothing in Paragraph 3(1)(c) limited the third objective to cases where distributions would only be made to secured creditors.
  • Paragraphs 64 and 65 clearly do give administrators power to distribute to unsecured creditors (with Court sanction if needed).
  • As held in Davey v Money, the Court should not interfere with the administrator’s decision on the statutory objective unless it was made in bad faith or was perverse. Here administrators formed a reasonable view there was no unnecessary harm to unsecured creditors in proceeding with this objective over liquidation.

In the matter of Taylor Pearson (Construction) Limited (in administration) [2020] EWHC 2933 (Ch)

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