Argentex: What is an administration expense?

In relation to an EMI special administration, the ICC judge in this case considered whether closing out customer contracts could have the effect of creating an expense liability for in-the-money customers.

This case concerned an electronic money institution that was placed into special administration. The joint special administrators (JAs) sought directions from the court as to whether they would be incurring expense liabilities in the administration by:

• a) Not performing the contracts entered into between the company and its customers as they reached maturity.
• b) Closing out some or all of the customer contracts and enforcing the debts that arose thereunder.

The joint administrators filed evidence to the effect that they had been unable to sell the trading book and, given their duty was to recover sums which they considered were owing to the company, they could only do that by closing out the out-of-the-money contracts and enforcing any resulting debt that arose against those customers. Their preference was to close out all the contracts, both those that were out of the money and those that were in the money.

All the parties were agreed that any liabilities under directions 1(a) or 1(b) would not fall in the administration expense categories as listed in the express provisions of the legislation. However, if they were to qualify as expenses, they would do so under the "Lundy Granite" principle, which permitted the expansion of liquidation (and by extension administration) expenses to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate.

As regards 1(a), the judge held that doing nothing in relation to the contracts could not convert the liabilities under those contracts into administration expenses under Lundy Granite. 

As regards 1(b), there was clearly conduct by the JAs in seeking to close out the contracts. However, objectively viewed, the position of the in-the-money customers was that of being unsecured creditors. The proposed conduct of the JAs did not extinguish their status as creditors or reduce the quantum of their claims.

It also did not enable the JAs to obtain a benefit. At its highest, the ability to exercise the closing out and the netting provisions might enable the JAs to pursue what they considered were debtors of the firm with a precise crystallised sum being due. However, that did not fall under Lundy Granite and create a super priority in relation to the unsecured creditor claims arising under the in-the-money contracts.

In regards to Conway v Plass; In re Argentex [2025] EWHC 2625 (Ch) ICC Judge Agnello KC.