Boughey and another v Toogood International Transport and Agricultural Services Ltd (in administration) [2024] EWHC 1425 (Ch)

In this case, the joint administrators of the applicant sought an extension of the administration. The key question was: whether consent to an administration extension should be obtained from secured creditors who had been paid in full before the extension process had commenced.

Who is a “secured creditor” for the purposes of requesting an extension?

Judge Paul Matthews discussed that under section 248 of the Insolvency Act 1986 “the Act”), a secured creditor is defined as “a creditor…who holds…a security”. Even if "a security" is interpreted as including a reference to a security for a zero-sum debt, section 248 still refers to "a creditor". However, if a secured creditor no longer holds security over a company’s property at the time when an administrator seeks consent, are they still considered to be a secured creditor?

In answering this question, the judge agreed with the court’s approach in the recent decision in Re Pindar Scarborough Ltd (In Administration) [2024] EWHC 908 (Ch). In this case, ICC Judge Prentis referred to the definition of a secured creditor under the 1986 Act as being framed within the present tense. A creditor who has once held security, would not be captured within the definition under section 248 of the 1986 Act. Therefore, this means that a creditor who has been repaid in full is no longer considered to be a “a creditor” and their consent is not required when seeking to extend the administration.

Whose consent should be obtained for an extension?

In his judgment, Judge Matthews referred to several legal authorities when considering whose consent should be obtained when seeking an extension to the administration.

He referred to Re Biomethane (Castle Eaton) Ltd [2020] BCC 111, where Norris J held that secured creditors are deemed as persons with an economic interest in the company’s administration.

Similarly, in Re Burningnight Ltd (in administration) [2021] BCC 133, Deputy Judge Phillip Marshall QC held that consent should be sought from a creditor with any real interest in, and who may suffer prejudice as a result of, the extension of the administration.

The above decisions suggest that during the administration of a company, when it comes to creditors’ decisions, most weight should be given to those creditors with a real economic or financial interest in the outcome.

Decision

Judge Matthews agreed that any creditor whose debt has been paid is no longer a creditor. Significantly, the consent of a creditor whose debt was secured at the outset of the administration but has been repaid in full before the extension, or whose security has been discharged before the consent is sought, is not required. The reasoning for this is that only those who have a financial interest in the outcome of the administration should be concerned with making decisions about the continuation of the administration.

Therefore, a secured creditor whose debt is paid off ceases to be a secured creditor for the purposes of Schedule B1 of the 1986 Act. Their consent is no longer needed for any decision requiring the consent of such a creditor. No prejudice can be or is caused to such a person by not obtaining their consent. Further, Judge Matthews indicated that there is no reason why a commercial organisation such as a bank that has been repaid in full should be concerned thereafter with making administration decisions that do not affect it.

This is a welcome and decisive clarification of the law and should assist in reducing the burden on insolvency practitioners and legal advisers when seeking to extend an administration in England & Wales.

Please get in touch with our English contentious insolvency team if you want to discuss this topic further.

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