Transbus International Ltd, Re

This is an application by the administrators of Transbus International Ltd for directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986 (“the Schedule”). The application raises the question whether administrators have power under the Schedule to sell the assets of the company prior to the approval by creditors of the administrator’s proposals, or whether they can do so only under the direction of the court.

This is an issue which had been the subject of conflicting decisions under the provisions of the Insolvency Act prior to its amendment by the Enterprise Act 2002, but was resolved by Neuberger J in Re T&D Industries plc [2000] 1 WLR 646, in which it was decided that administrators had the power to sell the assets of the company prior to the approval of their proposals by the creditors without the direction of the court.

The relevant provisions in the Schedule are, however, slightly different from those in the un-amended Insolvency Act.

Paragraph 59(1) of the Schedule provides that “the administrator of a company may do anything necessary or expedient for the management of the affairs, business and property of the company”.

Paragraph 60 of the Schedule gives an administrator the powers specified in Schedule 1 to the Act.

Paragraph 68 of the Schedule provides as follows:

“(1)

Subject to sub-paragraph (2), the administrator of a company shall manage its affairs, business and property in accordance with-

(a)

any proposals approved under paragraph 53,

(b)

any revision of those proposals which is made by him and which he does not consider to be substantial, and

(c)

any revision of those proposals approved under paragraph 54.

(2)

If the court gives directions to the administrator of a company in connection with any aspect of his management of the company’s affairs, business or property, the administrator shall comply with the directions.”

By section 14 of the Insolvency Act 1986:

“The administrator of a company (a) may do all such things as may be necessary for the management of the affairs, business and property of the company, and (b) without prejudice to the generality of paragraph (a), has the powers specified in Schedule 1 to this Act.”

Section 17(2) further provided as follows:

“The administrator shall manage the affairs, business and property of the company (a) at any time before proposals have been approved (with or without modifications) under section 24 below, in accordance with any directions given by the court, and (b) at any time after the proposals have been so approved, in accordance with those proposals as from time to time revised…”

In Re T&D Industries plc it was held that the words “in accordance with any directions given by the court” in section 17(2) meant “in accordance with such directions, if any, as are given by the court”; and not “only to the extent specifically permitted by any directions given by the court”. Consequently administrators were not required to obtain the directions of the court before selling the company’s assets. The purpose of the administration provisions, to create a more flexible, cheaper and comparatively informal alternative to liquidation, suggested a powerful argument for saying that the fewer application which need to be made to the court the better.

There is a slight difference in the structure and wording as between the Insolvency Act 1986 and the Schedule. In addition it is possible, under the Schedule, to appoint an administrator out of court, whereas under the un-amended Insolvency Act 1986 all appointments are made by the court.

The potential argument, to the effect that the provisions of the Schedule impose a requirement on the administrators to seek the directions of the court in order to sell the company’s assets in advance of their proposals being approved, would be: (a) the word “shall” in paragraph 68(1) is mandatory – and authorises the administrators to act only in accordance with any proposals approved under paragraph 53; (b) accordingly, if no proposals are approved, then the administrators cannot act; (c) the words “subject to sub-paragraph (2)” do not alter this conclusion since sub-paragraph (2) only applies if the court gives directions.

But I am satisfied that a better view would be that administrators are permitted to sell the assets of the company in advance of their proposals being approved by creditors as much under the provisions of the Schedule as they were under the provisions of the un-amended Insolvency Act.

Paragraph 68(2) of the Schedule requires the administrators to act in accordance with directions of the court “if the court gives [them]”. This appears to be a deliberate choice to adopt wording that mirrors the interpretation which Neuberger J had put upon the previous provisions. The same policy arguments apply.

There will be many cases where the administrators are justified in not laying any proposals before a meeting of creditors. This is so where they conclude that the unsecured creditors are either likely to be paid in full, or to receive no payment, or where neither of the first two objectives for the administration can be achieved: see paragraph 52 of the Schedule. If, in such administrations, administrators were prevented from acting without the direction of the court it would mean that they would have to seek the directions of the court before carrying out any function throughout the whole of the administration. The Enterprise Act 2002 reflects a conscious policy to reduce the involvement of the court in administrations, where possible.