Gould & Anor (PKF (UK) Llp (Administrators)) v Itmo Advent Computer Training Ltd & Anor

This is a further application by the administrators of these two companies arising out of the judgment I gave on 22^nd February of this year. References in this judgment to Schedule B1 are references to Schedule B1 of the Insolvency Act 1986. References to “the Rules” or to any particular “Rule” are references to the Insolvency Rules 1986 as they currently stand.

Under that judgment I exercised my power under paragraph 49(8) of Schedule B1 to extend the period within which part of the matters prescribed under the Rules should be sent to a period expiring this Friday. The reason I did that is because the details that I was concerned with, namely, details of student creditors, were commercially sensitive.

The administrators have now in each case found purchasers for the businesses but the amount to be recovered by the administrators is dependent upon how much the existing body of students remains with the purchasers. There could in theory be a further sum of in excess of £800,000 accruing to the companies, though realistic estimates put it at somewhat less than that. As those students may still be susceptible to poaching by competitors of the purchasers, their details remain sensitive. I think it is very desirable that the court should continue to protect that sensitivity.

Moreover, contrary to what I had previously understood as likely, there has not been a meeting as such of creditors because the administrators have invoked the provisions of paragraph 52(1)(b) of Schedule B1 dispensing with the need for such a meeting in circumstances where no distribution is contemplated for unsecured creditors. The administrators’ proposals are accordingly deemed to have been approved by the creditors under rule 2.33(5). It appears that all the realisations in the administration will be for the benefit of the fixed charge holder. In those circumstances, the interests of unsecured creditors in the absence of unforeseen miracles are non-existent in this particular case.

The sensible course – and it is additionally a course which would save further unnecessary costs – would be to dispense, if I have power to do so, with the requirement to provide details of the student creditors completely. It is implicit in my previous order and was certainly my intention that the obligation to provide details of those matters should remain alive but need not be complied with prior to consideration of the actual proposals, so as to allow the administrators to effect a sale of the businesses on the most favourable terms. The question now is: do I have power to dispense with this requirement entirely?

Mr. Ashworth QC for the administrators points out that under rule 2.30, as I mentioned in my previous judgment, the court has power to order limited disclosure in respect of a statement of affairs, or any specified part of it. In that event, the effect of rule 2.33(2)(g) appears quite clearly to be that disclosure to the recipients of the statement of proposals of the matters in respect of which limited disclosure is ordered is in turn limited and would not, in the particular circumstances of this case, require the names and addresses of creditors to be given. However, as there has to date been no statement of affairs, rule 2.33(2)(g) has no direct application.

Mr. Ashworth QC, apart from other suggested answers to the problem, submits that I could now make a prospective order under rule 2.30 for limited disclosure which would operate to disapply the need to provide details of the names and addresses and debts of the creditors as hitherto required. The reason why I say that that has hitherto been required is that under rule 2.33(2)(j), where no statement of affairs has been submitted, then details of the company’s creditors have to be given in the statement of proposals. That is the position which has hitherto pertained in this case.

I should also mention rule 2.33(2)(h), which refers to the situation where a full statement of affairs is not provided. There, too, the names, addresses and debts of the creditors have to be given. It might be thought that paragraph (h) is supplemental to (g) and applies where an order for limited disclosure has been made, thus resulting in the statement of affairs not being, to quote the language of (h), “full”. However, I do not consider that to be the correct construction of (h). The persons who provide the statement of affairs are the directors or other relevant persons specified in paragraph 47(3) of Schedule B1 – see rule 2.28. Once a “full” statement is delivered to the administrators under rule 2.29(3), it retains its “full” status even if the court orders limited disclosure. It simply is not made public by filing with the registrar of the companies where the court exercises its power under rule 2.30(2). In my judgment, rule 2.33(2)(h) is a reference to the situation where a statement of affairs which is not fully compliant is provided. Such a statement is not to be equated with a statement of affairs which is full but where limited disclosure has been ordered.

Accordingly, I accept Mr. Ashworth QC’s submission that the court would have power to make an order prospectively dispensing with the filing of those details in relation to the statement of affairs still to be provided. The effect of that would be that the requirement to provide details of student creditors (which by my previous order wad deferred) would be replaced by a mere obligation to provide the limited details set out in rule 2.33(2)(g), once the statement of affairs is provided. However, even that is a somewhat pointless exercise, given the fact that it is tolerably clear, if not overwhelmingly clear, that the only person interested in this administration is the charge holder.

It will, moreover, require additional expenditure to be incurred in sending out those further (albeit limited) details, not just to the student creditors, which may involve no more than the press of a button, but to other creditors as well.

I am unable, however, to spell out from rule 2.33 alone, or when read following rule 2.30, a power entitling me to dispense with the requirements of rule 2.33(2)(h) or (j), where either of those subparagraphs applies, or a power to dispense under that rule with the requirement to provide anything other than a full statement of proposals, apart from the matters spelt out in (g) in respect of an order limiting disclosure.

Mr. Ashworth QC reminds me, however, that under paragraph 63 of Schedule B1, the court has, as is well known, power to give to an administrator such directions as may be requisite “in connection with his functions”. There are also powers to give directions “in connection with any aspect of his management of the company’s affairs, business or property” in paragraph 68(2) of Schedule B1, though the power to do that is (where proposals have been approved) limited under subparagraph (3) in that they have to be consistent with any proposals, required by a change of circumstances, or desirable because of a misunderstanding about the proposals. In the present case, the suggestion that I dispense with the requirement of sending out the details of the student creditors is not inconsistent with the proposals. On the contrary, the statement of proposals in each case flagged up the intention to apply for a further order to permanently exclude the names and addresses of the student creditors from the public domain.

I consider that the court should act very cautiously before authorising what is otherwise a departure from the mandatory requirements of Schedule B1 and the Rules but I do consider that the power exists. Accordingly, irrespective of the limitations that I see on my powers when considering rule 2.33 of the Insolvency Rules alone, I consider that the power of the court to give directions authorises the court to do that which is requisite for the purpose of ensuring a convenient, economical and sensible management of the company’s affairs. In approaching the matter in that way, there is nothing inconsistent between giving such a direction and giving proper effect to the requirements of paragraph 49 of Schedule B1, even though the requirements of paragraph 49 are on their face mandatory. The sanction under that paragraph is a criminal one because the administrator commits an offence if he does not comply but he only commits an offence, quoting from the words of paragraph 49(7), “if he fails without reasonable excuse to comply with subparagraph (5)”. Subparagraph (5) is the paragraph requiring the administrator to send the statement of proposals as soon as reasonably practicable and, in any event, within eight weeks of the administration commencing.

It seems to me that I have to read paragraph 49(7) in conjunction with the general powers to give directions. What must be taken as envisaged is that the court may exercise its powers to give directions in appropriate circumstances, which cannot be very common, to disapply the positive requirements of paragraph 49 of Schedule B1 where the administrator has a reasonable excuse for non-compliance. Where the court is able to conclude that there is such an excuse, it should recognise this and give an appropriate direction. The direction will then not only operate as a reasonable excuse for non-compliance, but will require non-compliance. In the present case, the proper conduct of the administrations requires the details of the student creditors to remain undisclosed, and the proper aim of avoiding wasteful expenditure requires dispensation with the need to communicate further with creditors on the point.

It seems to me that this is a better way of approaching the matter than another way suggested by Mr. Ashworth QC, which is to extend the time generally under paragraph 49(8) of Schedule B1. A general extension of time would be a fiction for a disapplication of paragraph 49. In fairness to Mr. Ashworth QC, his primary contention is that I should disapply the section under my power to give directions to the administrators. His suggestion of a general extension, and the alternative of a prospective order limiting disclosure under rule 2.30 serving to minimise the disclosure obligations under rule 2.33, are fall-back submissions.

As it happens, I agree with Mr. Ashworth QC’s primary submission and, therefore, propose to disapply the requirement that details of the student creditors should be given pursuant to paragraph 49 of Schedule B1 (read in conjunction with rule 2.33) and direct the administrators accordingly. I will now hear Mr. Ashworth QC on precisely the form of order he seeks.