Re Lehman Brothers International (Europe) (in administration) and other companies [2022] EWHC 2995 (Ch)

 

Chancery Division, Hildyard J, 25 November 2022

 

Introduction

 

An administration is only ever a temporary state of affairs. The appointment of an administrator ceases to have effect at the end of the period of one year beginning on which it takes effect ( Paragraph 76 of Schedule B1 Insolvency Act 1986). However, this can be extended if necessary, with the agreement of creditors or the permission of the Court. An administrations can of course be ended before the expiry of 12 months if the administrator thinks that they have achieved the purpose of the administration as stated in the administrator’s proposals.

 

 

An extension may be sought if the administrator has valid reasons to justify the need for an extension of time. Approval for an extension can be obtained from:-

The Court (for a specified time, although there is no limitation on the period or the number of times for which an extension may be granted - Paragraph 76(2)(a) of Schedule B1 Insolvency Act 1986)

Or

The creditors (for a period no more than one year – Paragraph 76(2)(b)))

It is important to remember that an order extending the administration term may not be made after the expiry of the administrator's term of office nor can creditors provide consent after expiry.

 

If creditors have consented but a further extension is required, an application to the Court must be made.

 

The decision of Hildyard J

 

Whilst the majority of administrators will not generally seek an extension of an administration for a period of three years, the decision of Hildyard J provides valuable reminders of the law relating to extensions.

 

As noted above, the Court may grant an extension to an administration for a specified period where there is no limitation on the period or the number of times for which an extension may be granted. The decision in this case makes clear that the Court’s  discretion is not circumscribed, but it should be exercised in the interests of the creditors of the company as a whole. The court referred to the leading case dealing with the exercise of the Court’s discretion under Paragraph 76(2)(a):

 

“Re Nortel Networks UK Ltd [2017] EWHC 3299 (Ch). Snowden J stated at [22]:

 

The Court's discretion under Paragraph 76(2)(a) is not circumscribed in any express way, but it is readily apparent that it should be exercised in the interests of the creditors of the company as a whole, and that the Court should have regard to all the circumstances, including (i) whether the purpose of the administration remains reasonably likely to be achieved, (ii) whether any prejudice would be caused to creditors by the extension, and (iii) any views expressed by the creditors. In that regard, where a company is making distributions to its unsecured creditors within the administration process, it is likely to be appropriate that the administrator's term of office should be extended to allow the distributions to be made, rather than to require the company to go into liquidation, which might well increase the costs or delay the distribution process with no countervailing benefit.”

 

Furthermore, the decision illustrates the importance of detailed material to support an application for an extension where the administration is particularly complex. Also, the decision is a useful reminder on preparing a progress report in complex administrations where the administrators need to notify creditors of an intention to apply to extend their term of office.

 

Taking, for example, the lead company in the Lehman group, LBIE, it was now solvent, having had a Scheme of Arrangement previously sanctioned by the Court. It was now in a distributing administration. A decision to move from administration to liquidation would deprive creditors of any unpaid statutory interest payable under Rule 14.23 of the Insolvency Rules 2016 in respect of the period between the commencement and termination of the administration (the “lacuna” point previously recognised in Re Lehman Brothers [2018] EWHC 1980). The Court concluded that if it was appropriate for LBIE to remain in an insolvency process at all, it would be administration not liquidation.

 

A further alternative option, at least as far as LBIE was concerned, was to end the administration and return the company to the directors. All admitted creditors had been paid in full together with statutory interest. On the facts, the problem with this solution was that the administrators of LBIE were still pursuing a claim against AGFP in New York which had commenced in 2011. Although judgment was due soon, rights of appeal could run to a further nineteen months. The Court concluded that as the litigation could result in AGFP becoming a creditor of LBIE, it was appropriate for LBIE to remain in administration so that distributions could be made in accordance with the Scheme and English insolvency framework.

 

Hildyard J explained his decision to extend the administration for three years in the following terms:

 

“32.     I must consider all the circumstances; and, in particular, as it seems to me, whether there are any viable and preferable alternatives. I must also weigh cost against benefit, so far as I can, and be satisfied that the length of extension is truly justified, as best I can tell from the evidence.

 

 

33.     Ordinarily, the comparator will be likely to be with the alternative insolvency process of liquidation. In this case, however, it is clear that liquidation would be a much less appropriate            process. In addition to specific considerations such as the 'lacuna' issue to which I have referred above, liquidation would negate the objectives of the administration of LBIE: LBIE is solvent and the objective is its full restoration as a going concern. Liquidation is not an appropriate alternative.

 

 

34.     In those circumstances, the question is whether the process of administration is really required or justified, having regard to the matters outstanding. This was a matter addressed, but only lightly dealt with, in the Administrators' evidence and skeleton argument; and prior to the hearing I made a request for further details in relation to all of the Extension Application Companies, but especially LBIE.

 

 

35.     I have been provided with a helpful elaboration by email of the Administrators' position that it  would neither be possible nor desirable for LBIE to be returned to its directors now, or at any      time prior to the ultimate conclusion of the AFGP action to which I have referred.”

 

 

The judgment is available here.