Rules, relevancy and requirements – notices to creditors

31 May 2022

 

In the case of Caversham Finance Limited (in administration) [2022] EWHC 789, the court considered whether errors in a notice to creditors seeking consent to extend an administration made the extension invalid. The case is important as it shows the court's approach to omission of prescribed information in notices to creditors.

The information that was omitted in the notice to creditors in this case was also the subject of comment in the recent government report reviewing the Insolvency Rules (England and Wales) 2016.

This article provides a brief overview of the case, reflects on the Insolvency Service's comments in the report with thoughts on how irrelevant or redundant prescribed information should be dealt with in notices and documents that are required by the rules to contain prescribed information.

The case around the creditor notice

The joint administrators of Caversham Finance Limited and Caversham Trading Limited (the companies) sought an order from the court that the administrations had been validly extended and that in turn the administrations could be extended for a further 12 months.

The question before the court was whether the notice sent to secured and preferential creditors seeking consent to the initial extension was defective and if so, whether the defects could be remedied, in light of the fact that the notice:

• did not state the reasons why the administrators were seeking an extension of the administration, as required under rule 3.54(2); and

• omitted the statements required under rules 15.8(3)(f) and 15.8(3)(g) regarding opted out creditors and those with small debts.

In relation to rule 3.54(2), the administrators noted that the creditors had been provided with a covering letter which referred to the progress report that in turn explained the reasons for the extension of the administration.

As to the information referred above under rule 15.8(3), the administrators stated that there were no creditors within the meaning of those paragraphs.

The judgment on the rules

In relation to rule 3.54(2), although the reference to the progress report was quite vague, the court said it was available on the creditor portal and any interested creditor could have read it to ascertain the reasons for the extension. Nonetheless, the judge concluded that the information contained in the covering letter did not meet the requirement of rule 3.54(2), so the notice was defective.

As to the omission of the information under rules 15.8(3)(f) and 15.8(3)(g), the judge said 'Parliament cannot have intended that redundant information should be included on the notice" and "if there were no creditors who could come within the categories of creditor covered by sub-paras.(f) and (g), [...] the notice should not be rendered defective by the omission of a statement that could only apply to such a non-existent category.'

However because of the breach of rule 3.54(2) the court still had to consider whether the defect was remediable under rule 12.64.

In line with previous cases, the judge concluded that the failure to provide reasons for an extension of the administration in the notice to creditors was a procedural defect remediable under rule 12.64. The court was of the opinion that creditors were not prejudiced as they could have read the progress report, and if necessary, they could have contacted the administrators for further clarification. The court did say that a failure to obtain consent would have been a nullity, but failure to provide reasons did not in the judge's view have the same consequence.

As to prescribed information under rule 15.8(3), although the judge found that the omission was probably not a breach he went on to say that even if this was not the case, the omission was unquestionably a procedural requirement that did not invalidate the extension of the administration.

The court concluded that the extension of the administration had been validly granted by creditors' consent and proceeded to grant a further extension for a period of 12 months.

Can the rules assist?

The findings in this case are perhaps not unsurprising, following the pragmatic approach taken by the court in other cases.  However, it is interesting to reflect on the judge's comments about rule 15.8(3)(g) in light of the government's report.

An issue was raised by respondents to the review that rule 15.8(3)(g) requires a statement to be included, even in cases where opting-out is not possible and there are therefore no creditors to whom the statement might apply. The Insolvency Service's response to this, was that 'office-holders do [...] have discretion as to the precise wording of the statement, which allows them to include appropriate caveats should they think that reproducing the literal wording of the rules could cause confusion'.

In terms of what office-holders should do, the report does not endorse the judge's comments in Caversham that Parliament cannot have intended that redundant information is not included in a notice, it suggests it should (at least in so far as rule 15.8(3)(g) is concerned), but amended appropriately to deal with the circumstances. This is also consistent with rule 1.9 that says a document may depart from the required contents if:

• (a) the circumstances require such a departure (including where the requirement is not applicable in the particular case); or

• (b) the departure (whether or not intentional) is immaterial.

As such, although it may not make sense to include information that is irrelevant or redundant (and Caversham might suggest it is ok to leave it out), best practice is to include it but (in light of the Insolvency Service's comments) office-holders do appear to have some flexibility about the wording they can use.

This approach at least avoids any question that a process is defective by reason of information being left out, but if it is, Caversham does give comfort that rule 12.64 may step in to assist if missing information causes a procedural defect.

This article first appeared on the Restructuring GlobalView blog.

 

Livia Giordano is a trainee solicitor at Squire Patton Boggs.

Rachael Markham is a professional support lawyer at Squire Patton Boggs.