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Insolvency

7 August 2017

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In re Nortel Networks UK Ltd and related companies (No 2) [2017] EWHC 1429 (Ch)

6; 16 June 2017 Chancery Division: Snowden J

Insolvency — Administration — Expenses of administration — Administrators seeking directions in respect of potential expense claims — Court’s power to give directions — Insolvency Act 1986 (c 45), Sch B1, para 63

The applicants, the administrators of companies in the same group, were aware of a number of potential claims, which might if established, qualify as administration expenses (“expense claims”), and thereby rank for payment in priority to the claims of unsecured creditors. Neither the Insolvency Act 1986, nor the Insolvency Rules 1986, nor the Insolvency Rules 2016 provided any express mechanism under which an administrator could require expense claims to be asserted by a specific date, or enable him to refuse to deal with claims asserted after that date in the context of a distribution to unsecured creditors. In the absence of any applicable statutory scheme, the administrators applied to the High Court for directions under paragraph 63 of Schedule B1 to the 1986 Act to implement a scheme informing potential claimants that any expense claims which had not yet been made had to be notified to the administrators on a prescribed form on or before a specified date.

On the application—

Held, it was permissible for the court to use its power to give directions under paragraph 63 of Schedule 1 to the 1986 Act (i) to assist administrators in ascertaining which liabilities of the company properly ranked as administration expenses, and (ii) to authorise administrators to distribute the property of the company to unsecured creditors who ranked lower in order of priority in the statutory waterfall without regard to any claims for administration expenses that had not been made by a specified date. The directions sought did not purport to extinguish any legal rights or vary the statutory waterfall. In the circumstances it was possible as a matter of jurisdiction for the court to give directions under paragraph 63 of Schedule B1 for a regime that involved a distribution to unsecured creditors under paragraph 65(3) of Schedule B1, even though that carried a risk that, at the end of the administration, insufficient assets might have been retained to enable a late expense claimant to be paid under paragraph 99(3) of Schedule B1. The directions sought did not amount to impermissible judicial legislation. The terms of the orders made by the court properly balanced the need to protect the interests of persons who might have expense claims which had yet to be asserted, against the need to minimise any further delay to the conclusions of the administration and to facilitate the distribution of the companies’ assets to their unsecured creditors (paras 81, 84, 87, 88, 93, 110).

Bloom v Pensions Regulator [2014] AC 209, SC(E) and In re Lehman Bros International (Europe) (No 4) [2017] 2 WLR 1497, SC(E) applied.

Appearances: William Trower QC and Alex Riddiford (instructed by Herbert Smith Freehills LLP) for the administrators.

Reported by: Celia Fox, barrister.

Solicitors Journal case digest is prepared by the Incorporated Council of Law Reporting for England and Wales (ICLR)

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Commercial

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insolvency act 1986