UK court considers whether a fully paid secured creditor's consent is required for an administration extension

Quick read

Background

The administrators of Toogood International Transport and Agricultural Services Ltd (in administration) issued an application seeking an extension of the administration. Their application also asked the court whether consent to a previous administration extension should have been obtained from a secured creditor which had been paid in full before the extension process.

Once a creditor, always a creditor?

The Insolvency Service's First Review of the Insolvency (England and Wales) Rules 2016, published in April 2022 confirmed the Government’s position that "…the classification of a creditor is set at the point of entry to the procedure and that this remains, even if payment in full is subsequently made."

However, a secured creditor is described in the Insolvency Act as a creditor who, in the present tense, 'holds' security. If a secured creditor no longer holds security over the company’s property at the time when an Administrator seeks consent, are they in fact a secured creditor?

Decision

The Judge agreed with the approach of the court in the recent decision in Re Pindar Scarborough, holding that ‘A creditor who has been repaid is no longer "a creditor"’ and their consent was not required.

Key takeaways

Insolvency practitioners can take comfort from this recent support for the sensible view (and one that is common industry practice) that administrators do not need the consent of a creditor who has been paid in full and, therefore, no longer has any economic interest in the administration. However, these are both first instance decisions and it remains to be seen whether the government will, as indicated in the First Review, take steps to make the rules 'clearer'.

Re Toogood International Transport and Agricultural Services Ltd [2024] EWHC 1425 (Ch).
Re Pindar Scarborough Ltd (in administration) [2024] EWHC 908 (Ch).