Timely reminders when extending the period of administration

The period of administration automatically comes to an end 12 months after the date of its commencement, unless extended. Whether the administration ends at the same time of day as it started is not entirely free from doubt, but that is a different article for a different day.

However, before the term of the administration expires, it can be extended pursuant to Paragraph 76(2), Schedule B1, Insolvency Act 1986 (“IA 1986”). The provision allows for an extension of up to one year by consent, or for any other period by order of the court.

This of course means that creditors can only consent to the extension of an administration once and cannot extend the term of the administration by more than one year, as outlined in paragraph 78(4)(a) Schedule B1, IA 1986. If a longer period, or a further period of extension, is required then the administrator will need to apply for a court order.

The secured creditor must always give consent, but the question of whether other creditor consent is required turns on whether the administrator made a statement pursuant to paragraph 52(1)(b).

If a paragraph 52(1)(b) statement is made, and there is likely to be a distribution to preferential creditors, then consent will need to be obtained from these creditors. If no such statement is made, and the administrator believes that the assets of the company will be sufficient to allow a return to unsecured creditors in excess of the prescribed part, then the unsecured creditors’ consent should also be obtained.

In either case the administrator is able to use either the qualifying decision procedure or the deemed consent procedure to confirm consent.

However, this is not the same for secured creditors whose consent must be obtained separately. The is no set format or procedure specified in the IA 1986 or the Insolvency Rules 2016 for obtaining the consent of the secured creditors , and this is where issues usually arise when extending the administration. These issues can be costly, and often do not come to light until much later, or when a further extension is required.

Baker and another v Biomethane

In Baker and another v Biomethane (Castle Easton) Ltd [2019] EWHC 3298 (Ch) the consent of the secured creditor was defective and as such the administrator had applied to the court to retrospectively remedy the issue.

The office holders had used a deemed consent procedure to obtain the unsecured creditors’ consent but overlooked the fact that that procedure was not available for secured creditors and purported to obtain that consent in that way.

By the time the application to cure the defect was made, the original period of administration had already terminated without extension. The court therefore had to consider:

• Whether the office holders were creditors and as such had standing to apply for such an order
• Whether the company was insolvent
• Whether the administration would be likely to achieve its objective.

In granting the order the court also considered its powers to make a retrospective order and whether in so doing it would cause prejudice to the creditors.

The notice to creditors must also state the reasons why the administrator is requesting the extension – as per rule 3.54(2), Insolvency Regulations 2016. In Re Caversham Finance Ltd [2022] EWHC 789 (Ch), the notices did not do so. As such, the administrators had to make an application for declarations that the extensions of two administrations were valid.

Whilst the process for the extension of an administration period has been designed to allow for out of court routes to be followed and to avoid the need for unnecessary applications, it is clear that any mistake is likely to involve a complex and costly route to fix and therefore advice should be taken well in advance of the date of the end of the administration.