In Finnerty v Clark, the Court of Appeal has given guidance on what constitutes "good and sufficient" grounds for the removal of administrators. In this case, shareholders of a company in administration were also substantial creditors of the company. They wished the administrators to raise proceedings under Section 244 of the Insolvency Act 1986 (extortionate credit transactions) to challenge loan agreements that had been entered into by the company prior to administration.
The administrators had taken legal advice (from two separate firms it appears) on this question and had decided not to challenge the lending.
Because of this refusal, the shareholders presented an application to the Court for the removal of the administrators and their replacement by different administrators. At first instance, the application was successful but on appeal, the application was refused. The Court of Appeal stated that there were not "good and sufficient" grounds to remove the administrators. The administrators had taken legal advice, had acted without bias, there was no certainty that any replacement administrators would commence Section 244 proceedings and generally in all of the circumstances, there was no reason to believe that the conduct of the administrators merited removal.
Comment
Finnerty is a good example of a situation where a stakeholder considers that administrators are not acting in the interests of that stakeholder. The stakeholder seizes upon a particular act or omission of administrators as grounds for removal. The Court of Appeal has indicated that removal of administrators is not to be taken lightly and that a disagreement between stakeholders and administrators as to what action should be taken in an administration is not of itself sufficient for a successful action to remove the administrators where the administrators act competently and without bias.
However it is notable that in Finnerty, the administrators had been appointed by a chargeholder whose lending agreements were the subject of the potential Section 244 action. This case may therefore also be an example of a situation where stakeholders feel that the "appointing" lender has too much influence in the insolvency process. That of course was a criticism often levelled at receivership prior to the Enterprise Act. Stakeholders will undoubtedly continue to criticise and attack insolvency processes that they consider are being run for the primary benefit of secured lenders.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
