CR-2018-009110 - [2025] EWHC 2115 (Ch)

The Administrators point to seven specific areas of dispute between the Administrators and the Applicants, and say that these disputes, taken collectively, amount to a dispute between the Applicants and “the general body of the creditors” which is so significant that these authorities are engaged. They therefore argue that they should not be replaced by Administrators proposed by the Applicants.

There are two preliminary points here. The first is that, by the time a creditor becomes sufficiently dissatisfied with an administrator to apply for his removal, he will inevitably have at least one – and probably more – substantial disagreements with that administrator as to the conduct of the administration. It clearly cannot be the case that the existence of such disputes is per se a bar to that creditor applying for the removal of that administrator. In order to conclude that a creditor has a dispute with a company in administration which is so serious that it disbars him from appointing replacement administrators, it is necessary to find something seriously problematic in the factual matrix, such that there is a real risk of perception of bias or inappropriateness in the appointment. The mere existence of disputes between administrator and creditor will not, ordinarily, satisfy this requirement.

The second preliminary point is that although the Administrators seek to characterise this issue as arising from a conflict between one creditor and “the body of creditors”, the creditor concerned constitutes 93% of the value of the claims on the Company, and the other creditors have indicated no interest, and taken no part, in any of these disputes. This proportion is clearly not of itself determinative – even a 93% creditor may have an irretrievable conflict with the body of creditors as a whole. However, the facts on the ground significantly weaken the assertion by the Administrators that this is a real, as opposed to a confected, conflict.

In order to consider this argument, it is necessary to discuss the individual areas of dispute.

The conflict point is not really engaged here, since the Administrators do not dispute that there is at least a potential conflict. I think that the Administrators do say that the fact that the Applicants dispute that there is a possibility of resolving the issue through the appointment of conflict administrators puts them at odds with the general body of the creditors, but I do not think that this is a true conflict – there is nothing in the position which the Applicants take on this issue which seems to be to be in conflict with anything other than the Administrators’ desire to remain in office.

The Administrators have for some time been saying in their periodic reports that they intend to convert the administration into a CVL, but this has not yet happened. The Administrators are now asking for a 15-month extension of the Administration. The basis of this request is that they think that the Director Claims can best be conducted by Administrators.

The Administrators argue that the requests by the Applicants for the administration to be converted into a CVL are contrary to the interests of the creditors generally, since there are good reasons why the conversion should be delayed.

There are two intertwined points here. One is that the Administrators say that a transition to a CVL would of itself be detrimental to the interests of creditors, for reasons that I will outline below. The other is that the conversion into a CVL has the benefit of opening up for the Company the possibility of bringing an action under s. 213 of the IA86 (fraudulent trading) against the Sequana Directors (since such a claim can be brought by a liquidator but not an administrator). The Administrators say (I think) that the Applicants’ requests that this action be pursued is contrary to the best interests of the body of creditors.

The Administrators have put forward a number of arguments to the effect that conversion into a CVL would be actively damaging to the interests of the creditors as a whole, and that in pressing for this conversion the Applicants are acting contrary to those interests.

The first of these (which I think has appeared for the first time in this hearing) is in relation to creditor’s claims for interest. Mr Isaacs points out (correctly) that the law as it currently stands, as stated by the Supreme Court in Re Lehman Brothers International (Europe) (No 4) [2018] AC 465 (SC) at [113]-[119], is that where an Administration is converted into a CVL, the creditors are no longer entitled to interest in respect of the period of the Administration. This is advanced as a reason for declining to convert the current Administration into a CVL.

In practice this point is almost irrelevant. Creditors would only be entitled to interest once all claims were paid in full. Currently creditors’ claims are at least £35m – possibly very much more. Recovered assets are £12m and administrators’ costs are expected to consume almost all of that balance. Mr Isaacs argues that there is at least a theoretical possibility that the recoveries from the Director Claims might be so great as to enable all creditors to be repaid in full with interest. However, this prospect seems highly notional.

The second is that conversion would prejudice the Director Claims. This again is an argument which had not previously been alluded to before removal had been threatened, and appears to have been concocted for the purpose of this litigation. The argument is that these claims are currently pursued by the Administrators under ss 238 and 239 of the IA86. It is suggested that those sections create a single cause of action vested in the “officeholder”, and that, if an Administration were to convert into a CVL, the liquidator would have to begin a new claim. It is further suggested that, if this were to be the case, the result would be to treat the Director Claims as discontinued with a consequential costs order against the Administrators. Furthermore, the costs of the Director Claims have been incurred by the Administrators. The indemnity principle may cast doubt on the ability to recover those costs if the Company moves to CVL.

This again does not withstand analysis. In such a situation it would seem relatively straightforward to apply under CPR 19.4 to substitute the claimant. This has been done in a number of other cases – most notably the transfer of claims from Northern Rock Plc to Northern Rock (Asset Management) Plc which is noted in CPR 19.4.8 – and transfers of this kind are routinely made in cases of equitable assignments of claims – see Kapoor v National Westminster Bank Plc [2011] EWCA Civ 1083. My admiration for the theoretical nature of this objection does not extend to a belief that it has any real substance.

The third argument in this regard is that such a move would trigger the application of insolvency set-off to the Company’s claim against BTI for the recovery of part of the recoveries from the PwC litigation. The argument here is that whereas insolvency set-off is mandatory, as against an administrator set-off is only available where it would apply as between solvent parties, and is discretionary. This is only relevant if the Administrators are correct that they are entitled to recover these monies from BTI without BTI asserting a set-off in respect of its debt claims against the Company. This is of course correct. However, there is only one area where it is of any relevance, and that relates to the making available of funding to pay the Administrators’ fees. That is simply not a proper ground of objection. Until the Administrators’ fees are settled (either by the Creditors’ Committee or by the court), the Administrators cannot extract fees, and, once that determination is made, there should be sufficient funds available within the Company to pay those fees.

It is agreed that a s.213 claim in relation to fraudulent trading can only be brought by a liquidator. The Applicants say that there are grounds for the making of such a claim, and that the Administrators’ refusal to convert the Administration into a CVL is preventing such a claim from being brought.

My conclusion on this point is that the Applicants’ position on these issues – that the benefit of securing the possible s.213 action significantly outweighs the disbenefits which the Administrators identify – is in line with rather than in conflict with, the interests of the body of the creditors.

The Administrators seek to argue that the fact that the Applicants suggested that they take an assignment of the Director Claims means that they had put themselves into a position where their interests were adverse to those of the “creditors as a whole”. The argument is that, since the Applicants would have been prepared to acquire the right of action on terms (and by doing so cure the conflict problems which would have faced the Administrators in bringing the claims directly), and that since such an acquisition would have had to be on commercial terms, the Applicant’s interests as regards that pricing discussion would be contrary to those of the other creditors.

This argument disregards the reason why BAT/BTI were prepared to consider such an assignment. The problem for the Company was that the Administrators were conflicted in their conduct of that claim. By taking an assignment of the claim, BAT/BTI could not only have relieved that problem, but could also have come to a financial arrangement with the Company which could have relieved it of the costs of conducting the claim whilst retaining some right to its proceeds. No terms were ever discussed, and it is impossible to say what such terms might have been. However, the logic of an assignment of the claim is clear and, if properly negotiated, such an assignment might have been beneficial for both parties.

Mr Isaacs argues that the irremediable problem here is that a person who is seeking to buy something from another has an irremediable conflict of interest with that other. I do not agree. It is perfectly possible for a commercial bargain to be financially beneficial to both sides, particularly where – as here – the asset involved is a risky asset, and the risk appetite and financial resources of the two parties is different. It is simply not possible to say whether any potential assignment of this cause of action would be detrimental or beneficial to the Company, and it is therefore clearly not the case that the fact that the transaction was being proposed by the Applicants gives rise to a conflict of any form between them and the body of the creditors.

There is a dispute between the Applicants and the Administrators as to the way in which the Administrators have calculated their fees. The Administrators – unsurprisingly – strongly dispute the criticisms made by the Applicants. I do not think that the existence of this dispute has any bearing on the position as between the Applicants and the body of creditors generally.

This point was never explained, and haunted the proceedings like an intangible spectre, the only evidence of its existence being the Administrators’ statement that they believe in it. The key point is that it was suggested that the entry into the Funding Agreement might have given rise to a UK tax liability that was unidentified at the time and has remained unidentified for the subsequent seven years, for the whole of which period the Administrators have been responsible for the Company’s tax affairs. Given that entities like BAT are not usually in the habit of entering into transactions involving hundreds of millions of pounds without the benefit of fairly high-quality tax advice, it must also be assumed that the issue – whatever it is – had been missed not only by the current Administrators but also by those tax advisors.

The reason that it is relevant here is that the Administrators argue that the Applicants could be acting to prevent the Administrators from investigating this point, and are therefore acting against the interests of the general body of creditors. It is hard not to note that trying to stop the Administrators manufacturing a tax liability which might not otherwise exist might be regarded as entirely in line with the interests of the creditors as a whole. However, even if I assume that BAT would have an interest in closing down this line of enquiry, I cannot see that the appointment of their chosen administrators would have any bearing on the likelihood of that happening. In this regard I note that this is not a case such as Raithatha, where it is suggested that the proposed administrators had a close pre-existing relationship with the appointor likely to cast doubt on their independence. I am in no doubt that, now that this spectre has been raised, the new administrators will pursue it thoroughly.

Finally there is the threat by the Administrators to sue Hogan Lovells. This is another argument which reeks of desperation. The origin of this point is a threat made by Mr O’Connell in his first witness statement that “I have instructed [KaurMaxwell] to write to HL, putting HL and the Applicants on notice of a claim by the Administrators and the Company against them”, on the basis the Applicants and Hogan Lovells breached confidence and were negligent by including material in a witness statement and its exhibits “which ought not to have been seen by the Defendants in the Director Litigation”.

Both of the documents concerned were filed in a redacted form, to avoid anything being made available to the New Directors which might prejudice the Director Claims. Both Hogan Lovells and counsel took part in this process. After issues had been raised by the Administrators’ solicitors, both Hogan Lovells and counsel re-reviewed the redactions to ensure that the redaction process had been carried out properly in the first instance. This re-review largely confirmed that the redaction process had been carried out appropriately.

The Applicants say that the Administrators’ complaints are not well-founded. They give as examples:

The only area where Mr Lloyd accepts that there may have been a breach of the rules is as regards the application notice and witness statement in the Extension Application. He accepts that these should have been redacted, not because their disclosure would prejudice the Director Claims (it would not), but because there was an Order in place providing for their confidentiality. This fact was inadvertently overlooked by Hogan Lovells and counsel when carrying out the redaction process because the focus of that process was on potential prejudice to the Director Claims.

It seems to me that there is simply no issue here. Even if there were an issue relating to negligence – which on these facts seems extremely doubtful – the idea that it is of any significance, in terms of either size or volume, to BAT and BTI is untenable. It is clear that Mr O’Connell has, in his own mind, conflated BAT and Hogan Lovells into a single malevolent entity, but I very much doubt that either BAT or Hogan Lovells see things that way, and I am highly confident that the idea that the Company might sue Hogan Lovells is not something which gives any possible perception of prejudice on the part of BAT.

I am therefore satisfied that none of these issues, taken separately or together, establish that the Applicants have an adverse interest to the creditors as a whole as regards the conduct of this administration. I therefore do not consider that there is any obstacle to administrators who they propose being appointed.