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

The question before me at this stage is simply as to whether a conflict of this kind could in theory be managed through the appointment of Conflict Administrators. The Administrators say that it can – they have identified proposed appointees, and put forward a draft memorandum of understanding (“MoU”) indicating the functions which they would expect the Conflict Administrators to perform. The Applicants say that not only is the proposal put forward by the Administrators inadequate, but that in the context of the Administration the conflict is so substantial that if Conflict Administrators were appointed there would be no role left for the current Administrators to play.

The starting point here is the decision in SISU. In that case, a large group of companies had become insolvent, and the same office-holders had been appointed to a large number of the subsidiaries of the group, in a situation where there were substantial intra-group obligations. The office-holders’ appointment was challenged by creditors of one group entity on the basis that they were conflicted through their status as Administrators of other group debtor entities.

In that case, Warren J delivered some remarks about the management of conflicts. His starting point was the dicta of Hoffmann J in Re Maxwell Communications Corp Plc [1992] B.C.C.372. He said:

“The disadvantage of appointing an additional Administrator is, as Morritt J observed in the Polly Peck Case [Re Polly Peck International Plc [1991] B.C.C. 503], the further expense and delay which is caused by having to have co-operation between two different firms of accountants and in this case by having to introduce a new firm which has no previous knowledge of the circumstances of this company to join Price Waterhouse, who have a head start in the matter.

There are other ways of dealing with a potential conflict of interest. One of them is to leave the matter to be dealt with if and when it arises. It seems to me that any provision which I make to deal with it today could equally be made at some future date either here or in the US. If such a conflict should surface there should be no difficulty for the administrators, if they find themselves faced with any difficulty in the matter, in securing the appointment of the necessary independent persons by the court in New York or by the court here to relieve them of any embarrassment which they might feel.” (at p.375B0-D)”

Warren J analysed this passage as follows:

“In other words, the judge is again saying that conflicts of this nature can be managed rather than there being a rigid requirement to avoid them. Whether, and if so how, a conflict can be managed is a matter for decision when a potential conflict materialised. Where there is already an existing conflict, the management must be put in place immediately, if it can be, or if it cannot be, then the administrator will have to relinquish one, if not both (or more), of his conflicting positions. But even then, the circumstances may be such that the officeholder could not responsibly resign, for instance if some commercial compromise were about to take place against the background of an immovable and urgent timetable which simply would not allow for a new officeholder to become sufficiently familiar with the full facts of the case in time to make an informed decision on the deal.”

I think the upshot of this is straightforward – an Administrator should not be removed on grounds of conflict alone if there is a mechanism available that would allow him to continue in office without being affected by that conflict. This is, of course, the basis on which Conflict Administrators are usually appointed. The question for me is as to whether such a mechanism might be found.

The Applicants before me pointed out – entirely correctly – that the draft MoU put forward by the Administrators was clearly inadequate for this purpose. The Administrators responded – equally correctly - that this hearing was explicitly not intended to determine the terms of appointment of the Conflict Administrators, but merely to address the question of whether the appointment of such Conflict Administrators could in theory address the conflict issues. They therefore argued that the issue before me was not whether the terms of this particular draft MoU would be adequate but whether there was any possible form of division of responsibilities between the current Administrators and the hypothetical Conflict Administrators which could effectively manage this conflict.

I think that the way to approach this is to ask what are the minimum functions that a Conflict Administrator in this particular context would have to take on in order to relieve the existing Administrators of their difficulty. Their primary function would, of course, be to conduct the Director Claims. This would include the conduct of the litigation, the investigation of any possible claims which the Company might have against Mr O’Connell or his firm, and the conduct of any such claim. It would be wholly improper for the existing Administrators to have any involvement in, or information in relation to, any such claims until after they are determined or settled. This would include deciding on who the appropriate solicitors to act in the claim would be, and on the question of whether the claim might be better managed for the benefit of the Company by its assignment to the Applicants on appropriate financial terms. I also think that the conduct of any possible s.213 claim (as discussed below) against the Sequana Directors would have to be managed by the Conflict Administrators, since it would be counterproductive to have the two different claims on foot but managed by different Administrators who were inhibited in their ability to discuss the claims with each other. I note that, since the s.213 claim only arises when the Administration is converted into a CVL, if the Conflict Administrators determine that this claim has value and should be brought, that determination will also – in effect – determine that the Administration should be brought to an end. Finally, I think that, given the irrational positions which the current Administrators have announced that they proposed to take over the adjudication of the BAT and the BTI proofs of debt, (that is, the determination of the majority of the claims on the Company), the role of adjudicating these proofs should also be conducted by the Conflict Administrator.

Mr O’Connell, in his witness statement, gave a helpful summary of what – in his view – were the elements of the Administration which were still to be completed. These were:

Of these ten elements, the first five clearly fall into the bailiwick of the Conflict Administrator. I think that the position as regards the sixth (the set-off point) is too clear to require any further input. The eighth and ninth (the HMRC and Hogan Lovells claims) I regard as entirely confected, being attempts by the Administrators to create negotiating leverage against the applicants, and having no substance as they currently stand (see paras 176 to 183 below). Thus the only roles left for the current Administrators to perform are to recover the Company’s legal costs of assisting with the PwC claim (which are not disputed), and managing the transition to a CVL.

In summary, I am of the opinion that once Conflict Administrators had been appointed, and the scope of their mandate had been appropriately determined, there would be almost nothing left for the existing Administrators to do. I therefore do not think that this is a conflict of a kind for which the appointment of Conflict Administrators would provide a satisfactory solution.

This does not, however, necessarily take me to a conclusion that the current Administrators should necessarily be replaced. I think it is probably true that if a court concludes that an Administrator’s continuation in office is not conducive to the efficient and effective conduct of that Administration, it is his duty to resign. However, the Applicant’s application before me is that there is a positive case that the court should order these Administrators to be replaced, and that is the issue which I am asked to decide. I therefore turn to it.