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

The basis of the Administrators’ arguments before me was that the Applicants were seeking to undermine the Administration for their own benefit, and in particular that there were a number of areas where there were significant disputes between the Applicants and the Administrators, acting on behalf of creditors as a whole. As a matter of legal principle this was an argument which the Administrators were entitled to raise.

Given the conduct of the Administrators as considered above, this argument may call to mind the well-known adage about pots and kettles. However, it is an argument that must be taken seriously. It is an independent and free-standing (albeit somewhat elderly) principle that a person who has an interest which is adverse to the interests of the body of creditors as a whole should not be permitted to appoint his own Administrator.

Where a creditor seeks to replace an Administrator, it is always appropriate for a court to ask whether the request is made pursuant to an ulterior motive. In this regard, it was urged on me that

I note that the Administrators did not suggest, and have never suggested, that the individuals suggested as proposed appointees would act in accordance with the instructions of the Applicants, or that their appointment would result in the Administration being conducted in a way which would not be entirely consistent with their obligations as officers of the court.

In Fielding a creditor made an application to remove a liquidator apparently in order to stop proceedings being brought against him and his companies. In this context, HHJ Maddocks said

“A liquidator should not be a person nor be the choice of a person who has a duty or purpose which conflicts with the duties of the liquidator… More specifically the liquidator should not be the nominee of a person: (a) against whom the company has hostile or conflicting claims … or (b) whose conduct in relation to the affairs of the company is under investigation.”

However he also said

“By contrast it is not an objection to a liquidator that he is allied to or the choice of a person who is concerned to pursue the claims of the company through the liquidator.”[33].

In the circumstances the court declined to remove the liquidator.

One of the cases relied on in Fielding was Ex Parte Sayer; In Re Mansel (1876) 19 QBD 679 (CA). In that case, the court addressed the position where a creditor sought to hold a creditors’ meeting to remove a trustee in bankruptcy in circumstances where the Court of Appeal thought it clear that the purpose of the removal was to prevent the investigation of the validity of that creditor’s status as such. The court (unsurprisingly) declined to permit the meeting to be held until the investigation into the status of the creditor was completed.

This takes us to Med-Gourmet Restaurants Ltd v Ostuni Investments Ltd [2013] BCC 47. This was another case where the former directors and owners of a company (who were the majority by value of creditors) sought to appoint a particular Administrator. That proposed Administrator had given a witness statement explaining that he intended to work closely with the former directors. His witness statements also showed that he was unaware that there had been suspicious dealings between the company and the former directors shortly before the failure, but that, having been informed of them, his confidence in the former directors was undiminished.

Lewison J declined to appoint the Administrator, on the basis that

“Given [the proposed Administrator’s] apparently undiminished confidence in and reliance upon [the former director], the creditors cannot be satisfied that he is truly at arm’s length from [the former director] and will investigate his conduct with appropriate vigour.”[26]

He explained the position as follows:

“There is a public interest in office-holders charged with the administration of an insolvent estate not only acting but being seen to be acting in the best interest of the creditors generally; and ensuring that all legitimate claims that the company may have are thoroughly investigated. This is a reflection of a more general principle that justice must not only be done but must be seen to be done. The importance of the principle is reflected, amongst other ways, in the fact that applications for recusal are almost always made not on the ground of actual bias but on the ground of appearance of bias.” [14]

We now turn to Raithatha v Holstein [2017] EWHC 3069 (Ch) in which these authorities (and a number of others) were considered by Marcus Smith J. He observed that, in considering issues relating to the removal of an office-holder

“the fact that the body of creditors or part of the body of creditors seeking the removal of a liquidator may themselves face claims against them brought at the instance of a liquidator is highly material. I do not accept that this factor is determinative in all cases, but it is clearly highly material.”

It is potentially significant that Marcus Smith J did not suggest that the existence of claims against a proposer of a replacement liquidator was an automatic bar to the appointment of that liquidator. He proceeded to consider whether the holding of a creditor’s meeting to substitute an appointment should be permitted. His conclusion was that it should not, but his primary reason for coming to this conclusion was that the proposed alternative office-holders were clearly unsuitable.

In Kean v Lucas [2017] EWHC 250 (approved in Raithatha by Marcus Smith J at [39]), Mr Registrar Briggs made an important set of points as to the position of liquidators generally. He said

“The implementation of the changes recommended by the Cork Report provide, in my judgment, an altogether different factual basis upon which to judge whether an insolvency practitioner is likely to act without integrity and in breach of his or her duties. In order to persuade the Court that such an event is likely or has happened the Court will require adherence to evidential proof to the usual standards.” [13].

The point here is that the mere fact that an office-holder is proposed for appointment by a party should not, without more, be taken as an indication that that office holder will act in a way which improperly favours the party proposing him for appointment.

There are two preliminary enquiries here – one being as to what is meant by “adverse” in this regard, and the other being as to whether these interests are in fact in conflict with those of the “general body of creditors”.

It seems to me that the effect of these authorities is as follows:

However, the mere fact that an office-holder is investigating the conduct of a creditor is not an absolute bar to a request from that creditor for the office-holder’s replacement. The issue must be determined on the facts.