'Improper motive' does not necessarily invalidate administrators' appointment

The High Court has held that an ‘improper motive’ on the part of an appointor will not ordinarily invalidate the appointment of administrators where the statutory purpose of the administration is capable of being achieved. It is a noteworthy decision as it is one of only a few cases within this jurisdiction to provide commentary on the scope of the “improper motive” provision, as contained in paragraph 81 of Schedule B1 to the Insolvency Act 1986 (“Paragraph 81”). Paragraph 81 provides that the court may terminate an administration where the appointor had an ‘improper motive’ for making the appointment. 

The case facts for Thomas & another v Frogmore Real Estate Partners GP1 Limited & others [2017] EWHC 25 (Ch) are as follows. The High Court was asked to consider  the validity of an appointment of administrators by a qualifying floating charge-holder (“QFCH”) over three Jersey-registered companies (“the Companies”), whose main operations and assets were based in England. The administrators applied for a declaration that the Companies’ centres of main interest were in England and hence that their appointments were valid. The directors and the sole shareholder of the Companies cross-applied that administrators’ appointment be terminated under Paragraph 81, alleging that the QFCH’s improper motive for the appointment was to stifle litigation brought against it by the Companies.

In coming to its decision, the Court was persuaded by the reasoning set out in the Northern Irish case of Cursitan v Keenan [2011] NICh 23, which concerned an equivalent provision to Paragraph 81 as contained within the Northern Irish legislation.  In that case, it was held that the appointment of administrators could be vitiated if caused by an improper motive; however, where the purpose of the administration was still capable of being fulfilled, any improper motivation by the appointor would not of itself be sufficient to invalidate the appointment. 

The High Court therefore concluded that even where there is finding of an improper motive, the court has a wide discretion as to whether to terminate an administration, stating: “If the statutory purpose of administration would be likely to be achieved, notwithstanding the motives of the appointor, like McCloskey J. in Cursitan it seems to me that this would normally be the main touchstone for the court. The existence of an improper motive may become of relative insignificance in such circumstances, particularly where the appointor's improper objective was not actually achieved.”

On the facts, the Court found that the statutory purpose was reasonably likely to be achieved and therefore it was not necessary to consider whether the QFCH had an improper motive in making the appointment; however the Court did go on to find that there was no improper motive here. The Companies’ centres of main interest were also found to be in England, meaning that the administrators’ appointments were held to be valid.

This judgment is reassuring for administrators and potential appointors alike. The court appears reluctant to interfere with the appointment of administrators even in circumstances where Paragraph 81 might otherwise be invoked; as long as the statutory purpose of administration is reasonably likely to be achieved, the motivation for the appointment is irrelevant. 

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Tim Carter, Lucy Walker

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