In this case, administrators were appointed in March 2022. They completed a pre-pack sale following which they calculated they would be able to pay a dividend of 59.1p to HMRC (the company’s secondary preferential creditor), but there would be insufficient to pay anything to any other creditors.
In February 2023, the administrators filed a notice under Paragraph 83(3) Sch B1 to move the company from administration to CVL after receiving legal advice this route was possible. This paragraph allows administrators to covert the administration to a CVL on the filing of a prescribed notice. However, it applies only where the administrator thinks secured creditors have been paid in full, or sufficient funds are set aside for them, and a distribution will be made to unsecured creditors other than from the prescribed part.
The question that arose sometime later is whether Paragraph 83 could apply in circumstances where only a preferential creditor would receive a distribution, but unsecured creditors would not. That turned on the interpretation of “unsecured creditor” for these purposes. HHJ Paul Matthews took the view that HMRC were not secured - they were unsecured creditors who were preferential.
Paragraph 83 did not exclude preferential creditors from its application, and so the move to CVL was valid, even though ordinary unsecured creditors were not expected to receive any distribution. Even if that interpretation was incorrect, office holders could rely on Paragraph 83 as long as they thought the conditions in it were met. In this case, that view was reached on professional advice and that was a reasonable conclusion to form.
This is a pragmatic decision and it potentially paves the way for administrators to move a company to CVL in circumstances where, in the past, an application to court might be needed. That said, the reasoning seeks to treats all preferential creditors as unsecured creditors unless the context in the Insolvency Act sets out otherwise.
The Insolvency Act does not always treat the two the same (certainly not with the scrupulous level of care the judge suggested it may) and preferential creditors are not on an equal footing to unsecured creditors. It remains to be seen whether this decision creates some unintended consequences in situations other than a move from administration to CVL.
OAS Realisations (2022) Limited [2024] EWHC 1491
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