Angel Group Ltd & Ors, Re.

Factual and Procedural Background

The companies involved owned significant residential and commercial properties rented out, financed by substantial borrowing from Bank A, which held security over their assets. The companies provided residential accommodation to asylum seekers under contract with the UK Border Agency. In 2012, the companies incurred debts, leading to disputes and the appointment of administrators over the parent and subsidiary companies at various times between October 2012 and April 2013. The administrators' terms were extended until late 2015 and 2016, with Mr Croxon and Ms Moriarty of Company B acting as current administrators.

The companies sold most properties to reduce debts, but over £20 million remained owed to Bank A, the sole secured creditor and majority unsecured creditor. Ms Davey and her company Angelic Interiors Ltd also claimed creditor status. The administrators intended to investigate claims against Ms Davey for allegedly unlawful extraction of funds and fraudulent transactions, while Ms Davey alleged claims against Bank A and Company B for breach of contract, negligence, misrepresentation, conspiracy, and misfeasance, asserting that Bank A and Company B artificially distressed the companies to force insolvency.

Ms Davey further complained about conflicts of interest by the administrators due to prior involvement with Bank A, alleging failure to investigate claims against third parties and allowing limitation periods to expire. She and Angelic Interiors applied for removal of the administrators.

All parties agreed that liquidation was the best course, with the current administrators to step down and four new liquidators appointed—two nominated by Bank A and two by Ms Davey. The new liquidators from Firms C and D agreed to pursue claims against the bank and Ms Davey respectively. A complex set of interrelated applications was presented, including the appointment of new administrators with limited functions, winding up petitions by the companies, approval of a memorandum of understanding (MOU) among the liquidators, discharge of the current administrators, and management of costs and prior applications.

Legal Issues Presented

1. Whether the companies should be wound up on the grounds of insolvency and just and equitable grounds.
2. The appropriate procedure for the appointment of new administrators and liquidators to replace the current administrators.
3. The court’s jurisdiction to approve a memorandum of understanding regulating the roles and responsibilities of joint liquidators, including management of conflicts of interest.
4. Whether and on what terms the current administrators should be discharged from liability under paragraph 98 of Schedule B1 of the Insolvency Act 1986.
5. The extent to which discharge of administrators may be postponed, particularly in light of ongoing investigations and potential claims against them.

Arguments of the Parties

Administrators' Arguments

• They seek discharge from liability under paragraph 98 of Schedule B1 with a limited postponement period to allow for claims made by liquidators within six months of liquidation.
• They argue that the framework of paragraphs 98 and 75 of Schedule B1 provides adequate protection and control over their discharge and potential claims.
• They submitted that the discharge should not be postponed indefinitely and that the usual practice is appropriate here.

Ms Davey's Arguments

• Ms Davey and her nominees argue for removal of the current administrators due to conflicts of interest and failure to pursue claims against third parties.
• They request a lengthy postponement of discharge, proposing three years or indefinite postponement, to allow thorough investigation of complex claims, including those against the bank and UK Border Agency.
• They contend that the complexity and volume of documentation require substantial time for investigation and that claims must be prioritized to avoid expiration of limitation periods.
• They express concern that discharge of administrators would force the liquidators to initiate costly and time-consuming applications under paragraph 75 to pursue claims against them.

Bank's and Bank Nominees' Arguments

• Bank A and its nominees support the appointment of the four new practitioners and the winding up of the companies.
• They submit that the appointment of the Official Receiver is undesirable and that the proposed mechanism of appointing new administrators with limited functions prior to liquidation is the best practical approach.
• They support the approval of the MOU to manage roles and conflicts among liquidators.

Table of Precedents Cited

Court's Reasoning and Analysis

The court accepted that all companies were insolvent and that it was just and equitable for them to be wound up. The parties agreed on the appointment of four new insolvency practitioners as administrators with limited functions, who would then be appointed liquidators, thus avoiding the undesirable appointment of the Official Receiver. This approach was supported by section 140 of the Insolvency Act, allowing the court to appoint liquidators who had been administrators immediately before the winding up order.

The court considered the memorandum of understanding (MOU) among the liquidators, which delineated their roles, responsibilities, and access to documents, aiming to manage and avoid conflicts of interest. The court found section 168(3) of the Insolvency Act the appropriate statutory basis to approve the MOU, supported by case law emphasizing pragmatic management of conflicts.

Regarding the discharge of the current administrators, the court analysed paragraphs 98 and 75 of Schedule B1, which provide a framework for discharge from liability upon cessation of administration, with the possibility of continued court oversight for misconduct claims. The court rejected the request for an unusually long postponement of discharge, noting that the usual practice is to allow a short delay to enable investigations.

The court acknowledged the complexity and volume of claims and documentation but emphasized the need for discipline and proportionality in investigations to avoid excessive costs eroding creditor returns. It found no justification for indefinite postponement of discharge and highlighted that any claims outside the paragraph 75 framework would require separate consideration in due course.

The court accepted that the liquidators could prioritize claims and that existing standstill agreements allowed time for decision-making. It also rejected arguments that discharge postponement should be extended to avoid costly litigation over claims against administrators, emphasizing that improper contestation could be sanctioned.

Holding and Implications

The court ordered the winding up of the companies, appointed the four nominated insolvency practitioners as administrators with limited functions and then as joint liquidators, and approved the memorandum of understanding regulating their conduct.

The court granted the discharge of the current administrators under paragraph 98 of Schedule B1 to take effect 21 days after compliance with the relevant procedural rule, except for claims made within six months of liquidation. The court declined to postpone discharge for the extended periods sought by Ms Davey and her nominees.

The decision facilitates an orderly transition from administration to liquidation with a structured approach to managing conflicts and investigations. It does not set new precedent on discharge postponement but confirms the appropriateness of the established statutory framework balancing protection of administrators and creditor interests.