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Applications to disapply the prescribed part in an administration

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Applications to disapply the prescribed part in an administration

15 December 2010

James Bernard Stephen and David John Hill, Joint Administrators of QMD Hotels Limited [2010] CSOH 168

The joint administrators of a company applied for an order in terms of Section 176A(5) of the Insolvency Act 1986, disapplying Section 176A(2) of that Act, which requires them to make a "prescribed part" of the company's net property available to satisfy the claims of unsecured creditors. The basis for the application was that the costs of making a distribution would be disproportionate to the benefits.

Unsecured creditors' claims were estimated to amount to approximately £279,000. The prescribed amounted to approximately £5,700. The administrators estimated that their reasonable costs for adjudicating upon the unsecured creditors' claims and making a distribution would be in the region of £5,000. Taking those reasonable costs into account, the prescribed part available for distribution to creditors would amount to just £700, resulting in a dividend of no more than 0.2 pence in the pound.  

Taking account of the decision of the English courts in the case of Re Hydroserve Limited [2008] BCC 175, Lord Glennie held that the court should not be too ready too disapply Section 176A(2) simply because the dividend to unsecured creditors would be small. He held that the court should ask whether the incurring of the estimated costs is reasonably necessary. It may be that some "rough and ready adjudication" can be carried out, which would result in a dividend (albeit small) being paid to unsecured creditors. The intention of Parliament was to ensure that a sum would be payable to unsecured creditors. The court should endeavour to ensure that an already small dividend to creditors should not further be reduced by "an overzealous approach" to the adjudication of such claims.

He refused the application, directing the administrators to do no more than was necessary to effect payment of a dividend to creditors without carrying out further investigations into the merits of the unsecured creditors' claims.

Susan Ower of Axiom acted for the Joint Administrators.