Pindar Scarborough Ltd case: which secured creditor’s consent to an administrator’s appointment is required?

It was, until recently, understood that it was prudent to obtain the consent of all creditors holding security as at the appointment of the administrators. This flowed from the commentary of the Insolvency Service on rule 15.11, creditor approval of proposals and fees, in its first review of Insolvency Rules (England and Wales) 2016.

This rule provided which creditors were required to be given notice on deemed consents procedures, the Insolvency Service ‘clarified that classification of a creditor is set at the time of point of entry into the procedure…. even if payment in full is subsequently made’.

This article looks into the Pindar Scarborough Ltd case in detail, which highlights that it is those secured creditors which are owed sums whose consent is required.

Background of the Pindar Scarborough Ltd case

The court was asked to rectify any defect caused by failing to secure the consent of Barclays before extending the period of the administration in March 2023, in circumstances where Barclays had confirmed they had no economic interest; they had by that time been paid in full. 

ICC Judge Prentis considered the need to consult with a secured creditor which had been repaid in full, before the administrators sought consent to extend the administration. 

What did the court decide? 

ICC Judge Prentis found the commentary refer to above created ambiguity. In applying a straightforward reading of section 248 Insolvency Act 1986, which defines who is a secured creditor and ‘is framed in the present tense, by the time [paragraph 78 was engaged]... Barclays was no longer a creditor’.  

Having considered various provisions of the Insolvency Act 1986 and the Insolvency Rules (England and Wales) 2016 and found following tangential authorities’ supporting application of the concept of ‘economic interest’, ICC Judge Prentis determined that Barclays was not a secured creditor - it was by that time, ‘out of the money’. 

Judicial support

In June 2024, applying the same authorities, Judge Matthews sitting in the Business and Property Courts in Bristol in the Re Toogood International Transfer and Agricultural Services Ltd case determined that the definition of secured creditor should be construed as drafted, in the present tense, such that if the secured creditor’s debt has been repaid, they were no longer a creditor, and had no economic interest in the decision-making. This applied to circumstances where an extension was procured with the consent of HSBC, on grounds they were still creditors, but omitting any consent of other HSBC entities with charges still registered at Companies House, but with no economic interest. Their debts had been repaid in full prior to the appointment of administrators.

For more information, please contact the restructuring and insolvency team.