Partner David Murray, in our Dispute Resolution team, discusses the situation involving Debenhams, after the UK's largest department store entered administration.
If The Guardian is to be believed, then lawyers acting for Sports Direct have written to the newly appointed Debenhams’ Administrators threatening to remove them and unwind the whole process.
Mind you, if I held shares in a company valued at circa £300 million last year which are now likely to be worthless, I wouldn’t be too happy either.
Whilst it is unclear from The Guardian just what the lawyers acting for Sports Direct are proposing, how might one go about the rare step of seeking to remove an Administrator or terminating the Administration of a company?
At paragraph 88 of Schedule B1 of the Insolvency Act 1986 is a very short paragraph simply stating that the Court may, by order, remove an Administrator from office. No further clarification is given so one is thrown back on how the Courts have interpreted the paragraph. The Court of Appeal in the case of Finnerty and another v Clark and another  made it clear that the Courts will be reluctant to remove an Administrator under paragraph 88 unless a good or sufficient ground can be shown for removal. The Court of Appeal determined that if an Administrator acts in an unbiased manner and was entitled to reach a decision on the basis of the material before him then that is not enough of itself to remove the Administrator, even if another Administrator might have reached a different conclusion. In such a case it is the decision which should be challenged in the Courts not the removal of the Administrator. It will not be enough to remove an Administrator under paragraph 88 to simply disagree with any decision reached by an Administrator.
However, the Insolvency Act 1986 at paragraph 81 of Schedule B1 does provide for the ending of an Administration on the application of a creditor of the company if an improper motive on the part of the person who applied for the administration order or who appointed the administrator can be shown. As with paragraph 88, the provisions of paragraph 81 are rarely invoked. Equally the Courts have set a high bar for ending an Administration under the provisions of paragraph 81. In the case of Thomas and another v Frogmore Real Estate Partners  the High Court found that even the establishment of an improper motive did not automatically mean the termination of an Administration. It stated that the Court had a wide discretion such that, even if improper motive could be established, in the absence of satisfactory evidence that the statutory purposes of the Administration were not likely to be achieved, the Court would be reluctant to terminate an Administration.
Accordingly, whilst Mike Ashley might not be happy, it is not a simple task to remove Administrators or terminate an Administration. Given the scarcity of legal authority on these points we shall watch developments with great interest.
If you or your company have been adversely impacted by insolvency, whether your own or third party insolvency, it is important that legal advice is obtained quickly.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.