Court warns that Administration extensions are not automatic
Lord Braid has fired a warning shot across the bows of insolvency practitioners, emphasising that approval of requests to extend Administrations should not be taken for granted.
Lord Braid was considering an application to extend the Administration of PSL2021 Realisations Ltd (PSL) (formerly Peacocks Stores Ltd) which had entered administration on 19 November 2020. The company had one secured creditor, Banbury Street Limited (BSL), preferred creditors for unpaid wages and over 1,000 unsecured creditors with claims around £70 million. The administrators projected a shortfall for BSL and no dividend for unsecured creditors except for the prescribed part under section 176(A)(2)(a) of the Insolvency Act 1986.
The Administration had already been extended three times, with the joint administrators applying for a fourth extension to 16 November 2025. The joint administrators argued that the administration's complexity, the large number of stores, ongoing negotiations with landlords, and pending distribution of the prescribed part justified the extension.
Court's Considerations and Concerns
In his published Opinion, Lord Braid, acknowledged the case's complexity but emphasised that administration extensions shouldn't be regarded as routine. His concerns stemmed from several factors including:
- Lack of justification for extension: Details of the outstanding matters to be addressed and which required the extension were provided in a substantial list. Lord Braid questioned why certain tasks remained outstanding. In particular he highlighted the similarity in wording of several progress reports over the four-year period indicating that matters that had been expected to be progressed or concluded hadn’t been given attention in the intervening periods. He expressed concern over the repeated delays in finalising matters like trading accounts and investigations into director conduct.
- Inadequate notice to creditors: Lord Braid stressed the importance of informing all creditors about extension applications and providing them with an opportunity to object, even although this is not a requirement under the legislation. He was not satisfied that in the present application sufficient opportunity had been given to creditors to raise any concerns. It was fortunate that the application for an extension in this case had been submitted in sufficient time that remedial steps were able to be taken, with the case continued for a subsequent hearing, to allow further notification to creditors.
- Potential for complacency: An assumption that extensions will be readily granted could discourage administrators from actively working towards timely completion.
Despite reservations, Lord Braid granted the 12-month extension. However, he emphasised that future extensions weren't guaranteed and urged the administrators to demonstrate tangible progress.
Key lessons for insolvency practitioners
It is clear that the actions of insolvency practitioners are coming under increased scrutiny by the Courts. It is important that a clear understanding of the Court’s concerns and what can be done to address those concerns are actioned.
Extensions should be sought only when genuinely necessary and justified. Cases require to be actively managed to ensure timely completion, avoiding complacency and unnecessary delays.
Clear and timely communication with all creditors, including those unlikely to receive a dividend, is expected. Comprehensive information about extension applications with a reasonable opportunity for objections must be provided. Progress reports should not just be carried forward and updated, or template wording used. Progress reports are expected to be meaningful and tailored to the circumstances at that time with appropriate explanation of why progress has not been made on matters highlighted in previous reports, if appropriate.
Applications for extensions should provide a thorough explanation for the need for additional time, addressing any past delays and outlining specific steps to be taken within the extended period. Applicants should consider applying for shorter extension periods than 12 months, particularly where the application is to allow matters to be finalised. This may address the Court’s concern about timely completion of the administration.
Finally, as an aside, Lord Braid noted that the administration appeared to be ‘losing days’ from the anniversary because of extension applications. An administration which takes effect on (say) 1 January 2025 will cease to have effect on 31 December 2025. If a year-long extension is sought, it should be to 31 December 2026 rather than from 31 December 2025 as it would then expire on 30 December 2026, resulting in a day being lost. While this may seem a minor point, it is a very practical point as it ensures that there is a consistent annual end period, including for reporting purposes.
