Court Validates Liquidation Process of OAS Realisations (2022) Ltd

Introduction

On 30 January 2024, the High Court heard an application by the joint administrators of OAS Realisations (2022) Ltd ('the company'), under section 112(1) of, and/or paragraph 12(1)(c) of Schedule B1 to, the Insolvency Act 1986. The primary relief sought by the application were three declarations relating to their own and the company's status.

The declarations sought were: (a) the Company moved from administration to creditors' voluntary liquidation on 21 February 2023; (b) the Applicants' appointment as joint administrators of the Company ceased to have effect from that time; and (c) the Applicants were appointed as liquidators of the Company at that time.

In the alternative, the application sought an administration order in relation to the company, appointing the applicants as joint administrators with effect from 3 March 2023.

Background

On 3 March 2022, the Applicants were appointed as joint administrators of the Company by its directors. On the same day, the Administrators completed a prepackaged sale of the Company's business and assets. Following the sale, the Applicants concluded that they would likely be able to pay a dividend to the Company's secondary preferential creditors but not to ordinary unsecured creditors.

By January 2023, the applicants considered whether to seek an extension of their term of office but concluded that it was more appropriate for the Company to move into liquidation. On 27 January 2023, the applicants sought advice from their solicitor, Andrew Knox, who advised that they were entitled to convert the administration into a creditors' voluntary liquidation.

On 14 February 2023, acting on Mr. Knox's advice, the Applicants sent a notice to the Registrar of Companies under paragraph 83(3) Sch B1 IA, which was registered on 21 February 2023. However, on 5 September 2023, the Applicants' external compliance reviewer raised concerns about the validity of this process.

The Relevant Law

Schedule B1 to the Insolvency Act 1986 deals with administration as an insolvency process. Paragraph 83 of the schedule deals with moving a company from administration to a creditors' voluntary liquidation. The key issue was whether the preferential creditors were considered 'unsecured creditors' for the purpose of paragraph 83(1)(b).

According to section 248 of the Act, an 'unsecured creditor' is a creditor who does not hold security over the property of the company. Preferential creditors, who have priority over other creditors but do not hold security, are therefore considered unsecured creditors.

Discussion

The court found that the administrators had reasonable grounds for their interpretation of paragraph 83. The administrators, acting on legal advice, believed that the conditions in paragraph 83(1) were satisfied, which justified their actions.

The court also referenced the case of Unidair plc v Cohen, where it was held that the administrator's belief, even if based on incorrect legal advice, was sufficient to satisfy the conditions of paragraph 83.

Conclusion

The court validated the liquidation process of OAS Realisations (2022) Ltd, granting the declarations sought by the applicants. This decision sets a precedent for the interpretation of 'unsecured creditors' in insolvency procedures.

This case underscores the importance of legal advice in insolvency proceedings and the court's willingness to uphold decisions made in good faith by administrators.