No, it isn’t.  We now have two cases where the Court has decided that the consent of paid secured creditors is not required when extending an administration under para. 78 of Schedule B1 of the Insolvency Act 1986 (the “Act”).

In Boughey & Anor v Toogood International Transport and Agricultural Services Ltd [2024] EWHC 1425 (Ch) (“Toogood”) the judge agreed with the conclusions reached in the recent Pindar case – see our blog on this – concerning the interpretation of s248 of the Act.  Agreeing that is it clear that a secured creditor as defined in s248, is a creditor who “holds” (in other words still has) a security.  The judge in Toogood elaborated on this further saying that even if it was possible to construe “security” in s248 as referencing security for a debt of zero, s248 still refers to “creditor”, saying that a creditor who has been repaid is no longer such.

The judges in both cases were referred to the Insolvency Service’s view that a creditor is defined at the point of entry into a process – see the First Review of the Insolvency Rules.  But neither found favour with this.  In Toogood the judge said there was nothing in the legislation that compelled that conclusion and said:

“Only those who have an economic interest in the outcome should be concerned to make decisions about the continuance of the administration”

This view is consistent with the approach taken in the other cases which are referenced in the judgment and it is also consistent with discussions in parliament regarding para.78 at the time the legislation was debated in the Lords where the view was expressed that including creditors in decisions where they have no financial stake “would simply add unnecessary administrative burdens and costs to the administration”.

Having flagged a few words of warning in our previous blog and suggested readers take a cautious approach and seek the consent of all secured creditors – whether paid or not – the judiciary have been very firm on how s248 should be interpreted. In fact, making strong comments in Toogood about the Insolvency Service’s view:

“If the Government wishes there to be a different result, then it must legislate more clearly than it has done, and moreover explain why those with no economic interest in the outcome of an administration should nevertheless determine what happens.”

The judge in Toogood also noted: “There is no reason why a commercial organisation such as a bank that has been repaid in full should have to be bothered thereafter with making decisions about administrations that no longer affect it.  Why should it spend its time, unremunerated, to do so?”  This is a fair reflection of the attitude many secured lenders already have.

But does this mean that we should be less cautious given we have two cases that conclude the same?

The answer is difficult because there are always niggling questions of doubt where applications are uncontested or (as it was in Toogood) dealt with on paper because they do not carry as much weight as, for example, a decision of the Court of Appeal. Ideally we need a higher court to make a ruling on this question to be certain.

For the cautious amongst us proceeding on the footing that the consent of both paid and unpaid secured creditors is required is the safest bet. There is no harm in asking for consent from all however, will paid creditors engage – probably not. It was difficult enough to extract the consent of paid secured creditors before these decisions and as the judge in Toogood notes, why should they? Understandably a paid secured creditor may be reluctant to be involved in decisions which ultimately do not affect them, but they could, if concerned, caveat their consent to reflect that and providing their consent means that office holders do not have to go to the additional cost of a court application to extend or verify they are in office.

Can you get a consenusal extention when all secured creditors have been paid?

We queried in our previous blog whether practitioners could get a consensual extension where all secured creditors have been paid in full. Toogood suggests that “if all the creditors have been paid off, there are no creditors with an interest in the outcome, and the court should take the decision” but that does not answer the question: what if you have paid secured creditors but all other creditors are unpaid – can you ask that class of creditor and that class alone for consent?

Given the position remains unclear, the cautious approach is to apply where all secured creditors have been paid given that the consequences of getting the first extension wrong can lead to an invalid extension.

Will leaving £1 outstanding to a secured creditors (to have the ability to extend the administration by consent) provide a solution?

Although leaving £1 does provide a mechanism for an extension by consent it seems unlikely that secured creditors will engage for the sake of £1 and even if they are willing to consent, we would not expect the judiciary to look favourably on this practice given that both Pindar and Toogood emphasis the need for decisions to be made by those creditors with an economic interest.

Concluding Thoughts

If all secured creditors have been paid it seems the safest option is to apply to court to extend at the end of the one year anniversary.

If there are both paid and unpaid secured creditors ideally practitioners should ask for the consent of both. If they obtain consent from both then they can be certain that all of the correct consents have been obtained and the extension is valid. If paid secured creditors do not consent there appears to be two options at that point

(a) apply to court to be certain the extension is valid; or

(b) proceed on the basis of the consent of the unpaid secured creditors only as the insolvency practitioners did in Pindar and Toogood. Although there is some risk with this for reasons noted in this blog and practitioners will need to consider that risk and the possibility that they may need to ask the court to remedy the position if these decisions are not followed in the future.

Do these decisions impact other decisions that require secured creditor consent?

Maybe, given that the judge in Toogood held:

“that a secured creditor whose debt is paid off ceases to be a secured creditor for the purposes of Schedule B1 of the 1986 Act, and its consent is no longer needed for any decision requiring the consent of such a creditor”

As to the practical solutions for dealing with, for example, remuneration approval, we’ll leave that for another blog.