The Insolvency Service have held a long-established view that creditors are classed as such at the point of entry into an insolvency process. This view was brought into question and challenged in the cases of Pindar and Toogood where in essence the judges (after considering the definition of secured creditor in s248 of the Insolvency Act 1986) determined for slightly different reasons that paid secured creditors did not fall within the s248 definition for the purposes of obtaining consent to an administration extension.
Despite those cases there was still uncertainty in the market about how to treat paid secured creditors.
However (some) of that uncertainty has now been addressed in Dear IP 168 in which the Insolvency Service confirm that they have “reframed” their view and that a creditor is no longer set in stone at the commencement of an insolvency. Instead, an officeholder has discretion to determine whether a creditor is a creditor for the purposes of a specific insolvency provision. Saying that:
On some occasions the term will detach from a creditor once they are paid, but in others it will remain.”
This will give practitioners more leeway to make sensible, commercial and practical decisions when deciding on such matters as which creditors need to consent to an administration extension or approve remuneration – but it doesn’t answer all questions, not least what should an officeholder do if all secured creditors have been paid and there are no other creditors who can consent/approve.
Our alert gives a bit more detail about the background, and although this Dear IP is welcome, there are still many questions that may only be answered with further intervention by the Insolvency Service, or via Court assistance.
