When a company enters administration, the administrators must set out proposals explaining how they intend to achieve the purpose of the administration, but what happens when creditors refuse to approve those proposals? A recent decision in Re PPE Medpro Limited (in Administration) [2025] EWHC 3449 (Ch) (“PPE Medpro”) provides important clarification.
The Statutory Framework
Paragraph 49(1) of Schedule B1 to the Insolvency Act 1986 (the “IA86”) requires an administrator to produce proposals explaining how the relevant statutory purpose of the administration is to be achieved. Those proposals must be put to creditors for approval.
Where creditors fail to approve the proposals or a revision of the proposals, paragraph 55 of Schedule B1 to the IA86 provides that, upon the administrator reporting the outcome to the court, the court may:
- provide that the appointment of an administrator shall cease to have effect from a specified time;
- adjourn the hearing conditionally or unconditionally;
- make an interim order;
- make an order on a petition for winding up suspended by virtue of paragraph 40(1)(b); or
- make any other order that the court thinks appropriate.
Are administrators required to apply for court directions where a proposal is rejected?
Although paragraph 55 does not explicitly state that administrators must apply to court for directions, the view supported by multiple authorities is that they are required to do so. The recent decision in PPE Medpro affirms this view.
In Platinum Developed Ltd v Assignees Ltd (unreported, October 2009) Mann J held that a rejection triggers an obligation on administrators to bring the matter before the court. This was reaffirmed in Re BTR (UK) Ltd (Lavin v Swindell) [2012] EWHC 2398 (Ch) where Judge Behrens took the view that the obligation to apply to the court was implicit in the language of paragraph 55.
However, one notable outlier is Parmeko Holdings Ltd [2013] EWHC B32 (Ch). In this case the administrators had applied to the court for directions following their proposals not being approved, inviting the court to make an order to approve the proposals.
The court did not do so, nor did the judge make any order to place the company into liquidation or end the administration. But the facts of this case are somewhat different to others. Here no creditors attended the meeting to vote on the proposals (in the days when there were physical meetings) and no creditors submitted a vote or provided a written proxy. Unlike in PPE Medpro, where creditors voted against the proposals and had a strong view that they wanted the company to be placed into liquidation, in Parmeko there was no opposition or creditor view that sought to challenge what the administrators hoped to achieve. The administrators did not seek an order to place the company into liquidation, and it was their view that it would not be in the interests of creditors to do so.
Faced with those somewhat unusual circumstances – no creditor votes, engagement or views – the judge thought it inappropriate to give directions when the administrators had extensive powers under Schedule B1 and the authority to exercise them in such a manner as they thought fit for the purposes of fulfilling the purpose of the administration.
The judge noted that the position might have been different if creditors had expressed a view (whether voting or not) on what should happen, or the directors wanted the company to go into liquidation.
In the majority of cases, where proposals are not approved it is likely that creditors will have voted against them, and therefore PPE Medpro provides a useful reminderthat the administrato is obliged to apply for directions and that the views of creditors will likely be paramount when the court is deciding what to do.
PPE Medpro
Background
PPE Medpro Limited was incorporated in May 2020 to sell personal protective equipment during Covid. It entered two major contracts with the Department of Health and Social Care (“DHSC”), including a £122 million surgical-gowns contract. DHSC concluded that the gowns were not compliant and issued a claim against the company for breach of contract.
In May 2022, the company obtained secured funding from Angelo (PTC) Ltd (“PTC”). When the company failed to repay the loan, PTC appointed administrators over the company.
The day after appointment, judgment was handed down in DHSC’s claim, awarding DHSC around £148 million. This made DHSC the company’s largest unsecured creditor, representing at least 70% of the unsecured debt.
The administrators circulated proposals based on the objective in paragraph 3(1)(c) of Schedule B1 to the IA86: realising property to make a distribution to a secured creditor. DHSC voted against the proposals, citing concerns around the appointment and the need for a full investigation into the company’s affairs.
The court’s approach under Paragraph 55
In considering the administrators’ application under paragraph 55, Judge Prentis confirmed that “the law is also that the [Administrators] were obliged to make this application given the total failure of the proposals”. He explained that paragraph 68(1) of Schedule B1 to the IA86 requires administrators to manage the company’s affairs, business and property in accordance any approved proposals and, as such, in the absence of approval, administrators “must obviously seek guidance”. He went on to affirm this view in paragraph 17 stating “the administrators have been bound to make this application”.
These statements amount to clear judicial endorsement that where proposals are rejected, administrators must apply for court directions as to what they should do.
The court ultimately ordered that the company should be placed into compulsory liquidation, reflecting the need for a full investigation by the Official Receiver and placing great weight on the views of the majority creditor.
Key Takeaways for R&I Professionals
- Rejected proposals require court directions
PPE Medpro confirms that where administrators’ proposals are not approved, administrators are obliged to apply to the court for directions under paragraph 55 of Schedule B1 to the IA86.
- Acting without approval creates exposure
Continuing to act following rejection of proposals, without seeking court directions, risks administrators acting outside their statutory powers and facing challenge.
- Parmeko is a narrow exception
While Parmeko remains good law, it should be treated as fact-specific and exceptional. It does not displace the general obligation to apply to court.
- Creditor views carry significant weight
The court will give considerable weight to the position of the majority creditor, particularly where investigatory concerns are raised. Therefore, if the majority creditors have a strong view that the company should, for example, be placed into compulsory liquidation the court is likely to exercise its power under paragraph 55 to do so.
- Risk-managed approach: apply promptly
As a matter of prudence, an application under paragraph 55 should be treated as the default response where proposals are rejected.
