Court’s power to sanction distribution

In re Lune Metal Products Ltd (in administration) CA TLR 27 December

There are three different possible sources for the court’s power to sanction, or order, an administrator to make pro-rata payments to creditors prior to the coming into force of the Enterprise Act 2002. The administrations of many companies were still governed by s18(3) of the Insolvency Act 1986, to which the amendments brought in by the 2002 Act had no application. Neither s14(3) (the court’s inherent jurisdiction) nor s18(3) (the power of the court to make any other order it thought fit) nor the administrators’ powers in Schedule 1 to the 1986 Act, bestowed the jurisdiction to make the order sought on a free-standing application by administrators to sanction or order the making of a distribution repaying preferential creditors in full and unsecured creditors on the same basis as if payment were made during compulsory liquidation. However, the court could entertain an application to make such a distribution if it was ancillary to an application for discharge of the administration order. Accordingly, the court considered and allowed an amendment to the original application to apply for discharge of the administration order. The proposed distribution would avoid the costs and delay of a company voluntary arrangement or indeed a compulsory liquidation and should facilitate the achievement of the relatively simpler and cheaper exit route afforded by s652 of the Companies Act 1985.