Guidance issued by the Scottish Courts on extending an administrator's term of office

The court's role in overseeing certain insolvency procedures can often be overlooked. In a recent decision on an application to extend an administration, we have a timely reminder of how seriously the Scottish courts takes their role, the decision provides some helpful guidance for insolvency practitioners on what is required when dealing with these types of application.

The administrators were seeking to extend the administration for a period of 12 months - a type of application that administrators make to the court on a regular basis. However, in this case, the administration had already been extended once by way of consent of the company's creditors and twice by order of the court. Given that the administration was going to enter its fifth full year and in light of concerns regarding the level of information initially provided to the court in support of the application, the judge elected to issue a written opinion of his decision – in the hope, no doubt, that this will encourage a better practice going forward.

Background

The company was formerly known as Peacocks Stores Limited and prior to its administration traded across the UK, Republic of Ireland and the Channel Islands. It had over 4,500 employees across 503 stores. The administration was large and complex, described by the administrators as one of the largest retail administrations in Scotland in recent times. While a sale of part of the business had been achieved in April 2021, the administrators still had a number of tasks to complete, including

• the transfer of the company's business and assets to the purchaser;
• dealing with leasehold interests that fell outside the purchaser's requirements;
• facilitating the ongoing interrogation of the company’s records to identify and secure repayment of any amounts due and owing to the company;
• investigations into the affairs and transactions of the company, as well as the conduct of directors; and
• the review and determination of all unsecured creditor claims in order to ensure that all unsecured creditors receive their appropriate share of the prescribed part.

It was on the basis of this further work that in October 2024 an application was made to the court for a further extension of the administration for the period of 12 months. In the progress report sent to creditors on 30 May 2024, it was said that

“The progress of the administration will remain under regular review and this will in part be predicated by the speed of completion on the outstanding property aspects amongst other outstanding/ongoing realisations and/or investigations plus the prescribed part dividend. All creditors will be updated in the next progress report on developments and likely longevity of the process to reach a resolution. It is envisaged that a further extension will be sought by application to court during the current period."

Intimation to Creditors

The judge was not happy with the intimation given to creditors in the progress report as it failed to (a) inform the creditors of the length of the extension that would be required and (b) invite creditors to write to the administrators by a specified date should they wish to object to a further extension.

Thankfully, there was sufficient time between the initial hearing of the application and the expiry of the administration for these matters to be rectified, but the judge was clear that meaningful notice to creditors will include giving the reasons for why an extension is necessary; the length of extension being sought and affording an opportunity for the creditor to object.

While the judge did not rule out such intimation being given within a progress report, it might be difficult for administrators some six months before the time that an extension is required to provide the level of information that the court wants to see provided to the creditors. Therefore, while increasing costs, a separate communication to the creditors might be needed.

The need for written approval from the secured creditor to any extension has, like providing prior intimation to the unsecured creditors, been a practice developed by the court rather than anything specified in the legislation. There is nothing in the decision to suggest that this practice should not continue. The views of the secured creditor will not of course be determinative, but the court will take the views of the secured creditor (and presumably any unsecured creditors who do object to the extension) into account when deciding whether to extend the administration, and if so, for what length of time.

What the court will look for

The judge endorsed the four questions identified by the English Court in the case of TPS Investments (UK) Ltd (In Administration) [2020] BCC 437 that tend to arise in extension applications, namely

(i) why has the administration not yet been completed?

(ii) is any alternative insolvency regime more suitable?

(iii) is the extension sought likely to achieve the purpose of the administration?

(iv) if an extension is appropriate, for how long should it be granted?

As noted above, it is clear that any Scottish Court will also ask whether the creditors have been given adequate notice of the intention to seek an extension.

In this case, the judge ultimately decided that an extension of 12 months was appropriate. However, in doing so, the judge identified the following matters that any administrator will be well advised to bear in mind when applying for extensions in the future:-

• there is a danger that extensions are too readily granted by the court and so expect applications to be given careful scrutiny by the court.
• where an administration has been extended to allow for certain tasks to be completed and a further extension is required for those very same reasons, the court will expect an explanation of why they have been unable to complete those steps. An example given by the judge was investigation of the directors – it was noted that this task had been mentioned in every progress report but was clearly still ongoing. It will be necessary to explain what has been done, and why more time is needed for the court to be persuaded that this is a good ground for extending an administration.
• there is no "policy" of not granting a one year extension, or indeed a policy of only granting a one year extension - the key is what period is appropriate in the given circumstances of the case. It might be that 6 months is appropriate. In other cases two or three years might be appropriate (although we would suggest that it will only be exceptional cases where such long extensions will be granted).

Timing of applications

The judge remarked that the court is on occasion presented with an application to be dealt with as a matter of urgency, because the administration is due to expire in a matter of days. The judge was clear that this is far from satisfactory. The court must be afforded sufficient time for applications to be considered properly.

In England, there is a practice direction on insolvency proceedings that requires an application to be made not less than one month before the end of the administration and many are often made well in advance of that deadline. If an administrator fails to do this, they need to explain why they are making the application late and the court will consider whether any part of the costs of the application (which would normally be an expense of the administration) should be disallowed. Perhaps a similar "direction" could be issued by the Scottish Courts.

What do we learn from this decision?

The key takeaways from the decision are:

• there is going to be a renewed scrutiny of extension applications going forward;
• applications should not be viewed as a matter of mere formality or made with an expectation that they will be granted without difficulty, particularly where there is no discernible sign of progress being made;
• as the court will generally be asked to dispense with intimation, service and advertisement of the application, the court will require an administrator to have given meaningful notice to creditors of its intention to seek an extension and giving them a reasonable period to object;
• in that regard, the court will scrutinise the administrators' progress reports, and if they say the same thing each time without demonstrable progress being made, the court will likely want to be addressed on the application;
• the court will want to see the consent of the secured creditor, if any; and
• the court have expressed their displeasure in urgent applications, so any application will need to be made in plenty of time before expiry of the administration.

Conclusion

If any level of complacency has developed over the years towards the seeking of extensions, this decision should dispel it and result in careful thought consideration being given to the reasons for an extension, why certain tasks have not been completed and how long any remaining tasks should take to complete. It might also require administrators to start thinking about potential extension to the administration at an earlier stage that currently might be case to ensure that there is sufficient time to provide meaningful notification to creditors and make the application to the court.