The Companies Court has held that where there is a conflict between rival creditors and there is nothing to guide the Court in its decision, the views of the majority creditor/s may prevail in relation to the appointment of administrators.
An application was made by Healthcare Management Services (“Healthcare”) for order that Caremark Properties be put into administration. The Court was satisfied as to the appropriateness of making an administration order, but another creditor, Jenmark Limited (“Jenmark”), opposed Healthcare’s choice of administrators. The parties failed to agree on the administrators to be appointed and so the Court was required to make the decision. The Court noted that there was nothing between the rival candidates and that each would not only act but be seen to act in the best interests of the creditors generally (applying the principle in Med-Gourmet Restaurants v Ostuni Investments).
There is a general principle that where the dispute is between one creditor and another, or one group of creditors and another group of creditors, the majority in terms of value must prevail (Fielding v Seery and another). The Court noted that the majority view does not bind it but rather that where there is nothing else to guide the Court, the decision should be made by reference to the majority creditors’ view. The Court therefore found that Jenmark, as the majority creditor , was entitled to have its nominees appointed.
The Court stressed that in other cases, the views of the majority creditor might not prevail, depending on the circustances including factors such as whether the nominated persons have been involved with the company previously and investigated issues that would need to be dealt with in the course of the administration. The Court criticised the parties for failing to reach an agreement on the issue, noting that the dispute had nothing to do with the suitability of the nominees for administrator, but was a symptom of a serious falling-out between the creditors. The Court indicated that similar disputes should be resolved without referring them to court.
Please speak to Richard Baines, Head of Druces LLP’s Business Turnaround, Restructuring and Insolvency team for more information.