Administration order – application to extend period of administration brought after expiry of time – power of court to extend time under Article 35 of Insolvency (NI) Order 1989 – impact of ECHR – guidelines on when time can be extended

GIRB3073
IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND
CHANCERY DIVISION
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IN THE MATTER OF McFARLAND HARVEY LIMITED
AND
IN THE MATTER OF THE INSOLVENCY (NORTHERN IRELAND) ORDER 1989
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GIRVAN J
JUDGMENT
BACKGROUND TO THE APPLICATION
	This matter comes before the court by way of an application of the joint administrators of McFarland Harvey Limited (“the company”) for leave to apply out of time to extend the administration order under which they are the joint administrators of the company.  
	By an order dated 24 November 1987 Campbell J (as he then was) made an order that during the period for which the order was in force the affairs, business and property of the company be managed by the joint administrators pursuant to Article 21 of the Insolvency (Northern Ireland) Order 1989 (“the 1989 Order”) for the following purposes:-
(a)	the approval of a voluntary arrangement with the creditors under Part II of the 1989 Order;
(b)	a more advantageous realisation of the company’s assets then would be effected in a winding up.
	It was ordered that the order do remain in force until Monday 9 March 1989.  
The administration of the company has been a complex matter not least because of the legal proceedings in which the joint administrators have now become involved in their attempt to realise the company’s assets.  Over the period of the administration order which has been extended on a number of occasions, the proceedings have included proving the company’s debts in the liquidation of CMM Waste Limited, a company into which part of the company’s business was transferred in October 1997 and in respect of which it was thought that there might have been a fraudulent preference, bankruptcy proceedings of John Harvey and Dorothy Harvey who together owned the issued share capital of the company, a dispute with the Ulster Bank Limited about the ownership and transfer of some 44 houses which the Harveys had apparently intended to transfer to a new company, McFarland Harvey (1997) Limited (“the 1977 company”), a dispute with the Harveys in the 1977 company for (inter alia) damages due to losses suffered as a result of delays in the transfer of the 44 houses which dispute is part of a professional negligence action brought by the Harveys and the 1997 company against then former solicitors, a dispute with the Northern Ireland Housing Executive over outstanding housing benefits and rent, a dispute with R Hall over the balance of contract funds and a dispute with the 1997 company over ownership of a further 4 houses.  
By January 1999 the position had been reached when there was a general agreement that the company should be put into a creditors’ voluntary liquidation.  At a meeting of the company members on 28 January 1999 resolutions were passed that the joint administrators should proceed to put the company into liquidation and that subject to the approval of the court it should be a creditors’ voluntary liquidation rather than a compulsory liquidation.  Immediately following that meeting there was a meeting of creditors at which the resolutions were passed unanimously.  At a further meeting of creditors in September 1999 all the resolutions were passed unanimously including resolutions that the joint administrators should proceed to put the company into liquidation and subject to the approval of the court it should be a creditors voluntary liquidation rather than a compulsory liquidation.  In addition resolutions were passed for the appointment of the administrators as joint liquidators and for the administrators to apply for there release.  An application was made by the joint administrators on 24 September 1999.  The application was heard on 30 September 1999 and was concerned largely with submissions on moving from administration to creditors voluntary liquidation and in particular with the position of preferential creditors and the onset of insolvency for the purposes of preferences and transactions at a under value.  It was clear that the joint administrators had not yet realised sufficient assets to be able to take the matter to finality.  An extension of the administration order was therefore sought for these purposes with the support of preferential creditors together with directions on the mechanism to be adopted by the joint administrators in ruling for the administration order to a creditors voluntary liquidation.  The court considered that the assets still to be got in were likely to be better realised by the joint administrators than by a liquidator and therefore there was merit in the issue of a creditors voluntary arrangement being reconsidered once further progress had been made with the administration.  At the time the court was of a view that a period of five months should be sufficient to allow the position of the preferential creditors to be finalised and all the implications of a CVA to be gone through with the preferential creditors.  They may wish to consider their position in respect of a CVA in the light of the further progress to be made in the administration.  Accordingly, the administration order was extended for five months to 1 March 2000.  By February 2000 only three outstanding matters were left, namely implementation of agreement with the Ulster Bank, ownership of four houses and the dispute with the Housing Executive.  A meeting of the creditors took place on 24 February 2000 and it was agreed that action should proceed in respect of the claim for documents in the Executive claim and that a creditors’ meeting would be asked to approve a CVA subject to the approval of the shareholders.  An application was then made to extend the administration order to enable the joint administrators to give effect to the agreement.  The administration order was extended by six months to 12 September.
Meantime the writ action has proceeded.  The joint administrators omitted to apply on or before 11 September to extend the administration order as the joint administrators were under the erroneous belief, that the administration proceedings were proceeding in concert with the writ action and would be extended as was necessary to conclude those proceedings, but without the need for formal application.  The period of extension accordingly lapsed on 12 September 2000.  
THE ISSUE
	The issue is whether given the lapse of the extended time granted by the order of 13 March 2000 the court has power to extend the period for the administration.
	Miss AnyaDike-Danes on behalf of the joint administrators in her clear written and oral submissions contended that the court had the power under Order 3 Rule 5 of the Rules of the Supreme Court to extend the period of the administration order and might do so even after the expiration of the period previously authorised by the order 13 March 2000.  She relied also on the inherent jurisdiction of the court to enlarge any time which a court or judge has ordered.
ANALYSIS OF THE ISSUE
	An administration order is a creature of statute.  Article 21 of the 1989 order sets out the powers of the court to make an administration order, the circumstances in which it may be made and the purposes for which an administration order may be made.  Although the provisions of Articles 21 to 24 of that Order (which deal with the powers to make an order, applications for such orders and the effect of applications for such orders and the orders themselves) do not contain any express provisions providing for the time limiting of administration orders Article 35 provides –
“(1)	Where an administration order has been made, the administrator shall, within three months (or such longer period as the High Court may allow) after the making of the order – 

(a)	send to the registrar and (so far as he is aware of there addresses) to all creditors a statement of his proposals for achieving the purpose or purposes specified in the order, and

(b)	lay a copy of the statement before a meeting of the company’s creditors summonsed for the purpose on not less than 14 days notice.

(2)	The administrator shall also, within 3 months (or such longer periods as the High Court may allow) from the making of the order, either –

(a)	send a copy of the statement (so far as he is aware of their addresses) to all members of the company; or

(b)	publish in the prescribed manner a notice stating an address to which members of the company should write for copies of the statement to be sent to them free of charge.  

(3)	If the administrator without reasonable excuse contravenes the article, he shall be guilty of an offence and for continued contravention, he shall be guilty of a continuing offence.”

An administration order interferes with the ordinary rights and remedies of creditors and secured creditors and it is for this reason that the legislation is strictly construed and applied. 
	The incorporation of the European Convention on Human Rights into domestic law reinforces the views expressed by me in R v McGeown Wholesale Wines and Spirits Limited (In Administration) Application [1997] NIJB 190 and Re All Print Graphic Services Administration [1997] NIJB 271.  Preventing a creditor from pursuing his ordinary remedies against a company to recover his debt or a dividend in a liquidation and limiting the right of a secured creditor to enforce his security against the company’s property represent interferences with the private rights of property of the creditors and the administration order provisions of the 1989 Order called to be strictly construed and applied.  The provisions call for a control of the administration by the court which must be live to the interest of creditors who are un-represented as such in the procedures involved in the obtaining of an administration order and in subsequent applications for extensions.  In Re McGeown Wholesale Wines and Spirits at [1997] NIJB 190 at 192 I said –
“The administration order interferes with the ordinary remedies and rights of creditors and it is probably for this reason that relatively strict timetables are laid down.  A consideration of the time requirements of the 1989 order make clear as follows –

(a)	the administration order is to be regarded as an order intended to be of limited duration and restricted to limited purposes;

(b)	the administrator must ensure that steps are promptly and timeously taken to ensure that the relevant information is obtained to ensure speedy progress to be made in the execution of the administration order;

(c)	the administrator must be live to the limited purpose of the administration and must not continue with the administration beyond the point when it is clear that the purpose or purposes specified cannot be achieved or have been achieved.  Once that point has been reached he must either apply to be discharged or seek leave to have the administration order varied to specify an additional purpose …

(d)	in view of the time limits laid down in Article 35 normally the administrator should ensure that the application to extend time is not left to the last moment.  Since 14 days notice of a creditors meeting is required before the expiry of the 3 months the administrators should know at least 2 weeks before the expiry of that period whether he is going to require an extension of time.  By that stage he should be aware whether the existing proposals of the administration are unlikely to be achieved and, if not, whether he should apply to vary the purposes of the administration order seek to be discharged …”

When the court fixes the period of the administration order in an administration order, it is in reality fixing the time by which the administrators should comply with the requirement of Article 35 that is to say the requirement to bring forward proposals for achieving the purpose or purposes specified in the administration order.  An administration order continues until it is discharged under Article 30.  Thus in the present instance the administration order remains in existence but the administrators require an extension of the period within which they can come forward with proposals to the creditors.  The courts’ power to vary the time within which this may be done derives not from the Rules of Court but rather from Article 35 of the 1989 order itself.  Under section 17(1) of the Interpretation Act (Northern Ireland) 1954 where an enactment confers a power the power may be exercised from time to time as occasion requires.  There is nothing in Article 35 to indicate that the Court may not grant an extension of time after the permitted period has elapsed provided that the administration order is still undischarged though normally and properly such an application should be made before the expiry of the relevant period.  
The applicants have satisfied me that in the unusual circumstances of this case this is an appropriate case in which to grant the administrators further time for the purposes of Article 35.  Since, however, the court must be careful to ensure that the interests of the creditors are paramount and that a majority of them are in agreement with the proposal to extend the time I will grant an extension of the period for the purposes of Article 35 to give the administrators an opportunity of taking the views of the creditors.  If the majority of the creditors are content to extend the time further I will consider a further application to extend time.  I see no reason why the creditors and administrators may not agree that it would be appropriate to extend the time to a point which is say one month from the conclusion of the current litigation which is currently holding up the finalisation of the administration.  The court in those proceedings will obviously ensure that they are progressed as expeditiously as possible.  

Administration order – application to extend period of administration brought after expiry of time – power of court to extend time under Article 35 of Insolvency (NI) Order 1989 – impact of ECHR – guidelines on when time can be extended

GIRB3073
IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND
CHANCERY DIVISION
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IN THE MATTER OF McFARLAND HARVEY LIMITED
AND
IN THE MATTER OF THE INSOLVENCY (NORTHERN IRELAND) ORDER 1989
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J U D G M E N T

OF

GIRVAN J

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