Historically, extensions to administrations were granted somewhat routinely.

However, based on our own recent experience, it is becoming harder to persuade judges in the Court of Session that there is a good reason to extend. The culmination of that trend can be seen in a recent Outer House opinion given by Lord Braid, in which he emphasised what the court expects in order to grant an extension. Of course, if an extension is not granted, the administration comes to an end, which can have significant consequences for the administrator and creditors. 

In a note by the joint administrators of PSL2021 Realisations Limited (formerly Peacocks Stores Limited), to extend the administration for a period of 12 months, Lord Braid has given some important guidance (for the benefit of both administrators and solicitors) as to the approach to be taken to applications for an extension of an administration.

He stated: “It is important that administrators and their advisers bear in mind that an extension of an administration should never be applied for, or granted, as a matter of formality.” [para 18] and that: “…the court must be afforded sufficient time for applications to be considered properly.” [para 22]

Although Lord Braid granted the order to extend the administration for a further year, in doing so he acknowledged this this took the administration into its fifth full year and he therefore elected to issue a written opinion.

Lord Braid considered [para 5] the legal framework to such applications and noted that the question of whether or not to grant an extension is entirely a matter for the exercise of the court’s discretion. He took the view that in exercising its discretion, the court should have regard to all the relevant circumstances. He referred [para 5] to the case of TPS Investments (UK) Ltd (In Administration) [2020] BCC 437, at paragraph 8 in which it was observed that four questions tend to arise in extension applications:

(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?

Lord Braid considered that a fifth question might also be added to that list:

(v)           have the creditors been given adequate notice of the intention to seek an extension?

Lord Braid commented on three matters, each of which we discuss in turn below:

1. the information which ought to be given to creditors before an application is made to extend the period of an administration; 
2. the approach taken by the court when considering whether to grant an extension (and, if so, for how long); and
3. the date to which any year-long extension should be granted.

1. Intimation to creditors

Lord Braid made it clear [para 19] that as notes to extend an administration are unusual in that (contrary to the position in almost every other type of court procedure) the court ordinarily dispenses with service, intimation and advertisement before they are considered by the court, the court therefore does expect that all creditors are advised in advance of the administrators’ intention to seek an extension. Lord Braid took the view that creditors ought to be given notification of the period of extension sought, and that creditors are afforded the opportunity of intimating an objection to that course of action within a specified period of time.

Lord Braid did not prescribe how that was to be done but observed that from a practical perspective one obvious way is that where there is an online portal, is to upload a letter to that portal, stating that an extension is to be applied for, and why, and inviting objections by a specified date. Of course, creditors who have not signed up to the portal may require to be notified by other means.

Lord Braid observed that where the progress report is to be relied upon (for intimation to creditors) it is essential that it contains meaningful information. Lord Braid was critical of progress reports which simply repeat what was in the previous report, which itself repeated what was in the report before that. He notes that was “less than satisfactory” [para 20]. It is also essential that creditors are given a meaningful opportunity to intimate any objections by a specified date.

2. Approach of the court

Consent of secured creditor

In the present note, the secured creditor had only consented to a six-month extension (and not 12 months as was sought). As no reason was given for that, Lord Braid took the view that the absence of reasons diminishes the weight to be attached to the response. That said, Lord Braid indicated he would take the views of the secured creditor into account.

Whether an extension should be granted, and, if so, for how long?

Here, the administration had already lasted four years. Lord Braid noted that the to do list presented by the noters did not suggest that the end was in sight any time soon.

Lord Braid noted that where a previous extension had been granted on the same grounds as those given in support of a further extension, the administrators should explain to the court why they have been unable to complete the outstanding steps in the time available.

It is clear [para 25] that Lord Braid considered not only the most recent progress report, but also the historical ones. He observed that similar statements appear in successive reports in relation to certain matters, which were said to remain outstanding. As a result, he concluded that a number of the reasons given for the extension did not stand up to scrutiny.

He was, however, prepared to accept that having regard to the size of the administration that further time was required to conclude arrangements with the purchaser and with landlords under 24 leases which had not yet been surrendered.

Lord Braid emphasised that each case must be considered on its own merits [para 27]. In the circumstances of the present note he was prepared to grant a 12-month extension.

3. Dates

Lord Braid observed that “if an administration is to be continued year on year, it is neater all round (including for reporting purposes) if it expires on the same date in each year.” [para 29]

Time will tell how this will play out and whether this will make a difference to the way applications for extensions are approached, as the courts are aware of the serious consequences of not extending an administration.

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