Extension of the period of an administration: What you need to know

Prior to expiry of the first year, an administration can be extended for up to 12 months with the consent of the creditors. Any further extension must be granted by the court. 

Whether or not to grant an extension is entirely at the court's discretion and will be determined on a case-by-case basis. The court will consider, amongst other factors, (i) whether the purpose of the administration remains reasonably likely to be achieved; (ii) whether any prejudice would be caused to creditors by the extension; (iii) any views expressed by the creditors; (iv) the diligence with which the administration has been conducted to date; and (v) how many extensions there have previously been.

Recent case 

In a recent opinion from the Court of Session, Lord Braid has provided helpful guidance on the approach taken by the court when determining an application to extend an administration. 

The case concerned an application by joint administrators to extend the administration of a company for one year. There had been four previous extensions to the administration and it was in its fifth full year. 

In this case, the court ultimately allowed an extension of a further year (although did ensure that creditors were given sufficient information about the extension process and the ability to object).  In coming to its decision, the court provided helpful guidance on the steps to be taken by administrators and their solicitors in advance of making a court application for extension.

What does the court expect in an extension application? 

1. Lord Braid detailed the questions that are considered by the court in extension applications, namely: 

    

   a) Why has the administration not yet been completed?
   b) Is any alternative insolvency regime more suitable?
   c) Is the extension sought likely to achieve the purpose of the administration?
   d) If an extension is appropriate, for how long should it be granted?
   e) Have the creditors been given adequate notice of the intention to seek an extension? 

    

   The above questions should be kept in mind when drafting an application for extension and sufficient information should be included in the application to answer the above questions. Where there has been a previous extension to the administration and a further extension is sought on similar grounds, then the application should also explain why the administrator has been unable to complete the outstanding steps in the time available.
2. The court will expect that any application for extension details the further work still to be done and the reasons an extension is required. Lord Braid noted that tasks such as finalising costs and statutory formalities are applicable in any administration and to say that they are outstanding does not really go any way towards explaining why an extension is necessary.
3. The court expects that all creditors are told in advance that an application to court to extend the period of administration will be made (including advising them of the length of extension sought) and giving the creditors a specified period to object.This notification can be given in the most recent six-monthly progress report to creditors, but only if the administrators know at the time of the report that an extension will be required and that the report contains meaningful information about the reasons for the extension application, the period of extension sought, and provides a specified period for creditors to intimate objections.
4. The opinion does not comment on whether consent of any secured creditor(s) should be obtained and whilst this is not required by legislation it would be good practice to continue to obtain such consent in advance of any extension application being made.  
5. Lord Braid confirmed that there is no policy in the Court of Session that a one-year extension will not be granted. Equally there is no presumption that an extension should be for one year and the length of an extension, if granted, will be considered on a case-by-case basis. Reference was made to the judge's recent experience of administrators accepting a shorter period for an extension after comment from the court and, in most cases where that happened, a further extension application has not been made.

Comment

Lord Braid's opinion confirms that, whilst it is not a requirement in legislation, the court will expect administrators to ensure that in advance of making an extension application to court, they notify all creditors of their intention to seek an extension, including confirming the period of extension sought, and give the creditors an opportunity to object within a specified period.

If this is not done, the court may be willing to allow a period for sufficient notification to be made but administrators would be running a risk that there may not be enough time to do this prior to the expiry of the administration. Whilst the court may be willing to grant a short extension to allow time for notification to be made, this is by no means guaranteed, and Lord Braid explicitly notes in their opinion that extensions must not be seen as a formality and highlights that there is a risk that if administrators are confident that an extension will be granted in the fullness of time, then they might not be "incentivised" to complete the administration within the existing deadline. It was also made clear that the court must be given sufficient time to properly consider applications.  

We would suggest that in advance of any extension application being submitted to court, consent of any secured creditor(s) to the extension is obtained, and creditors are notified of the proposed extension and given an opportunity to object within a specified period. This should be done sufficiently in advance of expiry of the administration so that an application can be made to court with enough time for the court to consider the application. Careful consideration should also be given to the length of extension sought.  Although the court was careful to say that each case turns on its own facts and circumstances, it's clear from recent practice that – where an extension is justified – a one-year extension is no longer the default option and the court will carefully look at what still requires to be done and the length of time it may take to accomplish that.

Summary

MFMac has considerable experience of successfully securing court extensions to administrations. If you would like further information, please contact our Litigation & Dispute Resolution team.