Re Cross Transport Ltd (In Administration) [2026] EWHC 1636 (Ch)
IPA Insolvency Practitioner newsletter, August 2026
Overview
This case concerned an application for directions brought by the joint administrators (Administrators) of Cross Transport Limited (Company) under para 63 Sch B1 of the Insolvency Act 1986 (IA86) for directions confirming that the costs and expenses (including legal costs and expenses) incurred in pursuing litigation can be paid from the fruits of the litigation prior to payment of any other creditors (including the court defined as “Protected Moratorium Debts”).
Background
The Company entered a Part A1 IA86 standalone moratorium on 23 March 2023 and incurred c£643k in debts/liabilities that had been incurred during the moratorium, or before the moratorium and for the purposes of the moratorium, whether the Company became liable for them before or after the moratorium began, as more particularly defined by s.174A IA86 (Protected Moratorium Debts). It subsequently entered administration on 05 June 2023 within the prescribed 12-week period after the moratorium ended, triggering the application of paragraph 64A Sch B1 of IA86.
The remaining cash assets of the Company were c£110k, but there were substantial potential litigation claims (Claims). To pursue these Claims, the Administrators required funding from a litigation funder (Funder). However, the Funder threatened to withdraw funding because paragraph 64A Sch B1 IA86 explicitly states that Moratorium creditors must receive a distribution, creating a risk that if the litigation returns did not clear the total Moratorium debt, the Funder would receive nothing. Without funding, the litigation could not proceed, leaving almost nothing for the creditors, including HMRC (the sole preferential creditor for c£726k).
Consequently, the Administrators applied to the court for directions confirming that the costs and expenses of pursuing the litigation could be paid out of the fruits of that litigation before making any distributions in respect of the Protected Moratorium Debts.
Decision
ICC Judge Jones ruled in favour of the Administrators’ interpretation. The court held that while Paragraph 64A IA86 establishes a “super priority” for Moratorium debts over other claims, it does not give an absolute right to immediate payment or require assets to be ring-fenced for paying those debts. Forcing an administrator to pay these debts before clearing the costs of asset realisation would absurdly paralyse the administration. Therefore, administrators have the implied power to manage the estate pragmatically and enter litigation funding arrangements where costs are defrayed from the litigation proceeds first.
About para 64A of Sch.B1 of IA86, ICC Judge Jones said…
[Para 23(i)] “The starting point for construction is the clear, obligatory wording of Paragraph 64A. The ‘must’ obligation to pay the Protected Moratorium Debts confers upon the Protected Moratorium Creditors a ‘super priority’ over the other creditors in an administration…”
[Para 23(ii)] “However, super-priority does not equate to absolute entitlement to pre-payment. The concept that super-priority will prevent any payment of administration costs, contractual liabilities or remuneration by administrators in fulfilment of the purpose of the administration, their functions and duties before the Protected Moratorium Debts are paid is absent from the express wording of Paragraph 64A.”
[Para 23(iii)] it does not expressly require “…the assets of the company existing when the administration starts to be ring-fenced for payment to the Protected Moratorium Creditors”
[Para 23(iv)] “In addition, it would be ‘absurd’ to imply such a construction. Absurd because it would paralyse the administration until the Protected Moratorium Debts are paid in full or at least to the extent of the realisation of the company’s existing assets. It would open the scenario for the failure of the administration.”
[Para 23(ix)] “Therefore, Paragraph 64A preserves the administrator’s ability to manage the company pragmatically while respecting the elevated status of Protected Moratorium Debts.”
[Para 23(xiii)(ii)] “There is no wording within Paragraph 64A setting any date, time or circumstance when the payment ‘must’ be made. Payment is a duty for the administrator and a right for the Protected Moratorium Creditors but it is to be implied by necessity that the duty must only be performed to the extent that payment can be made and only when the administrator considers it right to make payment taking into consideration the purpose of the administration…”
Possible Implications for Insolvency Practitioners
The judgment clarifies that while the word “must” in para 64A Sch B1 IA86 grants Part A1 IA86 moratorium debts a higher statutory priority within the distribution waterfall, it does not freeze or intercept the day-to-day funding required for asset realisations.
Nevertheless, from a regulatory and compliance perspective, IPs must exercise extreme caution when managing insolvencies with significant Part A1 IA86 moratorium debts. IPs are required to carefully weigh expenditure risks; if a potential realisation strategy carries a disproportionate risk of failing to yield a net positive return, the IP may determine that preserving existing assets to satisfy para 64A Sch B1 IA86 super-priority creditors is the most appropriate course of action.
To mitigate regulatory scrutiny and justify these commercial judgements, IPs must maintain contemporaneous, detailed file notes documenting the precise rationale, risk assessments, and balancing exercises behind every such decision.
The judgment can be found here.