UPDATE: Secured creditors and seeking consent to an administration extension

13 June 2025

In 2024 two court cases Re Pindar Scarborough Ltd (in administration) 2024 EWHC 908 (Ch), 13 March 2024 and Boughey & Anor v Toogood International Transport and Agricultural Services Ltd (Re Insolvency Act 1986) [2024] EWHC 1425 (Ch), 11 June 2024, caused a commotion in the industry after holding that a secured creditor who had been paid in full ceased to be a secured creditor and therefore their consent was not needed to extend an administration under paragraphs 76 and 78 of Schedule B1 IA 1986. The administration periods in those cases had been validly extended and the office holder was not required to obtain the consent of a secured creditor who had been paid in full.  
 
The idea that a creditor who had been paid in full ceased to be a creditor is not new. Earlier case law (Wight v Eckhardt Marine GmbH [2004] 1 AC 147 PC) had observed, in the context of a liquidation, that there was nothing contrary to principle with the court having regard to the subsequent extinguishment of a creditor’s debt after the commencement of the liquidation and that the scene does not freeze at the date of a winding up order. Rather, adjustments are made to give effect to the underlying principle of pari passu distribution.
 
While the Pindar and Toogood cases are helpful to insolvency practitioners in the context of extending administrations, the decisions do not sit comfortably with earlier guidance from the Insolvency Service, which had suggested that a creditor at commencement of an insolvency procedure remained a creditor even after they had been paid in full.
 
Joint Letter to The Insolvency Service
The conflict between the court’s decisions and the previous guidance from the Insolvency Service caused R3, with support from the Recognised Professional Bodies (IPA, ICAEW and ICAS) to write to the Insolvency Service asking that they consider the following options –
 
(1) As a matter of priority amend its view that ‘a creditor is set at the point of entry to the procedure and that this remains, even if payment in full is subsequently made’ and issue a Dear IP to the profession to assist insolvency practitioners as soon as possible.
and/or
(2) Amend the Insolvency (England and Wales) Rules 2016 to reflect the practical approach demonstrated by ICC Judge Prentis and HHJ Paul Matthews.
 
Insolvency Service’s Response
The Insolvency Service has responded and is happy for the following to be shared –
 
“As you will appreciate, while the judgments (and your letter) concerned extensions to administration and secured creditors, the Insolvency Service’s previously stated view on ‘creditor’ applied to all usages of the term in insolvency law. Accordingly, when analysing the impact of the judgments, we had to consider the wider impact beyond the specific subject matter of Pindar and Toogood. We did not wish to make a statement on secured creditors and extensions to administration, only for this to then be taken out of context for other usages of ‘creditor’ in legislation, as this could have caused subsequent problems for all insolvency office-holders, whether insolvency practitioner or official receiver.
 
We have analysed the judgment and taken legal advice. As a result of the judgments and the advice, we will be reframing our view of the term ‘creditor’ in the insolvency legislation. We will no longer contend that the meaning of the word ‘creditor’ is fixed and crystallised at the date of entry into an insolvency procedure.
 
Our revised view, following legal advice, is that the term is context-specific. For example, as the court noted in the Pindar/Toogood judgments, the construction of the definition of ‘secured creditor’ at section 248 Insolvency Act 1986 means that such a party is no longer a creditor for insolvency law purposes once the charge has been satisfied. On the other hand, where a bankruptcy is annulled on grounds of payment in full (s282(1)(b) Insolvency Act 1986), rule 10.139 Insolvency (England and Wales) Rules 2016 (notice to creditors) would make no sense if the use of the word ‘creditor’ in that rule excluded those who had received payment. In that instance, the term ‘creditor’ must apply to one whose debt had been paid. Accordingly, where a creditor has been paid, it will be for the professional judgment of the office-holder whether a particular insolvency law provision relating to creditors is engaged following that payment.
As our reframed view is that the term is context-specific, no legislative amendment is required. However, we will be placing an article in a forthcoming issue of Dear IP on the matter along these lines to provide guidance to office-holders going forwards.”
 
The IPA understands that the next issue of Dear IP is due to be published around the end of this month (June 2025).