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Administrator’s Proposals – Withholding Commercially Sensitive Information

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The Requirement for Administrator’s Proposals

The Administrator of a company is obliged by statute to send to the company’s creditors and to the Registrar of Companies proposals detailing, amongst other things, the company’s financial circumstances and the commercial aims of the Administration.  Those proposals must be sent within eight weeks of the start of the Administration, unless the Court extends that period.

The requirement to send such proposals and the specific detail that must be contained within the proposals is set out in Paragraph 49 of Schedule B1 to the Insolvency Act 1986 and Rule 2.33 of the Insolvency Rules 1986.  The wording of those provisions makes it clear that this is a mandatory requirement which must be complied with.

Criminal Offence for Non-Compliance

Should an Administrator without reasonable excuse fail to send out proposals within the prescribed timescale and/or fail to include all of the detail required, s/he commits an offence.

Although there is provision within Rule 2.30 of the Insolvency Rules 1986 for the Administrator to apply to court to withhold sensitive information from a particular company’s statement of affairs, there is no corresponding provision allowing the Administrator to apply for a court order withholding any of the prescribed information from the Administrator’s proposals.

Reasonable Excuse to Withhold Sensitive Information

In the recent case of Gould and Another v ITMO Advent Computer Training Ltd and Another [2010] EWHC 1042 (Ch), the court took a commercial approach in its interpretation of the Act in order to be able to allow the Administrators to withhold certain information from the proposals.

In that case the two companies concerned provided educational services to students.  There were approximately 14,000 students who had paid their fees in advance and who were therefore creditors of the companies.  If the Administrators had complied with the strict requirements of Rule 2.33, the proposals would have included the details of those students as creditors.  The students’ details formed part of a database which was each companies’ main asset to be sold in the Administration.  To have included the students details as creditors in the Administrator’s proposals would have resulted in that information being made publicly available, thereby impacting upon the value of the database by allowing the students to be poached by competitors.

The court initially ordered that the period in which the proposals must be sent out could be delayed pursuant to Paragraph 49(8) whilst the Administrators explored all options in selling the companies’ businesses.  Prior to the expiry of that extended time period, the Administrators then applied to the court for an order waiving the requirements of Rule 2.33.

The court held that it was not able to waive the requirements of Rule 2.33, which are drafted as being mandatory. 

However, the offence committed by an Administrator in failing to comply with Rule 2.33 is qualified by the wording “without reasonable excuse”.  The court therefore held that the Act envisaged that an Administrator could have a good excuse for failing to comply with the strict requirements of Rule 2.33 and that it was therefore permissible for commercially sensitive information, such as the students’ details, to be withheld from the proposals.

A Note of Caution

Given the offence committed by an Administrator in failing to comply with the provisions of paragraph 49 and Rule 2.33, rather than simply excluding sensitive data from the Administrator’s proposals, an Administrator who is concerned about publishing sensitive data in this way would be well advised to apply to the court for directions. 

Obtaining the court’s “approval” of withholding certain sensitive data in a particular case should in itself provide the Administrator with a “reasonable excuse” to avoid having committed an offence under the Act.

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