In harm’s way: a new interpretation of ‘unfair harm’ under the Insolvency Act

By Philip Bell and Tim Heaps

The court’s interpretation of ‘unfair harm’ in the context of paragragh 74 of Schedule B1 of Insolvency Act 1986 has recently been considered by the High Court.

In Hocking and others v Marsden and another [2014] EWHC 763 (Ch), a company’s administrators made the decision to neither issue proceedings on behalf of a company against its bankers nor assign the cause of action to the company’s creditors. The latter refusal was deemed by the courts to unfairly harm the individual creditor as well as the creditors as a whole.

Under the Insolvency Act 1986, a creditor may apply to the courts for relief if the conduct of an administrator unfairly harms the interests of the creditor. Previously, in order to demonstrate unfair harm, the applicant/creditor applying for relief had to show that the administrator had treated it unequally or differently from the rest of the creditors in its class. Establishing differential or unequal treatment was not however always sufficient, if the administrator could prove that its actions were (i) the result of a commercial, cogent and reasoned decision, taken to benefit the creditors as a whole, or (ii) consistent with achieving the stated purpose of administration and the administrators’ general duties to creditors…

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