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Author: Nigel Cook
The Scottish Court rejected an application by administrators for an Order allowing them to avoid the need to set aside the prescribed part of the floating charge realisations.
The administrators sought an Order to disapply their obligation under s.176(A)(2) of the Insolvency Act 1986 to appropriate a prescribed part of the estate for sharing amongst the unsecured creditors. Unsecured creditor claims were estimated at £85 million with some individual claims exceeding £1 million. The administrators calculated a dividend to the unsecured creditors as less than a fraction of 1 pence in the pound.
The Court refused to give the Order on the principle that Parliament had intended unsecured creditors to gain some benefit and that granting this Order could only benefit the floating charge holder and the administrators.
The Court referred to English cases Hydroserve  and International Sections  where opposite decisions were reached but noted that there had been a miscalculation by the administrators of the prospective dividend by a factor of nearly 10 on the low side. The Court itself had spotted the mistake in the administrators calculations – clearly embarrassing!
There is still a minimum figure of £10,000 for the value of the prescribed part and we can assume that the Court will expect administrators to exercise their discretion in favour of the unsecured creditors.