What Is a Secured Creditor?

Last month, NTI covered the case of Re Pindar Scarborough Limited on CPD Tap (Number 601 if you missed it, and the CPD Tap also covered the relevant legislation for you too).  This case dealt with an application by the company’s Administrators to extend the period of the Administration, as well as seeking clarity that the original extension by creditors was valid.

Hot off the press and following quickly after is the case of Toogood International Transport and Agricultural Services Limited which also dealt with the same issue.  Both cases concerned what seemed like a clear definition, that of a secured creditor.  The waters were muddied by The Insolvency Service’s first review of the 2016 Rules, in which they stated that “It has been the Government's position for some time that the classification of a creditor is set at the point of entry to the procedure and that this remains, even if payment in full is subsequently made.  Accordingly, the government has no plan to change its long-standing view on this matter.”. 

The Court firmly disagreed in both cases, turning to Section 248 in their Butterworths, which defines a secured creditor “as a creditor of the company who holds… a security”.  ICC Judge Prentis, in his judgement in the Pindar Scarborough case, noted this definition was in the present tense.  The judgement in the Toogood case confirms this, adding that “A creditor who has been repaid is no longer "a creditor"”. 

There is also a rebuke for the Insolvency Service in the judgement too – “If the Government wishes there to be a different result, then it must legislate more clearly than it has done, and moreover explain why those with no economic interest in the outcome of an administration should nevertheless determine what happens. In the meantime, I hold that a secured creditor whose debt is paid off ceases to be a secured creditor for the purposes of Schedule B1 of the 1986 Act, and its consent is no longer needed for any decision requiring the consent of such a creditor. No prejudice can be or is caused to such a person by not obtaining its consent”.