UK: Q: When is a secured creditor no longer a creditor? A: when it’s been repaid - sometimes

The case law

The cases considering this question are Re Pindar Scarborough Ltd (in administration) [2024] EWHC 908 (Ch) (“Pindar”) and Re Toogood International Transport and Agricultural Services Limited (in administration) [2024] EWHC 1425 (Ch) (“Toogood”). In both cases, the relevant companies had gone into administration, and the administrators had extended the administrations for 12 months by consent.  However, in neither case had the consent of the secured lenders been sought as they had been repaid in full.  The administrators took the view that since the relevant companies no longer owed any debt to these secured lenders they did not constitute “secured creditors” at the time of the extension under the Act or the Rules. The administrators then needed to further extend the administrations and, as part of that process, sought the court's confirmation that the initial extension had been valid even though it had been implemented without the consent of the fully repaid secured lenders.   

In each case, the judge adopted a common sense interpretation of the Act and the Rules, finding that in order to be a secured creditor, two tests need to be satisfied: one must be owed a debt by the company in administration, and one must hold security from the company. Where a lender has been repaid and security has been discharged, neither test is met and accordingly the lender is no longer a secured creditor. A key focus should be an analysis of whether an entity had a real economic interest in the outcome of the administration – with the clear implication that a lender who has been repaid in full no longer has any such interest and, therefore, should not be able to make any decisions about the continuance of the administration.

Where does any confusion stem from? 

A strict reading of the provisions in the Act and the Rules creates some ambiguity around the definition of “secured creditors”. The Act provides that i) an administration can be extended for an initial 12-month period by consent and ii) “consent” means the consent of each secured creditor and in certain circumstances either the unsecured creditors or preferential creditors.  Consent by the unsecured or preferential creditors is by a decision procedure.  However, actual consent of each secured creditor is required.  “Secured creditor” is defined in the Act in a fairly self-explanatory manner as “a creditor of the company who holds in respect of his debt a security over property of the company”, but the Rules state that the term “debt” specifically refers to a debt which the company is subject to “at the relevant date”. Crucially, “relevant date” is then defined in the Rules as the date on which the company entered administration.

As a result, if administrators are required to consider the position as at the time when administration was commenced, it follows that a creditor which, at the time the company went into administration, was a secured creditor, still needs to be counted as a secured creditor (and give consent to administration extensions) even after it has been repaid in full.

The approach of the Insolvency Service

In both Toogood and Pindar, the administrators flagged the Insolvency Service's first review, published in April 2022, of the Rules.  The review contained the following paragraph:

“Several respondents asked for clarification on the position of secured and preferential creditors that had received payment in full. 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. We believe that to legislate away from this position could cause more problems than it would seek to solve. Accordingly, the government has no plan to change its long-standing view on this matter. We will amend rule 15.11(1) [of the Insolvency (England and Wales) Rules 2016] to be clearer that where the Insolvency Act 1986 or the Rules require a decision from creditors who have been paid in full, notices of decision procedures must still be delivered to those creditors.”

The Insolvency Service has now moved away from this position somewhat.  In Dear IP issue 168, published in June 2025, it confirms that following Toogood and Pindar the Insolvency Service has reconsidered the legislation and the underlying policy rationale of its earlier statement and that the term “creditor” should be given a context-specific interpretation.  On some occasions, such as an administration extension, the “term will detach from a creditor once they are paid” but in other instances, the creditor will remain a creditor despite being repaid in full.  Ultimately, the decision whether a provision requires the consent of a fully repaid creditor will rest with the relevant insolvency practitioner. 

Next steps

The two decisions and the revised approach from the Insolvency Service are helpful.  Although insolvency practitioners will have to make an assessment on a case-by-case basis of whether the consent of a repaid creditor is required, it should mean that – at least in some situations - they can avoid the difficulties of trying to engage with secured creditors who may have been repaid months, or even years, before.  It should also be remembered that the two cases were first instance decisions and so not binding on another Court, but they do offer a consistent and sensible pragmatism that now appears to have the support of the Insolvency Service and should form the basis of future practice in the majority of cases.  The drafting ambiguity in the Act and the Rules remains, however.  Insolvency practitioners faced with having to make an assessment whether or not to approach creditors who have been fully repaid for consent should seek appropriate advice and record the reasons for their conclusions.