The High Court has allowed a majority creditor's application to remove administrators of a company on the grounds that they had a conflict of interest which could not be managed other than by their removal from office. The court concluded that the majority creditor had shown good grounds to have lost faith that the administrators would in future act solely in the real, substantial and honest interests of the administration: BTI 2014 LLC and another v Finbarr O'Connell and others [2025] EWHC 2115 (Ch).
Before determining the conflict issue, the court was required to determine whether the majority creditor had standing even to apply for the administrators' removal. Proofs of debt had not yet been adjudicated and the administrators contended that, consequently, the majority creditor could not be regarded as a creditor with standing to make an application for removal. They argued that until proofs had been adjudicated – which would require the administrators to remain in office – the majority creditor could not properly be regarded as a creditor because its claim had not been proven. The court rejected the administrators' argument on this point.
It is rare that administrators are removed from office. The courts' general approach is to give precedence to continuity in office of any current administrators, given that their replacement may lead to delay and increased costs in the administration process. This decision underscores the need for administrators to deal with creditors in an even-handed manner, but also the high hurdle which a creditor must overcome in order to establish that the conduct of administrators has fallen so far below the level expected of the court's officers that the loss in confidence in the administrators is reasonable and justifies removal.
Background
Until 1990, Windward Prospects Limited ("Windward") formed part of the BAT group, whose business involves the provision of tobacco and nicotine products to consumers globally. Windward was a holding company for certain BAT paper-making facilities. It had acquired those facilities from a third party and both Windward and the wider BAT group agreed to indemnify that third party against certain potential environmental liabilities which may arise from the facilities' operations.
After Windward was demerged from the BAT group, it agreed to indemnify the group in respect of the BAT group's indemnity obligations to the third party.
In 2008, the third party claimed on the indemnity. Shortly thereafter, the Company paid away the bulk of its assets by way of dividends to its then holding company, Sequana SA. The payment of those dividends was challenged in the English courts, resulting in the seminal judgment of the Supreme Court in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25 concerning the duties of directors when insolvency is likely (noted here). One dividend was found to have constituted a transaction defrauding creditors in breach of section 423 of the Insolvency Act 1986 (the "Act"), such that Sequana was ordered to repay the dividend. It failed to do so and entered French insolvency proceedings.
After payment of the dividends, Windward was transferred by Sequana to a new owner. New directors were appointed to Windward (the "New Directors"). In 2014, Windward and the BAT group reached a settlement under which Windward was obliged to pay certain amounts to the BAT group. However, those amounts were not paid.
In 2018, the BAT group demanded payment. The New Directors concluded that Windward could not pay and sought advice from insolvency practitioners at Smith and Williamson. The directors then resolved to place Windward into administration. The directors nominated Mr O'Connell and Mr Hardman of Smith and Williamson (the "Joint Administrators") to act as administrators.
Upon entry into administration, Windward's assets were stated to amount to around £12 million. The bulk of this value represented shares in a company called DeepGreen. These shares were ultimately sold for £10.57 million.
While in administration, Windward commenced proceedings against the New Directors concerning certain transfers of shares in DeepGreen made by Windward to the New Directors prior to commencement of the administration. The value of this claim was said to be approximately £150 million.
Entities within the BAT group (the "Applicants") applied for the removal of the Joint Administrators on the basis that Mr O'Connell was said to have had some involvement in these transfers of DeepGreen shares. The application was heard over two days in July 2025.
Decision
The High Court (Mr Simon Gleeson sitting as a deputy High Court judge) allowed the application and directed that the Joint Administrators should be removed from office.
The Applicants' standing
The Joint Administrators contended that the Applicants were not "creditors" of Windward for the purposes of the Act. They said that only a person with a valid legal claim against Windward should be regarded as its creditor. The Applicants should not be so regarded as the Joint Administrators disputed that the Applicants had any claim against Windward, though had not yet adjudicated the Applicants' proofs of debt.
Drawing on the broad terms by which a debt is defined in rules 14.1 and 14.2 of the Insolvency Rules 2016 and the relevant authorities, including the Supreme Court's observation in Nortel [2013] UKSC 52 that the definition is "strikingly wide", the deputy judge considered that unless a proof is obviously without basis, a person that has submitted a proof should be regarded as a creditor until their proof is adjudicated. While the Joint Administrators had argued that the Applicants' claims in their proofs were worthless, the deputy judge held that the Applicants were both either actual or contingent creditors and that their claims totaled at least £33 million, but probably more. The deputy judge also held that certain of the arguments raised by the Joint Administrators to the effect that the Applicants' claims were worthless had no rational grounds and had been motivated by other factors.
As a result, the Applicants had standing to apply for the Joint Administrators' removal from office.
The Applicants' status as majority creditor
The Applicants contended that, as they were the overwhelming majority creditor of Windward, and the other creditors of Windward had not expressed any view on the removal of the Joint Administrators, their wish that the Joint Administrators should be removed should be adopted by the court without more.
The deputy judge did not agree. He held that while the wishes of the majority of creditors should be taken into account, they should not bind the court. He gave the example of where a minority creditor satisfied the court that an administrator was not performing their role to the required standard or had breached their duties. There, even a large majority of creditors should not be able to keep the defective administrator in office. It follows that a large majority of creditors should not have the right to remove an administrator without showing good cause.
It was therefore necessary for the court to consider whether the Applicants had established a good cause in this case.
The Joint Administrators' conflict
It was accepted between the parties that Mr O'Connell had, before the administration commenced, provided advice in his capacity as a partner at Smith and Williamson in connection with the transfer of the DeepGreen shares to the New Directors.
When sued by Windward in respect of these transfers, the New Directors sought to defend the claim on the basis that they had relied upon Mr O'Connell's advice including as to whether Windward was insolvent at the time of the transfers.
It was only upon sight of the New Directors' defence that Mr O'Connell's role in the transfers became known to the Applicants.
The Applicants contended that Mr O'Connell's dual role might assist the New Directors' defence by making it easier for them to prove that they acted in good faith or failed to appreciate Windward's insolvency because they relied on Mr O'Connell's advice. As a Joint Administrator, Mr O'Connell could be required to counter such an argument by asserting that his own advice was incorrect (potentially exposing his own firm to liability) or that the New Directors were wrong to rely on it.
In response, the Joint Administrators asserted that they should remain in office and that a conflict administrator should be appointed to handle (at least) any investigations into the potential liability of Mr O'Connell and/or his firm in respect of the advice that he had provided.
The Applicants objected to the appointment of conflict administrators. They said that the role of Mr O'Connell utterly compromised the Joint Administrators' independence and that the widespread possibility of claims against the Joint Administrators (or Smith and Williamson) left no alternative to their removal. Even if that were not the case, the Applicants contended that the scope of the conflict administrators' appointment would have to be so wide – effectively to include every aspect of the conduct of the litigation against the New Directors, which was the main outstanding matter in the administration – that there would be no meaningful role for the Joint Administrators going forward.
The deputy judge concluded that, if conflict administrators were appointed, the scope of their mandate would be so broad that there would be almost nothing left for the Joint Administrators to do. In reaching this conclusion, the deputy judge rejected the Joint Administrators' evidence that there were 10 workstreams which the Joint Administrators would be required to complete even if conflict administrators were appointed. Five of the 10 workstreams would clearly be for the conflict administrators and the deputy judge regarded two of them, including one relating to claims which it was asserted might be made by Windward against the Applicants and/or their solicitors, as entirely confected and reflective of attempts by the Joint Administrators to create negotiating leverage against the Applicants.
This was not, therefore, a case in which the appointment of conflict administrators would provide a satisfactory solution.
Should the Joint Administrators be removed?
The deputy judge noted that his conclusion that there would be little left for the Joint Administrators to do did not necessarily mean that they should be removed. The Joint Administrators would, when faced with a judicial determination that their continuation in office was not conducive to the efficient and effective conduct of the administration, be expected to resign. Something more would be required for the court positively to order that the Joint Administrators should be removed and replaced. The court will not lightly remove an administrator and is required to pay due regard to the impact of removal on the administrator's professional standing and reputation. Even a conflict of interest may not justify removal. The court must consider whether the administrator is able to retain actual or apparent independence.
The Applicants' case was that when the Joint Administrators were informed that the Applicants intended to seek their removal, the Joint Administrators' conduct became primarily motivated by their desire to remain in office and to be paid their remuneration from the administration. The Joint Administrators had therefore challenged the Applicants' status as creditors because it was for the creditors' committee, of which the Applicants formed a majority, to approve payment of the Joint Administrators' remuneration. They had also manufactured new creditors (including HMRC) to threaten the Applicants with adverse publicity if they persevered and attempted to obstruct the conduct of the claim against the New Directors.
In support of this case, the Applicants pointed to a series of emails sent over a period of around two weeks in March and April 2025. The deputy judge regarded these emails as extraordinary. They included allegations by Mr O'Connell that the Applicants' solicitors had attempted to blackmail the Joint Administrators into admitting the Applicants' proof, that the Applicants had been involved in undeclared tax avoidance schemes and that the Applicants may have been involved in a money laundering scheme. The emails also included attacks on the Applicants, including as a result of their involvement in the tobacco industry.
While the deputy judge made clear that he made no finding of historic wrongdoing on the part of the Joint Administrators, their conduct had been sufficiently far outside what might ordinarily be expected as to justify the Applicants' concerns about their independence and ability to discharge their duties properly. The court would therefore order their removal. That this conclusion might be damaging to the reputation of the Joint Administrators was not a reason not to remove the Joint Administrators once good reason had been established.
Should the Applicants be permitted to choose the Joint Administrators' replacements?
The Joint Administrators contended that, because Windward had a potential claim against the Applicants, the Applicants had an interest adverse to Windward and its other creditors such that the Applicants should not be permitted to select the Joint Administrators' replacements.
The deputy judge made two preliminary points in response to this. First, he noted that by the time a creditor becomes sufficiently dissatisfied with an administrator to seek his removal, it is inevitable that the creditor will have at least one disagreement with the administrator as to how the administration should be conducted in the best interests of creditors. Second, in this case, the other creditors represented just 7% of the total creditor value and had indicated no interest, nor taken any part, in any of the disputes between the Applicants and the Joint Administrators.
In relation specifically to the assertion of a potential claim by Windward against the Applicants and their solicitors, the deputy judge held that this reeked of desperation on the part of the Joint Administrators. The existence of such a claim was extremely doubtful and, even if the claim existed, was of no real significance.
The Joint Administrators had not asserted that the Applicants' chosen administrators would be unable or unwilling properly to discharge their duties. As a result, there was no reason for the court to second-guess the wishes of the majority creditor Applicants. The court directed that the Applicants' nominees should be appointed as administrators in place of the Joint Administrators.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
