In September 2016 the peer-to-peer lending company Lendy Ltd facilitated a loan to Mederco (Cardiff) Ltd. Lendy were acting as agent for some 3600 retail investors who collectively financed a facility of £6.4m, secured by a First Charge against a site with the benefit of planning permission in Mynachdy, Cardiff. The loan description on the Lendy website describes the site:
Development site with planning permission for student accommodation. The proposed scheme comprises of 6 detached 3 storey buildings providing a total of 249 self-contained studio rooms.
The company Mederco (Cardiff) Ltd were placed into administration on 17th Jan 2019 prior to any development work having taken place, and Mr Phillip Francis Duffy and Mr Steven Muncaster (from insolvency firm Duff & Phelps) were appointed Joint Administrators.
According to the Joint Administrators report dated March 8th 2019 the secured creditor Lendy Ltd are owed some £6.46m excluding contractual interest and charges. A further £9.2m is also due to ‘Non-Preferential Creditors’ of which some £8.9m is due to “over 100 investors who have all put down deposits ranging from 25%-75% of the purchase price of each unit”.
It is understood from court documents filed by the administrators that between May 2016 and July 2018 the company exchanged contracts with 150 of these investors whose interest in the property was protected by way of a unilateral notice (UN1).
Today’s hearing was an application made by the joint administrators for retrospective administration orders. Appearing on behalf of them was barrister Ms Georgia Purnell of Enterprise Chambers.
In court papers submitted by the Joint Administrators the court was told that the application for retrospective administration orders “arises from the Applicants’ concern that the purported extension of the term of the administration of the company by secured creditor consent to 17 January 2021 may have been invalid”.
It is understood that the company applied for an extension of the administration on 6th November 2019, as the initial 12-month-period was due to expire a number of weeks later in January 2020. The concern is eloquently described in written submissions by Ms Purnell:
The Applicants obtained the consent of the administrators of Lendy to extend the term of the administration to 17 January 2021. At the time, the Applicants believed Lendy to be the only “secured creditor” whose consent was required for the purposes of paragraphs 76 and 78. At that stage, therefore it was assumed that the appointment was valid and the relevant statutory requirements had been met. The Applicants therefore proceeded in the belief that the administration and their appointment continued to exist.
However, it was only after the application to the Court for an extension having taken advice on a similar but unconnected matter and considered s.248 of the Act that the Applicants realised that the Investors, as lien holders, are and should have been treated as “secured creditors”. It was not a conscious decision not to seek the Investors’ consent and the Applicants now understand and appreciate they possibly should have been treated as secured creditors and their consent obtained. The Applicants therefore consider that the term of the administration may have ended on 17 January 2020 and the consent procedure may have been defective, and possibly invalid, and make these applications to the Court accordingly.
Application 1
“An application for a retrospective administration order which shall take effect on 17 January 2020 at 12.15pm and a retrospective order that the administration be extended to 17 January 2022.“
The Judge considered the effect of Paragraph 77b of the Insolvency Act which states:
[An application to extend the Administration] “may not be made after the expiry of the administrator’s term of office.”
If the administration had expired in January 2020, and Ms Purnell was unsuccessful in her endeavours to argue that the phrase ‘may not’ is not the same as ‘must not’ then this application would fail.
Application 2
“In the alternative, an application for two successive retrospective administration orders. The first to take effect on 17 January 2020 at 12.15pm and the second to take effect on 17 January 2021 at 12.15pm.
Ms Purnell accepted that the case of Kaupthing Capital “cast doubt” on the court’s ability to make this alternative order. However, she contended in written submissions that the matter before the court today was “distinguishable” and in any event “with the upmost respect for the learned Judges, wrongly decided and not binding on this Court.” Kaupthing Capital stated:
“Mr Todd QC sought to get round this by submitting that the court could and should make two administration orders, one following immediately upon the other. If Mr Todd QC’s submission was correct, this device could be deployed in every case to get round the prohibition in paragraph 77(1)(b) against extending the term. The submission must be wrong and I reject it”.
The alternative application
As an alternative His Honour Judge Davis-White QC considered whether a so-called G-Tech order could be made instead.
As the maximum term for an Administration Order is 12 months, it is understood a G-Tech order is backdated 364 days. This would allow a single day to allow an application for a 12-month-extension to be made.
Assuming this G-Tech order had been made today, which it wasn’t, this would mean the period of time from the original Administration ending and the order taking effect is some 4 weeks. Considering that “it may be the reality that such little happened [in that period] that it’s not worth wasting time on” HHJ Davis-White QC asked for further evidence to be filed by Thursday confirming whether that was indeed the case.
Ms Purnell also explained that the property was in the “early stages” of a sale to the Welsh Government for some £1.55m, and this was expected to complete within “the next few months”. She told the court that the existing UN1 holders were expected to retain their status after the sale.
His Honour Judge Davis-White QC reserved judgement in the matter and will hand down “in a week or so”.
CR-2021-LDS-000065 Mederco (Cardiff) Ltd – Administration Application 1 Day MS Teams
Before His Honour Judge Davis-White QC
Sitting as a Judge of the High Court
In the Business and Property Courts in Leeds
Monday 15th February 2021 14.00 T/E 2hrs
Mouse in the Court 
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