Court clarifies moratorium creditor super priority in Re Cross Transport Ltd

The High Court has given guidance on the scope of the "super priority" afforded to moratorium creditors under paragraph 64A of Schedule B1 to the Insolvency Act 1986, confirming that administrators retain the power to enter litigation funding arrangements that rank ahead of those creditors where doing so serves the purpose of the administration.

In Cross Transport Ltd (In Administration), Re [2026] EWHC 1636 (Ch), ICC Judge Jones, sitting in retirement, considered an application by the joint administrators of Cross Transport Ltd for directions as to whether costs and expenses incurred in pursuing litigation claims could be paid from any resulting recoveries ahead of payment to creditors whose debts arose during, or in connection with, the company's earlier moratorium under Part A1 of the Act.

The company had entered a court approved moratorium in March 2023, during which it incurred protected moratorium debts of just over £643,000, before entering administration within the twelve week window prescribed by paragraph 64A. With HM Revenue and Customs standing as both a protected moratorium creditor and the sole preferential creditor for a sum approaching £726,000, the administration's prospects of producing any meaningful return depended heavily on the successful pursuit of litigation claims, including an existing claim under sections 212, 238 and 239 of the Act and a further potential claim concerning loan repayments exceeding £1 million. The litigation funder had indicated it would withdraw support unless guaranteed recovery of its funding ahead of the protected moratorium debts, given the mandatory language of paragraph 64A requiring those debts to be paid in priority.

Counsel for the administrators argued that the payments fell within the administrators' general powers under paragraph 13 of Schedule 1 to the Act as necessary and incidental to their functions, and alternatively invoked equitable principles permitting recoveries to be applied first to litigation costs, as recognised in Katz v McNally, together with the court's inherent jurisdiction as exercised in Re Advent Computer Training Ltd.

ICC Judge Jones held that while paragraph 64A imposes a clear mandatory obligation to pay protected moratorium debts, conferring genuine super priority over other creditors, this did not amount to an absolute requirement of pre-payment that would prevent administrators from meeting expenses, contractual liabilities or remuneration incurred in pursuit of the administration's purpose. The statutory wording contained no requirement that assets existing at the commencement of administration be ring-fenced for those creditors, and reading such a requirement into the provision would produce an absurd result, effectively paralysing administrations and frustrating the recovery of assets that might otherwise benefit those same creditors.

Drawing an analogy with the established treatment of administration expenses under paragraph 99 of Schedule B1, and the reasoning in Re Salmet International Ltd and Re Paramount Airways Ltd (No 3), the judgement concluded that the obligation to pay protected moratorium creditors must be performed in the context of administrators properly exercising their functions and powers, rather than as a rigid precondition divorced from the practical realities of running an administration. The court noted this construction also avoided conflict with the general principle, reflected in Seear v Lawson and Patley Wood Farm LLP v Kicks, that office holders are not expected to fund expenses such as litigation personally.

On that basis, the administrators were found to have power to enter funding arrangements ranking ahead of the protected moratorium creditors, though the court declined to direct whether they should exercise that power on the facts, leaving that judgement to the administrators themselves.