In Cross Transport Ltd (In Administration) [2026] EWHC 1636 (Ch) the Court was asked to consider the “super priority” status afford to protected moratorium debts in the context of a subsequent administration.
The Insolvency Act 1986 requires a company, entering a moratorium, to pay certain debts that are incurred during the moratorium period (“moratorium debts”), There are also certain pre-moratorium debts (“pre-moratorium debts”) which the company does not have to pay during the moratorium period, but which remain due – the company benefits from a payment holiday. However, should the company enter administration within 12 weeks of a moratorium coming to an end, any unpaid moratorium debts or unpaid pre-moratorium debts (“Protected Moratorium Debts”) will be payable under para 64A of Part A1 of the Insolvency Act in priority to other administration expenses.
The question addressed in this case, was whether, when and if the costs and expenses of the administration could be paid ahead of Protected Moratorium Debts.
The judgment will be of particular interest to administrators, litigation funders and creditors where a company enters administration within the 12-week period following the end of a moratorium and there are unpaid Protected Moratorium Debts.
Background
The company entered a Part A1 moratorium on 23 March 2023.
During the moratorium, the company incurred Protected Moratorium Debts of approximately £643,000. Administration followed in June 2023, within the 12-week period that engages the super-priority regime in paragraph 64A of Schedule B1 which elevated Protected Moratorium Debts ahead of other administration expenses.
The administration estate itself had limited assets. However, the administrators were pursuing claims under sections 212, 238 and 239 of the Insolvency Act 1986 claiming £156,000 (“Existing Litigation”) and were investigating additional claims relating to the repayment of certain loans exceeding 1 million (the Loan Litigation).
The Existing Litigation was being funded by Pythagoras Capital Limited but if paragraph 64A required the Protected Moratorium Debts to be paid ahead of all other liabilities in every circumstance, the funder could not be sure of recovering its funding from any litigation recoveries. In those circumstances it indicated that funding of the Existing Litigation would be withdrawn and it would not fund the Loan Litigation.
The administrators therefore sought directions under paragraph 63 of Schedule B1 that litigation costs and expenses, including the funder’s entitlement under the funding arrangements, could be paid from the proceeds of the litigation ahead of Protected Moratorium Debts.
Does “Super Priority” Mean Absolute Priority?
The central issue was the proper construction of paragraph 64A.
On one view, the provision gives Protected Moratorium Debts an uncompromising priority. If that were correct, any recoveries generated by litigation would first have to be applied in payment of those debts, leaving insufficient funds to reimburse the costs of producing the recovery in the first place.
The judge accepted that paragraph 64A contains mandatory language. Protected Moratorium Debts benefit from a genuine “super priority” but drew an important distinction between priority and immediate payment. Para 64A does not ring fence available assets at the start of the administration so that they can be used to pay Protected Moratorium Debts.
Indeed, the Court considered such a construction would produce an absurd result.
If administrators were unable to incur and pay the costs required to realise assets or pursue claims until Protected Moratorium Debts had first been paid in full, many administrations would simply be unable to function. In circumstances where existing assets were insufficient to discharge the Protected Moratorium Debts, there might be no means of generating further recoveries at all.
The Court therefore found that the obligation to make payment must be considered in the context of the administrators’ statutory functions and duties to manage the company and pursue the purpose of the administration essentially placing the obligation on the administrators to decide whether it is appropriate to pay other administration expenses (for example to enable better realisations before paying Protected Mortarium Debts.
Litigation Funding Can Be Paid Ahead of Protected Moratorium Debts (in the right circumstances)
Applying that construction, the Court concluded that it is possible for administrators to enter litigation funding arrangements that entitled a funder to be paid from recoveries ahead of Protected Moratorium Debts if doing so was consistent with the purposes of the administration and represented a proper exercise of the administrators’ powers and duties.
That conclusion is likely to be the most significant practical aspect of the judgment.
The court did not say whether it was appropriate for the administrators to enter into the funding agreement in this case, leaving the question with the administrators whether it was appropriate to do so.
What Does This Mean in Practice?
The decision provides reassurance that the super-priority regime introduced to support the Part A1 moratorium was not intended to paralyse a subsequent administration.
Administrators must take their statutory obligation to pay Protected Moratorium Debts into account when making decisions. However, paragraph 64A does not prevent administrators from incurring and paying the costs necessary to carry out their functions and achieve the purpose of the administration.
In practice, administrators will need to weigh up the risk of paying administration expenses in the hope of achieving a better return, against the duty under para 64A to pay Priority Moratorium Debts. If the risk of achieving a better return is too high, the better choice might be to avoid incurring those costs and instead preserve and realise the current assets for the purpose of fulfilling the obligation to pay.
Much will depend upon the facts and circumstances and be a decision for the administrator.
Key Takeaways
Cross Transport is the first case to consider how paragraph 64A operates in practice and adopts a pragmatic interpretation.
While the decision confirms that Protected Moratorium Debts enjoy genuine super-priority status, it also confirms that super-priority is not absolute in every circumstance. Administrators retain the ability to incur and pay the costs necessary to realise assets and pursue claims for the benefit of the estate. Without that flexibility, many administrations following a moratorium would simply be unable to function.
For insolvency practitioners and litigation funders alike, that is likely to be the most important lesson from the judgment.