British American Racing (Holdings) Ltd, Re Insolvency Act 1986

A creditor may apply for an administration order where it has a presently enforceable debt, even if contractual arrangements also contemplate longer-term or quasi-equity funding. The court must assess the application by reference to the statutory purposes of administration and the interests of creditors as a whole. An application is not an abuse merely because the applicant may bid for the company’s principal asset. The presence of independent administrators, as officers of the court, is critical. They must test the market, inform potential bidders and seek the best available realisation for creditors, without favouring the applicant.

BAT, the principal creditor and majority shareholder of British American Racing (Holdings) Ltd, applied under paragraph 12 of Schedule B1 to the Insolvency Act 1986 for an administration order. The company’s principal asset was its shareholding in a subsidiary operating a Formula 1 racing team. BAT had made several loans repayable on demand and sought repayment after arranging a proposed transaction with Honda.

Mount Eagle, a minority shareholder, challenged BAT’s standing and alleged that the application was an abuse of process because its purpose was to exclude the minority shareholders and facilitate a sale to a BAT/Honda vehicle. The central issues were whether BAT was a creditor entitled to apply and whether the administration was reasonably likely to achieve the statutory purpose.

1. Standing. BAT had presently enforceable claims in respect of the on-demand loans and the matured loan stock. Clause 8 of the fifth supplemental agreement gave a shareholder the right to provide funding through specified methods, but did not exclude other methods of lending. The company’s accounts and board conduct supported that construction. No estoppel arose from the alleged understanding that funding would be treated as equity. The alleged understanding was unsupported, inconsistent with the entire-agreement provisions and involved no identified detriment.
2. Statutory purpose. The company was insolvent within paragraph 11(a) of Schedule B1 to the Insolvency Act 1986. An administration sale was reasonably likely to produce a better result for creditors and shareholders than a winding up following BAT’s withdrawal of funding. The statutory objective in paragraph 3(1)(b) was therefore engaged.
3. Abuse of process. Re Bugle Press Ltd [1961] Ch 270 and Re a Company No 001573 of 1983 [1983] 1 BCC 98937 were distinguishable. Those cases concerned attempts to use statutory procedures to secure a private advantage or expropriate a minority interest. Here, the administrators would be officers of the court and were required by paragraph 3(2) of Schedule B1 to act in the interests of creditors as a whole.
4. BAT’s proposed BAT/Honda bid did not make the application abusive. The administrators had to expose the subsidiary’s shares to the market, notify and encourage potential bidders, and seek the highest obtainable offer, even if it exceeded the proposed bid. BAT’s purpose was to achieve the statutory objective of a better result for creditors, not to obtain a disproportionate benefit.
5. The administration order was made and joint administrators were appointed. The administrators were directed to report on the time required to test the market and the further finance needed to continue operations.

Not stated in the judgment.