EPIS Services Ltd v Revenue & Customs

For an administration order, the court must be satisfied that administration is reasonably likely to achieve its statutory purpose. Where the purpose is a better result for creditors as a whole, this requires a real prospect of a better outcome; a 50/50 chance is unnecessary, but the statutory threshold remains a genuine test. Evidence must support the proposed comparison between administration and liquidation. General assertions about asset realisations, contract benefits, or a purchaser’s willingness to pay may be insufficient where the underlying contractual and valuation evidence is unclear. If the threshold is not established, the court cannot make the administration order and may allow the company to be wound up instead.

EPIS Services Ltd, a company providing security equipment and services, applied for an administration order under Schedule B1 of the Insolvency Act 1986. The company had ceased trading and was plainly insolvent. Her Majesty’s Revenue & Customs opposed the application while pursuing substantial VAT and other debts.

The proposed administrators considered that administration would produce a better result for creditors as a whole than liquidation. The company relied on an estimated comparison showing a possible return to unsecured creditors in administration, whereas liquidation was forecast to produce no such return. The central issue was whether the evidence established that administration was reasonably likely to achieve that better result.

1. Application refused. The court declined to make an administration order. The company would instead be wound up.
2. Under paragraph 11(b) of Schedule B1 of the Insolvency Act 1986, the relevant question was whether administration was reasonably likely to achieve its purpose, namely a better result for creditors as a whole. The threshold was not particularly high. It did not require a 50/50 chance, but it did require a real prospect of achieving the statutory purpose.
3. The statements of the proposed administrators were relevant, but their weight depended on the circumstances and the quality of the underlying evidence. The estimated comparison between liquidation and administration contained significant assumptions. In particular, the evidence did not adequately explain the company’s customer contracts, the basis on which they might terminate, or why liquidation would necessarily produce the assumed losses.
4. The proposed increase in trade-debtor realisations was insufficiently supported. Any benefit from contracts being performed through Anglo could also be pursued by a liquidator. Similarly, the proposed values for plant, equipment, furniture, goodwill, stock and work in progress depended on a purchaser willing to pay, yet there was no sufficiently specific evidence of what Anglo was prepared to pay or of the basis of the valuation.
5. Although the court recognised that the statutory test was comparatively low, the threshold remained a test. On the evidence, it was not reasonably likely that administration would produce a better result for creditors as a whole. The court therefore did not need to consider the further discretionary matters raised.
6. The Revenue’s costs of the administration application were to be treated as expenses of the liquidation. The applicant’s own costs were to be paid by the applicant.