Corbett v Nysir UK Ltd

A disputed debt may confer standing to apply for an administration order if the applicant has a good arguable case that a debt of sufficient amount is owing. The court need not finally resolve the dispute at the jurisdictional stage.

That standing does not establish insolvency. For the purposes of Insolvency Act 1986, Schedule B1, paragraph 11, the court must assess the evidence concerning the company’s debts, assets, liabilities and any cross-claims. The practice of refusing winding-up petitions based on disputed debts is not automatically imported into administration applications, although disputes may be an important discretionary factor. An administration order should be refused where the proposed administration is vague and there is no compelling reason to displace existing management before the disputes are resolved.

Martin Corbett applied for the appointment of administrators to Nysir UK Ltd. He claimed approximately £668,508 under loan notes arising from the sale of shares in Operon and relied on Nysir UK’s failure to pay. Three other creditors supported the application.

Nysir UK alleged substantial cross-claims for breach of warranty and fraudulent misrepresentation, disputed the debt and opposed administration. It accepted that administration might achieve a better result for creditors than liquidation but disputed the appropriateness of making an order. The issues were whether Mr Corbett was a creditor for application purposes, whether Nysir UK was insolvent, and how the court should exercise its discretion.

1. Mr Corbett had standing under Schedule B1, paragraph 12(1)(c) of the Insolvency Act 1986. Following Hammonds v Pro-fit USA [2007] EWHC 1998, and preferring the approach of Oliver LJ and Lord Denning in Claybridge Shipping to that of Buckley and Nourse LJ in Stonegate v Gregory, a disputed debt could support an administration application where there was a good arguable case that a sufficient debt was owed.

2. The threshold for standing was distinct from the assessment of insolvency. The fact that an applicant qualified as a creditor for locus standi did not mean that the alleged debt had to be included in assessing solvency. Under Schedule B1, paragraph 11, read with section 123 of the Act, the court had to determine from all the evidence whether the company could pay its debts as they fell due or whether its assets were worth less than its liabilities. A disputed debt or cross-claim was assessed in the same way as any other disputed liability.

3. The court retained discretion to require the underlying dispute to be determined before making an administration order, either in separate proceedings or by deciding the issue itself. The administration procedure should not ordinarily be used to resolve substantial disputes about debts or cross-claims.

4. The winding-up practice was not automatically applicable to administration. However, the matters underlying that practice remained relevant to the discretion. The court considered the substantial disputed claims, Landsbanki’s opposition, the vagueness of the proposed administrators’ functions, the existing management’s negotiations and the status of Nysir UK as a non-trading holding company.

5. Although Nysir UK was or was likely to become insolvent and administration offered a better result than liquidation, there was no compelling reason to appoint administrators before the cross-claims and defences were determined. The application for an administration order was refused.

First-instance decision. No earlier or appellate decision is stated in the judgment.