Plants to Go Ltd, Re

An administration order may be made retrospectively where the validity of an out-of-court appointment is questionable, provided the court has power to do so and the statutory objectives are otherwise met. The relevant test is whether administration offers a realistic prospect of achieving a better result for creditors than winding up; certainty of a better outcome is unnecessary. In a pre-pack administration, the court should scrutinise the proposal because of the risk of a transaction being a stitch-up, but the procedure is established and may be approved where the evidence demonstrates a realistic prospect of improved creditor outcomes.

The applicants sought an administration order for Plants to Go Limited. The directors had purported to appoint an administrator out of court but had failed to serve notice on a qualifying floating charge holder, raising doubt about the appointment’s validity. The company was subject to a voluntary arrangement which had failed, and winding up appeared to be the only realistic alternative to administration.

The application was presented as a pre-pack. The court considered the administrator’s evidence, the estimated outcome statement, observations from the qualifying floating charge holder and the supervisor of the voluntary arrangement, and the proposed waiver of substantial director indebtedness.

1. The administration order was made with retrospective effect from 12.35 pm on 13 March 2009. The court was satisfied that it had power to make such an order, relying on Re G-Tech Construction Ltd [2007] BPIR 1275.

2. The failure to serve notice on the qualifying floating charge holder created a question about the validity of the directors’ purported out-of-court appointment. The retrospective order resolved that difficulty.

3. The relevant question was whether administration offered a realistic prospect of achieving a better result for creditors than winding up. A certain or guaranteed improvement was not required. The estimated outcome statement and the administrator’s evidence established that prospect.

4. A pre-pack arrangement warrants scrutiny because of the risk that it may be a stitch-up. That concern does not make the procedure impermissible. Here, the reasons for expecting a better creditor outcome had been explained in sufficient detail, and the voluntary arrangement had failed.

5. The order was also supported by the directors’ undertaking to waive substantial indebtedness. The directors remained in charge of the business by arrangement with the administrator, who was expected to consider applying to the court again if the prospect of achieving a better result ceased to exist.