Kayley Vending Ltd, Re Insolvency Act 1986

In deciding whether to make an administration order where a pre-pack sale is proposed, the court must remain alert to obvious abuse which may disadvantage creditors. Information about the proposed sale and its background, including information required by SIP 16 so far as known or ascertainable, will usually fall within rule 2.4(2)(e) of the Insolvency Rules and should be provided with the application. The court should not ordinarily require a creditor to oppose the application before obtaining information needed to decide whether opposition is appropriate.

The court’s power to treat pre-appointment costs as expenses of the administration is discretionary. It should be exercised case by case, particularly by considering whether the benefit of the expenditure lies with creditors rather than existing management purchasing the business.

On 27 February 2009 the court made an administration order concerning Kayley Vending Limited on an application by its directors. The company faced a winding-up petition by HMRC for unpaid Crown debts of approximately £79,000. The proposed administrators were negotiating a going-concern sale to two unconnected competitors.

The judgment explains the court’s approach to pre-pack administration applications following the introduction of SIP 16. It also considers whether the proposed administrators’ pre-appointment costs should be treated as expenses of the administration, under rule 2.67(1)(c) of the Insolvency Rules or the discretionary power in paragraph 13 of Schedule B1 to the Insolvency Act 1986.

1. Pre-pack information. The court’s discretion on an administration application includes ensuring, so far as possible, that a proposed pre-pack is not obviously abusive or disadvantageous to creditors. Under rule 2.4(2)(e) of the Insolvency Rules, information which the applicant considers will assist the court must be included, whether favourable or unfavourable to the application. Information about the proposed pre-pack, its likely value and its background is ordinarily relevant.
2. SIP 16 does not itself add to the statutory or procedural requirements. Nevertheless, information required by SIP 16, insofar as known or ascertainable at the application date, will usually be information which assists the court and should therefore be supplied. The court should not ordinarily wait until the application is opposed, because a petitioning creditor should have sufficient information to decide whether opposition is justified.
3. The administrator’s power to dispose of the company’s business before a creditors’ meeting, and before proposals have been submitted, was established before and after the Enterprise Act reforms: Re T&D Industries Plc [2000] 1 WLR 646 and Re Transbus International Limited [2004] 1 WLR 2654. The court’s guidance does not alter that legal position or create a practice direction.
4. Commercially sensitive information may be protected from inspection under rule 7.31(5), but arrangements should ensure that protected material is not inadvertently disclosed.
5. Pre-appointment costs are not automatically costs of the administration application under rule 2.67(1)(c). The court may instead use paragraph 13(1)(f) of Schedule B1 on a discretionary, case-by-case basis. Following Re SE Services Ltd and Re Aldersley Battery Chairs Limited, the relevant consideration is whether the balance of benefit from incurring the costs lies with creditors rather than existing management as potential purchasers. The order was appropriate here because the proposed sale was to unconnected competitors and offered a potential benefit to creditors.
6. The administration order was made. The proposed administrators’ pre-appointment costs were approved as expenses of the administration.