European Directories v (DH6) BV

For an administration order, the court must be satisfied that the company is, or is likely to become, unable to pay its debts and that administration is reasonably likely to achieve its statutory purpose. The latter requires a real prospect of achieving that purpose; a probability exceeding 50 per cent is unnecessary.

A company incorporated elsewhere in the EEA may have its centre of main interests in England where objective and ascertainable facts show that its affairs, creditor dealings, strategic decisions and restructuring activity are conducted here. The registered-office presumption may therefore be rebutted. The court must assess the company separately from other group companies and decide the position at the date of the application.

European Directories, a Netherlands-incorporated intermediate holding company, applied for an administration order under Schedule B1 to the Insolvency Act 1986. Its group had substantial secured and unsecured liabilities, and a proposed restructuring would release the company from liabilities substantially exceeding the value of its assets.

The application was supported by the proposed administrators, the security trustee and the priority creditors. The central issues were jurisdiction, the company’s centre of main interests, insolvency, whether the purpose of administration was reasonably likely to be achieved, and the exercise of the court’s discretion.

1. Order made. The court made an administration order. The application had unanimous support and no opposition, but the court was required to scrutinise it to ensure that it was proper and not an abuse of insolvency remedies.
2. Under paragraphs 11 and 3 of Schedule B1 to the Insolvency Act 1986, the court had to be satisfied both that the company was or was likely to become unable to pay its debts and that administration was reasonably likely to achieve its purpose. The company was plainly cash-flow and balance-sheet insolvent. A liquidation would produce no return for junior creditors and materially worse recoveries for the priority creditors.
3. The company was a company within paragraph 111(1A)(b), because it was incorporated in an EEA state other than the United Kingdom. The registered-office presumption in Article 3(1) of the EC Regulation was rebutted. Applying the principles drawn from Re Eurofood IFSC, the court considered objective and ascertainable factors, including the location of strategic decisions, creditor negotiations, advisers, banking arrangements and restructuring activity. Those factors showed that the company’s centre of main interests was in England.
4. The requirement that administration be “reasonably likely” to achieve its purpose meant that there had to be a real prospect of doing so. It did not require proof of a greater than 50 per cent chance. The proposed restructuring offered a better result for creditors as a whole than the inevitable alternative of insolvent liquidation.
5. The court’s discretion should be exercised in favour of the order. The application complied, so far as possible, with the practice concerning pre-pack sales described in Re Kayley Vending Limited and R v Hallas Telecommunications Luxembourg SCA. The administration was therefore ordered.

The judgment was a first-instance decision. It records earlier Court of Appeal proceedings concerning the security trustee’s power under the intercreditor agreement, but those proceedings were not an appeal from this judgment.