Healthcare Management Services Ltd v Caremark Properties Ltd

An administration order may be made where the company is unable, or likely to become unable, to pay its debts and administration is reasonably likely to achieve its statutory purpose. When rival administrator nominees are equally suitable, the court may use the relative value of the creditors’ debts as a tie-breaker. That preference is not an absolute right and may be displaced by countervailing considerations, such as a nominee’s prior involvement in investigating the company’s affairs or the avoidance of further delay and cost. The court should discourage disputes that concern creditor conflict rather than the nominees’ suitability, independence or the interests of creditors generally.

Healthcare Management Services Ltd applied as a creditor for an administration order in respect of Caremark Properties Ltd. Jenmark Ltd appeared as another substantial creditor and opposed Healthcare’s nominated administrators, proposing alternative nominees.

The court was satisfied that Caremark could not pay its debts and that administration was reasonably likely to achieve a better result for creditors as a whole than immediate liquidation. The central dispute concerned the selection of administrators. The rival nominees were equally competent, experienced and suitable, and the issue was whether Jenmark’s status as the larger creditor should determine the appointment.

1. The court had jurisdiction under paragraph 11 of Schedule B1 to the Insolvency Act 1986. Caremark was unable to pay its debts, and administration was reasonably likely to achieve the purpose of obtaining a better result for creditors as a whole than liquidation.

2. The court also had a discretion under paragraph 13 of Schedule B1 whether to make an administration order or take another course. There was no reason to withhold the order.

3. The rival nominees were persons of competence, experience and integrity. There was no material concern that the appointment of either set would undermine the principle that justice must be done and seen to be done, or that administrators should act, and be seen to act, in the interests of creditors generally.

4. The authorities, including Fielding v Seery [2004] BCC 315, as referred to and endorsed in Med-Gourmet Restaurants Ltd v Ostuni Investments Ltd [2010] EWHC 2834 (Ch) and Stanley International Betting Ltd v Stanleybet UK Investments Ltd [2011] BCC 691, supported giving greater weight in the ordinary case to the views of the creditor group having the majority by value. That majority does not have an absolute right to choose the administrators and does not bind the court.

5. Where the rival candidates are otherwise equal and no countervailing consideration exists, relative creditor value may operate as a tie-breaker. Relevant countervailing matters might include a nominee’s prior investigation of the company’s affairs, substantial progress in advising on issues arising in the administration, or the avoidance of additional cost and delay.

6. Jenmark was the larger creditor and there was no countervailing factor favouring Healthcare’s nominees. The administration order was therefore made and Jenmark’s nominees were appointed. The court regarded the dispute as unfortunate and inappropriate, and indicated that it would take considerable persuasion before making a costs-shifting order, apart from formal costs associated with the application and possibly the winding-up petition.