UK Steelfixers Ltd

The court has a discretion whether to make an administration order even where the company is insolvent and administration is likely to produce a better result for creditors than liquidation. That discretion may properly be exercised against administration where the company’s affairs disclose potentially void post-petition dispositions under Insolvency Act 1986, section 127, and a liquidation is needed to investigate those transactions. A proposed pre-pack sale should not be approved where the evidence indicates that company assets or goodwill may already have been diverted to the proposed purchaser.

UK Steelfixers Ltd applied for an administration order on the usual ground that administration was likely to produce a better result for creditors than liquidation. A winding-up petition presented by HMRC was pending. After presentation of the petition, company receipts were directed to a company owned and controlled by an employee, enabling debts to be paid and the business to continue.

The proposed administrator supported a pre-pack sale of the business to that company. The central issues were whether administration should nevertheless be ordered and whether the post-petition transactions and possible appropriation of goodwill required investigation in a liquidation.

1. The application for an administration order was refused. Although the company was insolvent and the evidence showed that administration would ordinarily produce a better result than liquidation, the court retained a discretion whether to make the order.
2. The post-petition arrangements potentially constituted dispositions of company property made after presentation of the winding-up petition. Under section 127 of the Insolvency Act 1986, such dispositions are void unless the court otherwise orders. The transactions therefore required examination in a liquidation.
3. The evidence indicated that the company’s main customer and goodwill might have been transferred, or effectively usurped, for the benefit of the proposed purchaser. The proposed sale could not properly be assessed without investigating whether compensation was due to the company and whether the purchaser was creditworthy.
4. The court consequently concluded that the company should be put into liquidation. The winding-up petition was transferred to the court and a compulsory winding-up order was made.