Data Power Systems Ltd & Ors v Safehosts (London) Ltd & Anor

Insolvency alone does not justify an administration order. The court must be satisfied that administration is reasonably likely to achieve one of the statutory purposes. That threshold is not satisfied by assertion alone. The applicant must provide sufficiently cogent and credible evidence showing a realistic prospect of rescue, a better result for creditors as a whole, or the realisation of property for secured or preferential creditors.

The statutory purposes are prioritised, and an administrator must act in the interests of creditors as a whole and as quickly and efficiently as reasonably practicable. Where the evidence does not establish the statutory threshold, the court may use its wider powers to treat the application as a winding-up petition and appoint a provisional liquidator to preserve and realise assets.

The applicants, including creditors and a shareholder, applied for Safehosts (London) Limited to be placed in administration. The company was insolvent and had substantial unsecured liabilities, but there was disagreement about the appropriate insolvency practitioners.

The court considered whether the evidence established that administration was reasonably likely to achieve a statutory purpose. The evidence consisted principally of assertions, an undated potential business proposal, irreconcilable forecasts and a general administration strategy. The central issue was whether the statutory threshold for an administration order had been met and, if not, what alternative order should be made.

1. Administration threshold. The court was satisfied that the company was unable, or likely to become unable, to pay its debts. However, paragraph 11(b) of Schedule B1 to the Insolvency Act 1986 required a separate finding that an administration order was reasonably likely to achieve the purpose of administration.
2. The relevant threshold was not a balance-of-probabilities test, but it required sufficiently cogent and credible evidence establishing a realistic prospect of achieving a statutory purpose. A bare assertion that administration would rescue the company or produce a better result for creditors was insufficient. The evidence did not show that the company could be rescued as a going concern, that administration would produce a better result for creditors as a whole, or that there was value for secured or preferential creditors.
3. The objectives in paragraph 3(1) of Schedule B1 were prioritised. The administrator’s statutory duty was to perform functions in the interests of creditors as a whole. On the evidence, administration costs were likely to absorb the available assets, so paragraph 11(b) was not satisfied. Insolvency by itself was insufficient.
4. Further adjournment was inappropriate. Administration required functions to be performed as quickly and efficiently as reasonably practicable, and the company’s urgent financial position made delay contrary to the statutory purpose.
5. Under paragraph 13 of Schedule B1, read with section 125 of the Act, the court could treat the application as a winding-up petition. It could then appoint a provisional liquidator under section 135, with functions and powers specified in the order. The application was treated in that way, and a provisional liquidator was appointed after the short adjournment. The company was subsequently compulsorily wound up, following a sale of assets which generated a surplus after costs.

First-instance decision. No prior appellate decision is stated in the judgment.