Information Governance v Popham

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 a statutory purpose. The court retains a discretion after those conditions are met. Where insolvency is uncertain, liabilities are largely owed to shareholders or associated businesses, and newly appointed directors may investigate whether the business can be revived, the court may refuse the order. A validly issued application remains within the court’s jurisdiction despite subsequent changes to the company’s board.

Information Governance Limited’s sole director applied under Insolvency Act 1986 Schedule B1 for the appointment of administrators. The application was opposed by the defendant and other shareholders, who had appointed themselves directors under a shareholders agreement shortly before the hearing. The company’s financial position was uncertain. Most liabilities were owed to shareholders or associated businesses, while the company’s remaining assets principally comprised intellectual property and its business operations might potentially be revived.

The court had to determine whether the statutory conditions for administration were satisfied, whether it retained jurisdiction after the changes to the board, and whether an administration order should nevertheless be made in the circumstances.

1. The court found that, for the purposes of paragraph 11 of Schedule B1 to the Insolvency Act 1986, Information Governance Limited was unable to pay its debts as at the hearing. The conclusion was reached cautiously. The company was not clearly and irredeemably insolvent, and the position depended substantially on whether its business could be revived and on the attitude of significant shareholder-creditors.

2. The court was also satisfied that an administration was reasonably likely to achieve a better result for creditors than a winding up. The relevant statutory purpose was therefore established.

3. Those findings did not compel an administration order. The court retained a discretion. In exercising it, the court took account of the unusual shareholder dispute, the possibility of continuing the business, and the fact that two newly appointed directors considered that the company’s affairs and viability should be investigated.

4. The appointments of Mr Greenslade and Mr Clelland as directors were valid. Clause 2.2 of the shareholders agreement gave each founding shareholder an independent right to appoint and maintain a director, including himself. That contractual right was distinct from the power to appoint an alternate director under Table A and was not subject to the approval requirement in Schedule 3.

5. The application had been validly made under paragraph 12(1) of Schedule B1 when Mr Hall was sole director. The subsequent appointments did not deprive the court of jurisdiction. Nevertheless, the court considered it inappropriate to make an order immediately. The application for administration was refused and dismissed.

First-instance decision. No appellate history was stated in the judgment.