Shaw v Webb & Ors

Meeting the statutory preconditions for administration does not compel the court to make an administration order. The court retains a discretion and must consider the reliability of the evidence, the interests of creditors, and the consequences of making the order where a winding-up petition is pending. Material post-petition dispositions requiring explanation, together with unreliable evidence, may justify refusing administration. The court may instead use its statutory powers to transfer and call on the winding-up petition, appoint a provisional liquidator, continue the moratorium, and permit a short period for the realisation of the company’s trade and assets.

The sole director of Brown Bear Foods Limited applied under paragraph 12(1)(b) of Schedule B1 to the Insolvency Act 1986 for the appointment of joint administrators. A winding-up petition was pending in respect of unpaid rent, and a qualifying floating charge holder was also involved.

The statutory conditions for administration appeared to be satisfied. However, the evidence disclosed substantial post-petition payments to connected parties, an inadequately explained share acquisition, and significant concerns about the reliability and completeness of the applicant’s evidence. The central issue was whether the court should exercise its discretion to make an administration order or adopt another insolvency process.

1. Administration refused. Although the preconditions in paragraph 11 of Schedule B1 appeared to be satisfied, they did not require the court to make an administration order. The court retained a discretion under the statutory scheme.
2. The discretion had to be exercised having regard to the evidence, the interests of creditors, and the consequences of administration where a winding-up petition was pending. At least £115,000 had been paid after presentation of the petition to connected parties or for non-business purposes without satisfactory explanation. Other payments might also be unjustifiable. The applicant bore the onus of explaining them.
3. The documentation relating to the acquisition of the company’s share created further concerns. Taken together with the unexplained payments and deficiencies in the evidence, it meant that the court lacked sufficient confidence in the applicant’s evidence to make the administration order. The court applied the principles stated in Re Bowen Travel Ltd [2012] EWHC 3405 (Ch) and Re Integral Ltd [2013] EWHC 164 (Ch).
4. The court considered the powers available under paragraph 13 of Schedule B1. Treating the application as a winding-up petition was unattractive because, under section 129(1A) of the Insolvency Act 1986, winding up would be deemed to commence on the making of the order. The appropriate course was therefore to transfer and call on the winding-up petition, appoint a provisional liquidator with powers to realise the trade and assets and investigate post-petition dispositions, continue the moratorium until the return date, and allow a short period for realisation of the business.

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