Rowntree Ventures Ltd & Anor v Oak Property Partners Ltd & Anor

An administration application requires proof, on the balance of probabilities, that the company is or is likely to become unable to pay its debts and that administration is reasonably likely to achieve an administration purpose. The court must then exercise its discretion by comparing administration with realistic alternatives, including allowing the company to continue outside insolvency. Administration is not justified merely to investigate suspected wrongdoing. Even where the statutory preconditions are satisfied, an order may be premature if creditors and the company have better prospects without it.

Leaseholders of hotels owned by Oak Property Partners Ltd and Oak Forest Partnership Ltd applied for administration. They claimed standing as prospective creditors because they had served notices requiring the companies to repurchase their long leases. The applications concerned the companies’ ability to fund substantial future repurchases and the realism of their financial projections.

The court considered whether each company was or was likely to become unable to pay its debts, whether administration was reasonably likely to achieve its purpose, and whether an administration order should nevertheless be made in the exercise of discretion.

1. Statutory preconditions. Under Insolvency Act 1986 Sch B1 paras 11 and 3(1), the court had to be satisfied on the balance of probabilities that each company was or was likely to become unable to pay its debts and that administration was reasonably likely to achieve an administration purpose. A realistic chance of achieving at least one statutory purpose was sufficient; no particular purpose had to be specified in the order.
2. Insolvency. Both companies’ apparent solvency depended on optimistic assumptions, including the recoverability of substantial debts, rapid resales of repurchased properties and favourable valuations. The court concluded that each company was or was likely to become unable to pay its debts.
3. Discretion. The preconditions did not compel an administration order. Although administration might produce a better result than winding up, the preferable course was to allow each company an opportunity to address its difficulties outside a formal insolvency process. Immediate appointment would incur heavy costs and was premature. Administration is not ordered merely because applicants seek an investigation into suspected misconduct.
4. Alleged wrongdoing. Suspicion of past fraud or concern about offshore ownership did not justify intervention. The position might have differed on firm evidence that those in control had misappropriated assets or were likely to do so before formal insolvency. The court distinguished the intervention in Hammonds v Pro-Fit USA Ltd [2008] 2 BCLC 159, where an order was desirable for limitation purposes.
5. Disposition. The applications for administration were declined for both companies.