Patley Wood Farm LLP v Brake & Ors (t/a Stay in Style)

An administration application by a partnership must be made with the authority required by the partnership’s constitution and the applicable insolvency legislation. General agreement in principle to administration does not validate a different application filed without the partners’ approval. Where the application is defective, the court may add a creditor as applicant if doing so permits an efficient determination of the substantive issues and causes no unfairness.

An administration order requires proof that the partnership cannot pay its debts and that administration has a real prospect of producing a better result for creditors as a whole than liquidation. A proposed administrator is unsuitable where an inevitable conflict exists between duties owed to partnership creditors and duties owed as trustee in bankruptcy of individual partners.

Patley Wood Farm LLP applied for an administration order in respect of a partnership trading as Stay in Style. The application incorrectly stated that PWF was a creditor of the partnership. The respondents, who were bankrupt partners, opposed the application and challenged its constitution, the partnership’s insolvency, the comparative benefit of administration, and the suitability of the proposed administrators.

The court also considered whether Mrs Brehme, who had advanced substantial funds to the partnership and was willing to be joined, should be added as an applicant. The central issues were whether the application had proper authority, whether the statutory conditions for administration were met, and whether the proposed office-holders could act without an unavoidable conflict.

1. Standing and authority. The respondents had a sufficient interest to address whether the application was properly brought. The application was not made by PWF as creditor because PWF was not a partnership creditor. Nor was it an application made by the members in their capacity as such. The respondents’ earlier support for administration was only agreement in principle. They had not approved the actual application and supporting evidence filed at court.
2. In the absence of an express provision permitting majority action, the partnership deed’s unanimity requirement and the statutory scheme meant that a single member could not validly make the application. The application therefore failed in its original form.
3. Insolvency. The partnership was unable to pay its debts. Its assets were worth less than £900,000 even including the Cottage, while its liabilities were substantially greater. Mrs Brehme had at least a good arguable case that the £1·2m advance was a partnership debt. It was unnecessary to resolve the respondents’ cross-claim before assessing insolvency.
4. Purpose of administration. Under Insolvency Act 1986 Schedule B1, administration required a real prospect of achieving a better result for creditors than liquidation. The evidence showed likely advantages from VAT recovery, savings in ad valorem fees, and the possible realisation of goodwill, intellectual property and chattels through an existing business. The statutory test was satisfied.
5. Joinder and administrators. Mrs Brehme was added as an applicant under CPR r 19.2. Refusing joinder would cause delay and duplicated costs, and the respondents had long known of her creditor claim. Mr Swift was unsuitable as administrator because his trusteeship of the respondents’ bankrupt estates created an inevitable conflict concerning the Cottage and the May 2015 Charge. Mr Elliott and Mr Ramsbottom were appointed instead. An administration order was made.