Safe Business Solutions Ltd v Cohen & Anor (As Joint Administrators of Algrave Ltd & Ors)

Permission to commence proceedings against a company in administration is discretionary. The applicant must establish a case for relaxing the moratorium and show that the underlying claim has reasonable prospects of success. The court must consider whether permission would impede the purpose of the administration. Where that purpose has been achieved, there is a surplus, and creditors do not object, a balancing exercise may be unnecessary. If required, the applicant’s private-law interests must be balanced against the collective interests of creditors. The court should not conduct a mini-trial, but may refuse permission where the proposed claim is legally hopeless or unsupported by a reliable pleaded case.

Safe Business Solutions Ltd, acting through its liquidators, sought permission under paragraph 43 of Schedule B1 to the Insolvency Act 1986 to commence proceedings against 727 companies in administration and their administrators. The proposed claim alleged that the administrators, or the companies, had agreed to pay for the preparation of accounts, alternatively owed a reasonable sum for work done.

The administrators disputed the existence and performance of any contract, and raised delay. The central issues were whether the moratorium should be lifted, whether the administration’s purpose had been achieved, and whether the proposed claim had sufficient prospects to justify permission.

1. Permission was granted, subject to conditions. The court held that the starting point was the status of the administration at the hearing. The administrators accepted that its purpose had been achieved. There was a surplus, the creditors were limited, and the principal creditor did not oppose the application. Those circumstances provided powerful reasons for relaxing the moratorium.

2. The governing approach derived from Re Atlantic Computer Systems Plc [1992] Ch 505. The applicant had to make out a case for permission. The purpose of the moratorium was to enable the administration to achieve its purpose, while permission existed to avoid inequity. Where the purpose remained to be achieved, the court would balance the applicant’s legitimate interests against those of the creditors. Where the purpose had been achieved, that balancing exercise was not strictly necessary. If required, the same result followed because no prejudice to the administration was identified.

3. The delay in applying was unfortunate but did not justify refusal. The application would not affect the operation of the administration, and neither the principal creditor nor the administrators opposed it.

4. The court rejected a requirement that the claim be “seriously arguable” and preferred the familiar test of reasonable prospects of success. The test was consistent with the summary judgment approach and the test under rule 6.5(4)(b) of the Insolvency Rules 1986. The court should not grant permission for proceedings that were doomed to fail.

5. The proposed claim was not legally hopeless. The pleaded case raised substantial factual questions concerning the correspondence, any oral agreement, the identity of the contracting parties, possible conditions, price, performance and the quality of the work. Those matters required disclosure, evidence and potentially cross-examination. They could not properly be determined on the permission application. The claim therefore had reasonable prospects of success.