Case details
Summary
Although the statutory threshold for an administration order may be met, the court retains a discretion to refuse the order where administration would remove a liquidator’s access to potentially important remedies. In particular, substantial post-petition dispositions may engage Insolvency Act 1986, s.127. The court should consider whether administration would actually produce a better result for creditors if those dispositions could not be challenged. A liquidation does not necessarily require an immediate cessation of trading: a liquidator may, where appropriate, continue the business or realise value through a subsidiary.
Factual background
The directors of an insolvent company providing food-delivery services through IT platforms applied for the appointment of an administrator. They contended that administration would preserve goodwill and achieve a better result for creditors than liquidation. Creditors opposed the application. The company had received and spent substantial sums after presentation of a winding-up petition, including share investment and a VAT refund. The central issue was whether the court should exercise its discretion to make an administration order despite the possible consequences of those post-petition dispositions and the availability of liquidation.
Held
- Administration purpose. The evidence established insolvency and was sufficient, at the low statutory threshold, to show that administration might achieve a better result for creditors than liquidation. An alternative administration purpose, involving distribution to secured creditors, was also available.
- Discretionary refusal. The court nevertheless declined to make an administration order. Substantial sums had been disposed of after presentation of the winding-up petition. Those dispositions might be void under s.127 of the Insolvency Act 1986, which does not depend on extravagance or other wrongdoing. Its purpose includes protecting pari passu distribution in a liquidation. Replacing a liquidator with an administrator could remove the office-holder’s access to that remedy and might therefore prevent, rather than secure, a better result for creditors.
- Continuation of trading. It was material that a liquidator can in an appropriate case carry on the company’s business. Much of the trading appeared to occur through a subsidiary, so a liquidator might permit that trading to continue while realising the value of the subsidiary’s shares. The court referred to Re Brown Bear Foods Ltd Shaw v Webb and others [2014] EWHC 1132 (Ch) as an example of a provisional liquidator being appointed with full powers, including power to sell the business, where post-petition dispositions caused concern.
- The administration application was dismissed. The pending winding-up petition remained before the Bristol District Registry; no formal application to transfer it had been made.
The court’s approach to earlier authorities
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