Baltic House Developments Ltd v Cheung & Anor

For an administration order, the applicant must show a real prospect that a statutory purpose will be achieved. This is a lower threshold than proof on the balance of probabilities, but speculation is insufficient. If jurisdiction is established, the court retains a wide discretion and must weigh the interests of all relevant creditors.

Where the proposed purpose is realisation of property for secured or preferential creditors, additional administration costs may amount to unnecessary harm to creditors as a whole. The court must compare those costs with the potential benefits of administration. A marginal benefit will not justify materially greater expense. The court may refuse an order both for lack of jurisdiction and, alternatively, in the exercise of its discretion.

Baltic House Developments Ltd operated a property-development project funded substantially by investor purchasers. The development had stopped, the company was insolvent, and two investors had presented winding-up petitions. The company applied for the appointment of administrators, relying first on the objective of realising property for secured or preferential creditors and, shortly before the hearing, on achieving a better result for creditors as a whole than liquidation.

The proposed administration involved selling the incomplete property or exploring a build-out or funded acquisition. The court considered whether either statutory purpose had a real prospect of being achieved, the effect of additional administration costs, the creditors’ preference for liquidation, and the scope of the court’s discretion.

1. Application dismissed. The company was hopelessly insolvent, satisfying the insolvency requirement, but neither relied-on purpose was shown to have a real prospect of achievement.
2. The court adopted the approach in Auto Management Services Ltd v Oracle Fleet UK Ltd [2007] EWHC 392 (Ch). A real prospect is required, not proof on the balance of probabilities, but there must be substance and reality rather than speculation. If the threshold is met, the court has jurisdiction; the decision whether to make the order remains discretionary.
3. For the purpose in paragraph 3(1)(b) of Schedule B1 to the Insolvency Act, the late material consisted principally of two expressions of interest. They gave insufficient detail about funding, resources, price or commitment. They were therefore not cogent or compelling evidence of a better result.
4. For the purpose in paragraph 3(1)(c), administration was likely to cost more than liquidation. The additional cost was not automatically decisive, since potential benefits had to be weighed against it. Here, the possible benefits—including earlier appointment, avoiding a period with the Official Receiver, and the limited advantage of the administrator’s security-removal power—were marginal and did not outweigh the additional expense.
5. The court also treated the creditors’ substantial preference for liquidation as a powerful discretionary factor. Even if jurisdiction had existed, the court would have refused the appointment in its discretion. The application was accordingly dismissed.