Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd

A creditor may apply for an administration order even where its debt is disputed, provided it has a good arguable case sufficient to establish standing. However, where that debt is relied upon to prove insolvency, the debt must be established on the balance of probabilities. The court is not required to import the winding-up practice concerning disputed debts into administration applications. The applicant must also show a real prospect that the statutory purpose of administration will be achieved. The particular purpose selected from the hierarchy in Schedule B1 does not alter these principles. Where the evidence establishes insolvency and a real prospect of achieving the purpose, the court retains a discretion but may make the order. Conflicts arising from the proposed appointment of an applicant’s liquidator may justify appointing an independent administrator instead.

Newbury Venture Capital Ltd, acting by its joint liquidators, applied for an administration order in relation to Berkshire Homes (Northern) Ltd under paragraph 12(1)(c) of Schedule B1 to the Insolvency Act 1986. Berkshire disputed the alleged inter-company debt, asserted substantial credits and cross-claims, and maintained that it was solvent. The central issues were whether Newbury had standing as a creditor despite the dispute, whether the debt could establish insolvency for paragraph 11(a), whether the statutory purpose condition in paragraph 11(b) was satisfied, and whether an administration order should be made.

1. Standing. A disputed debt does not prevent an applicant from qualifying as a creditor for paragraph 12(1)(c) of Schedule B1. A good arguable case that a sufficient debt is owing is enough for standing. The court has jurisdiction to hear the application without finally resolving the dispute. The winding-up practice concerning bona fide substantial disputes was not imported into administration applications, following Hammonds (a firm) v Pro-Fit USA Ltd [2007] EWHC 1998 (Ch) and the approach discussed in Fieldfisher LLP v Pennyfeathers Limited [2016] EWHC 566 (Ch).
2. Insolvency. Where the alleged debt is also relied upon to establish that the company is or is likely to become unable to pay its debts, the debt must be proved on the balance of probabilities. The applicant established a debt exceeding £1 million. The respondent failed to provide sufficient reliable evidence to reduce it below the company’s net assets of £332,589. The company was therefore unable to pay its debts for the purposes of paragraph 11(a).
3. Purpose and discretion. The applicant also demonstrated a real prospect that administration would achieve the statutory purpose. The particular purpose within paragraph 3(1) was irrelevant to the applicable approach. The conditions in paragraph 11 were satisfied, and the court exercised its discretion to make an administration order.
4. Appointment. Because the applicant’s liquidator would face inevitable conflicts in determining the inter-company indebtedness, appointing him as joint administrator would add costs and was undesirable. Miss Wallace was appointed sole administrator, or with another member of her insolvency practice if appropriate consent was produced.