In the matter of Aartee Steel Group Limited

A contingent or prospective creditor may apply for an administration order even where the debt is not immediately payable. Repeated entries in company accounts may acknowledge a debt for limitation purposes. Insolvency may be established on either a cash-flow or balance-sheet basis.

An administration application must satisfy the statutory requirement that administration is reasonably likely to achieve one of the statutory objectives. The court need not accept an unsupported assertion that placing a holding company into administration will improve the realisation of assets held by subsidiaries already in administration. Where the company is plainly insolvent and liquidation is the more appropriate procedure, the court may treat the application as a winding-up petition.

Aartee Bright Bar Limited, acting through its administrators, applied for an administration order in respect of its parent company, Aartee Steel Group Limited. The application relied on an intercompany debt recorded in the companies’ audited accounts and alleged that the respondent was insolvent.

The respondent disputed the debt, raised limitation issues, challenged insolvency, and contended that administration was not reasonably likely to achieve its statutory purpose. The applicant alternatively relied on the potential realisation of assets and distributions connected with the respondent’s subsidiaries, both of which were already in administration.

The court therefore considered the applicant’s standing, the debt and limitation issues, the statutory tests for insolvency, whether administration was reasonably likely to achieve a statutory objective, and whether the application should instead be treated as a winding-up petition.

1. Standing and debt. A contingent or prospective creditor qualifies as a creditor for the purposes of an administration application. The applicant was therefore entitled to apply even if the debt was not immediately payable. The repeated recording of the debt in the companies’ accounts, together with the statement that it was repayable on demand, amounted to an acknowledgement for the purposes of Limitation Act 1980, ss 29–30.
2. Insolvency. The respondent satisfied the statutory condition in paragraph 11(a) of Schedule B1 to the Insolvency Act 1986. It was insolvent on both the cash-flow and balance-sheet tests in section 123 of that Act. The accounting dispute and the absence of direct knowledge by recent directors did not identify substantial grounds for challenging the debt, and the respondent lacked funds or realistically realisable assets with which to pay it.
3. Purpose of administration. Although an applicant need not necessarily identify the particular statutory objective relied upon, the court must still be satisfied that administration is reasonably likely to achieve an objective in paragraph 3 of Schedule B1. No sufficient case was established that administration of the holding company would produce a better result for creditors than liquidation.
4. Realisation of property. Reliance on paragraph 3(1)(c) was conceptually weak. The respondent’s property consisted principally of shares in subsidiaries whose assets were already being realised by their administrators. Administration of the respondent would therefore involve, at most, a passive or peripheral realisation of its own property.
5. Disposition. The court treated the administration application as a winding-up petition under paragraph 13(1)(e) of Schedule B1 and made a winding-up order. The applicant’s costs were treated as an expense of the liquidation. A possible conflict affecting the proposed administrators did not determine the outcome.

First-instance decision. The judgment records an earlier application concerning the cessation of the applicant’s administrators, dismissed by HHJ Stephen Davies: [2023] EWHC 606 (Ch). That decision was not under appeal in the present proceedings.