Cineworld Group Plc, Re

An administration order may be made where the company is registered under the Companies Act 2006, is or is likely to become unable to pay its debts, and the order is reasonably likely to achieve an objective of administration. The inability-to-pay requirement is satisfied where insolvency is more probable than not. The court must apply the statutory objectives in their prescribed order of priority. A better result for creditors as a whole may justify administration where rescue as a going concern is unavailable, provided there is a real prospect of that outcome. The court retains a discretion to make the order and may give significant weight to creditor support and the scrutiny of a foreign restructuring court.

The directors of Cineworld Group plc applied for an administration order and the appointment of proposed administrators. The application formed part of a restructuring implemented alongside Chapter 11 proceedings in the United States. The application was unopposed.

The court considered whether the statutory jurisdictional requirements were met, including standing, inability to pay debts, and the reasonable likelihood that administration would achieve its statutory purpose. It also considered whether the proposed restructuring engaged The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021.

1. The application was granted and an administration order was made. The court was satisfied that the directors had standing under paragraph 12(1)(b) of Schedule B to the Insolvency Act 1986.

2. Under paragraph 11 of Schedule B, the court had to be satisfied that the company was or was likely to become unable to pay its debts and that the administration order was reasonably likely to achieve the purpose of administration. The company was a company registered under the Companies Act 2006, as required by paragraph 111(1A)(a).

3. The inability-to-pay requirement was met. Following Re AA Mutual International Insurance Co Ltd [2005] 2 BCLC 8, the relevant test was whether it was more probable than not that the company was or would become unable to pay its debts. The evidence established both balance-sheet insolvency and a very near-term inability to pay debts as they fell due.

4. Paragraph 3 of Schedule B prescribes the objectives of administration in order of priority. Rescue as a going concern was not realistically available without the proposed restructuring. There was, however, a real prospect of achieving the second objective: a better result for creditors as a whole than liquidation. The liquidation analysis and evidence showed that unsecured creditors and HMRC were unlikely to receive a distribution in liquidation and that liquidation costs would absorb the company’s free cash.

5. The court’s discretion should be exercised in favour of making the order. Relevant considerations included the views of the directors and proposed administrators, the overwhelming creditor support for the restructuring, and the careful scrutiny of the plan by the United States Bankruptcy Court.

6. The 2021 Regulations did not apply. In any event, the insertion of NewCo 2 into the restructuring structure addressed the concern raised and made the additional safeguards unnecessary. Time was abridged and the necessary consents and formalities were satisfied.