In the Matter of Hawkwing Plc

For an administration order, the applicant must establish that the company is, or is likely to become, unable to pay its debts and that administration is reasonably likely to achieve a statutory purpose.

Cash-flow insolvency may be shown by inability to meet a debt falling due in the reasonably near future. Balance-sheet insolvency requires proper allowance for contingent and prospective liabilities. Speculative future profits, acquisitions, conversions or recoveries cannot ordinarily be treated as present assets or reliable means of meeting liabilities.

A real prospect of achieving an administration purpose is sufficient; it need not be more probable than not. In exercising its discretion, the court must assess creditors’ views commercially, giving reduced weight to connected creditors and greater weight to independent creditors.

Hanover Investors Management LLP, on behalf of Hanover Catalyst Fund, held convertible unsecured loan notes issued by Hawkwing Plc. Following breaches of the note instrument, Hanover served a redemption notice and statutory demand after the company failed to pay the redemption sum.

Hanover applied for the appointment of administrators. Hawkwing opposed the application, relying on purported waivers, the proposed amendment of the note instrument, anticipated recoveries from associated businesses and opposition from other noteholders.

The central issues were whether Hanover was a creditor with standing, whether Hawkwing was or was likely to become unable to pay its debts, whether administration was reasonably likely to achieve a statutory purpose, and how the court should exercise its discretion in light of creditor opposition.

1. Standing. Hanover was a creditor for the purposes of Insolvency Act 1986, Schedule B1, paragraph 12(1)(c), including because a creditor may be contingent or prospective. A good arguable case that a debt is owing is sufficient for standing.
2. Events of default and redemption. The loan to IFG SPP was contrary to the note instrument and, by the time of IFG SPP’s liquidation, was not capable of remedy. The failure to obtain shareholder approval was independently an Event of Default. The defaults had not been waived by a Noteholder Majority when Hanover served its notice. Under the instrument, the redemption notice was valid when read with the covering email and follow-up email. Hanover’s debt therefore fell due in November 2022.
3. Inability to pay debts. The company’s inability to pay Hanover’s debt was sufficient to establish cash-flow insolvency. The court also considered debts falling due in the reasonably near future. The balance-sheet test required proper allowance for the doubtful IFG SPP loan, uncertain guarantees and other contingent or prospective liabilities. Speculative future conversion of notes, future acquisitions and possible recoveries could not cure the company’s insolvency. The company was both cash-flow and balance-sheet insolvent, or was likely to become so.
4. Purpose of administration. There was a real prospect that administration would rescue the company as a going concern or achieve a better result for creditors as a whole. The second purpose was more likely, but a real prospect did not require a probability exceeding 50 per cent. Administration would provide a moratorium, independent investigation and a wider range of options than liquidation.
5. Discretion. Creditor opposition was not determined by simple arithmetic. The court assessed the commercial rationality and independence of the opposing creditors’ views. Dowgate, Gresham House and Oberon were connected with the company or its management, and their opposition was commercially unsupported. Hanover was the only independent creditor engaging with the proceedings. The court therefore granted the administration order and appointed Sarah Megan Rayment and Robert John Armstrong of Kroll Advisory Limited as joint administrators.

First-instance decision. The judgment gives reasons for the order made on 10 February 2023 appointing joint administrators.