HSBC Innovation Bank Limited v Stenn International Limited & Anor

An administration order may be made where the applicant has standing, the company is insolvent, and there is a real prospect of achieving an administration objective. A better realisation for creditors may be established where administration preserves employment contracts and a critical servicing function that would be disrupted by liquidation. The court may rely on cash-flow insolvency without deciding balance-sheet insolvency. A reasonable prospect of realising property for secured or preferential creditors is sufficient for the relevant administration objective.

HSBC Innovation Bank Limited applied for administration orders in respect of Stenn International Limited and Stenn Assets UK Limited. The applicant relied on unpaid liabilities under a revolving credit facility and a guarantee. The companies had indicated their consent, and neither respondent appeared at the hearing.

The court considered whether HSBC had standing, whether the companies were insolvent, and whether there was a real prospect of achieving a recognised purpose of administration.

1. Standing. HSBC was a creditor of Stenn Assets UK Limited under the revolving credit facility. An event of default had occurred, demands for payment had been served, and approximately £35 million remained unpaid. Stenn International Limited was guarantor of those obligations, and a demand had also been made on it. HSBC therefore had standing to apply.
2. Insolvency. Both companies were cash-flow insolvent because they had failed to pay debts due under the facility and guarantee. Their financial statements indicated that they lacked sufficient cash to discharge the liabilities. The freezing of their bank accounts reinforced that conclusion. It was unnecessary to decide balance-sheet insolvency, although the judge stated that he would have found Stenn International balance-sheet insolvent and Stenn Assets UK likely to become so because its business model appeared unsustainable.
3. Administration purposes. There was present doubt about rescuing the companies, but there was a real prospect of achieving the second objective for both companies and the third objective for Stenn Assets UK. Administration offered a better realisation for creditors because it would preserve employment contracts and enable the servicing function for the companies’ debts and invoices to continue with minimal disruption. Liquidation would automatically terminate the employment contracts and require a complex, time-consuming and disruptive transfer to a backup servicer.
4. HSBC was secured creditor of Stenn Assets UK. There was consequently a reasonable prospect of realising property for distribution to secured or preferential creditors.
5. Administration orders were made in respect of both companies.