Petrofac Limited, Re

An administration order may be made only where the company is unable, or likely to become unable, to pay its debts, administration is reasonably likely to achieve a statutory purpose, and the court has jurisdiction. For the purpose of achieving a better outcome for creditors than an immediate winding up, “reasonably likely” requires a real prospect of a better result; a prospect of no worse an outcome is insufficient. For an overseas company, the registered-office presumption as to COMI may be rebutted by evidence showing, ascertainable by creditors, that the company administers its interests in the United Kingdom.

Petrofac Limited, a Jersey-incorporated holding company, applied urgently for an administration order after the termination of a key contract made a proposed pre-pack administration unviable and creditors demanded payment. The application followed unsuccessful restructuring efforts, including a Part 26A plan whose sanction had been reversed by the Court of Appeal.

The court considered whether the company was unable to pay its debts, whether administration was reasonably likely to produce a better outcome for creditors than winding up, whether its centre of main interests was in the United Kingdom, and whether an administration order should be made in the exercise of the court’s discretion.

1. The application was granted and an administration order was made. The statutory conditions and jurisdictional requirements were satisfied, and there was no reason to decline the exercise of the court’s discretion.
2. Under section 123 of the Insolvency Act 1986, applied with the guidance in BNY Corporate Trustees Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, the court considered debts falling due from time to time and in the reasonably near future. Existing defaults, including an unpaid collateral demand, and substantial debt falling due shortly afterwards established inability to pay.
3. For paragraph 11(b) of Schedule B1 to the Insolvency Act 1986, the “reasonably likely” threshold requires a real prospect that administration will achieve a better outcome for creditors as a whole than winding up. It is insufficient to show only a real prospect of no worse an outcome. The approach in Auto Management Services Ltd v Oracle Fleet UK Ltd [2007] EWHC 392 was applied.
4. The evidence established a real prospect of selling viable parts of the business despite the termination of the key contract. The proposed administrators’ prior involvement in the sale process supported the conclusion that administration was reasonably likely to achieve the second statutory purpose.
5. Although the company’s registered office was in Jersey, the presumption that its COMI was there was rebutted. Its headquarters, senior management, creditor negotiations and communications, and restructuring activity were substantially based in the United Kingdom and known to creditors. Restrictions concerning the location of board meetings carried relatively slender weight because the COMI test focuses on dealings with creditors.

The judgment states that a Part 26A plan had been sanctioned at first instance but that the Court of Appeal reversed that decision. The Supreme Court later refused permission to appeal because the proposed appeal might be academic. Those decisions were background to the present first-instance administration application.