Lloyd Edward Hinton & Anor (as joint administrators of Kession Capital Limited) v KVB Consultants Limited & Ors

Where creditors reject administrators’ proposals, the court may order compulsory winding up if continued administration lacks a rational basis connected with the statutory purpose or the interests of creditors as a whole. A pending appeal does not justify preserving administration where the company remains insolvent, liquidation could pursue the appeal, and there is no reasonable prospect that creditors would approve alternative proposals. The court may also consider whether the proposed administration objective was tenuous from the outset and whether creditor voting irregularities undermine confidence in the office-holders.

The joint administrators of Kession Capital Limited sought directions under Schedule B1 to the Insolvency Act 1986 after creditors rejected their proposals. They asked the court to keep the company in administration pending judgment in the company’s Supreme Court appeal and then convene a further creditors’ meeting.

The company had no active business, was heavily insolvent, and had entered administration principally to enable the appeal to continue. The interested parties, comprising all creditors who had expressed a view, opposed continued administration. The issues included the appropriate administration objective, the effect of creditor opposition, the valuation of disputed claims for voting purposes, and whether compulsory winding up should be ordered without an extant petition.

1. Disposition. The application for directions was refused. The court ordered the company’s compulsory winding up under paragraph 55(2)(e) of Schedule B1 to the Insolvency Act 1986, and appointed Huw Powell and Paul Wood as joint liquidators under section 108(2).
2. The company’s entry into administration had a tenuous statutory basis. The selected objective under paragraph 3(1)(c) depended on a preferential claim of £800 held by the director and majority shareholder. The Supreme Court appeal could have been pursued by a liquidator under paragraph 4 of Schedule 4. Preservation of the company’s non-transferable FCA authorisation had no rational value because the company had no ongoing business, rescue as a going concern was not reasonably practicable, and the company remained insolvent.
3. Speculative refinancing could not justify continued administration. No funder was identified, no evidential basis supported the suggestion, and refinancing was inconsistent with the administrators’ own selection of the realisation objective under paragraph 3(1)(c).
4. The administrators had incorrectly treated creditors’ judgment claims as unliquidated or unascertained and admitted them for voting at only £1. A dispute did not deprive precise judgment debts of their liquidated and ascertained character. Under the applicable statutory scheme, a disputed claim should be admitted and marked as objected to unless it was plainly or obviously bad.
5. Connected creditors’ votes had to be disregarded for the purposes governed by rule 15.34(2) of the Insolvency (England and Wales) Rules 2016. The administrators’ failure to apply that rule had materially affected the creditors’ meeting and undermined confidence in the administration process.
6. There was no rational basis for continued administration, no creditor support for it, and no reasonable prospect of approval of further proposals providing for anything other than immediate liquidation. Those circumstances justified compulsory winding up without an extant petition. Consequential costs and expenses were resolved by consent order.

This was a first-instance application for directions. The judgment records that the company’s earlier appeal had been dismissed by the Court of Appeal, and that the Supreme Court subsequently allowed a further appeal. Those same-litigation decisions did not determine the present application.