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A Court may make an administration order only if satisfied that:

  1. the company is, or is likely to become unable to pay its debts; and
  2. the administration order is reasonably likely to achieve one of the purposes of administration.

A recent case [1] considered the applications by prospective creditors of two companies for administration orders.

The Judge was satisfied that the criteria for administration orders were met – accepting that a rescue as a going concern was unlikely once an administrator was appointed. However, given the difference in costs between liquidation and administration, an administration would be reasonably likely to achieve a better result for creditors than a winding up.

The Judge, however, considered that there were other options in addition to administration or liquidation for the companies as their debts did not crystallise immediately. He suggested that the companies may be able to enter into some form of refinancing which would mean that when the Applicants’ claims crystallised, the company may be able to pay them. In addition, as the companies were property holding companies, the Judge considered that there may be some increase in property value which would also assist.

The Judge commented that the appointment of administrators would lead to costs which might be unnecessary.  It was relevant that the companies’ liabilities were not likely to increase in the short term.

In addition, one reason the applicants wanted the companies placed into administration was to investigate the conduct of the companies, the individuals operating the companies and their family connections. However, the Judge rightly noted that an administration does not have investigation as part of its purposes.

The Judge therefore held that, while he considered that the two administration pre-conditions were satisfied, he was not prepared to exercise his discretion in favour of an administration order.

This case therefore emphasises the discretionary nature of an administration order, even in a scenario where the Judge hearing the application agrees that the basic pre-conditions for administration have been met. It is an unusual case as it involved the Judge using an element of commercial judgment in making his decision.

This post was edited by Su Garner. For more information, email blogs@gateleyplc.com.

[1] Rowntree Ventures Limited v Oak Property Partners Limited


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.