When the relatively straightforward ‘out of court’ route for placing a company into administration is not available, it is necessary to make an application to the court for an administration order. Far from a rubber stamping exercise, recent case law shows that the courts will carefully scrutinise the evidence in support of such applications.
The legal approach
The court has discretion as to whether to make an administration order, even if it is satisfied that the company is or is likely to become unable to pay its debts and one of the purposes of administration is reasonably likely to be achieved by granting the order.
Factors balanced by the court in considering whether the purposes can be achieved
- Reliability of evidence
Where a director seeks an administration order, his evidence must be “reliable”. This not only means that it must be accurate, but also that all relevant facts are given and that all explanations, judgments, estimates and opinions are credible and backed up by the supporting evidence.
- The additional powers and duties of a liquidator
If there is an outstanding winding up petition, the court may wish to protect the commencement date of the liquidation. This might be relevant where there have been payments which were made between the presentation of the winding up petition and the date of the order which would be void or to keep antecedent transactions within the relevant time.
Liquidators have a duty to report on the company’s failure and its dealings and affairs. This was considered beneficial in a case where the court felt that the directors’ evidence was unreliable. However, the requirement for an investigation does not, alone, justify the appointment of a liquidator rather than an administrator.
- Evidence of potential administrators
The potential administrator appears as an officer of the court, and as such his opinion must be provided, “carefully, with an independent mind and on the basis of a critical assessment of the position of the company and the proposals put forward.” Where the administrator does not question the director’s evidence where it ought to be questioned, or does not re-consider his opinion in light of relevant new facts, the court may not be prepared to give much weight to his view that the purposes of the administration are likely to be achieved.
- The view of the company’s creditors
The court will take into account the opinion of the creditors, though their opposition to an administration order is not fatal.
Lessons to be learnt
The courts will not simply ‘rubber stamp’ an application for an administration order. Applicants should provide reliable evidence to the court, backed by that of a diligent proposed administrator.
Where there are potential claims against directors, an administration order should not be sought in an attempt to avoid liability. However, in any event, the court has the discretion to pursue the best course of action for the creditors as a whole, which may not be an administration order even where the purposes of administration can be achieved.
 Re Brown Bear Foods Ltd Shaw v Webb and others  All ER (D) 101 (Apr)
 Integeral Ltd, Re  EWHC 164 (Ch)
 s127 Insolvency Act 1986
 s240 Insolvency Act 1986
 Data Power Systems Ltd v Safehosts (London) Ltd  EWGC 2479 (Ch)
 Bowen Travel Ltd, Re  EWHC 3405 (Ch)