Adrian Slater

Partner

Insolvency


Administration Orders: An effective tool for creditors

Adrian Slater

The highly commented on case of Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd [2018] EWHC 938 (Ch) was a resounding success for Matthew Weaver of St Philips Chambers instructed by Fraser Brown’s Adrian Slater (Insolvency Partner) on 14 February 2018 at Manchester Civil Justice Centre, acting for the Joint Liquidators of Newbury Venture Capital Ltd (“NVC”).

The reason this case has been commented upon and sparked so much interest is that somewhat unusually the High Court made the decision to grant a creditor’s application for an administration order, even though the debt was disputed and the debtor Berkshire Homes (Northern) Ltd (“BHNL”) was solvent except for the debt in question.

The court reasoned that notwithstanding the debt was disputed it put NVC in the position of a creditor and hence gave them the right to apply for an order. The very existence of the debt combined with the added failure to pay it was proof enough that BHNL was unable to pay its debts and meant that the court was able to make an administration order.

To be able to make an administration order based upon the disputed debt forming the evidence of insolvency necessary to prove the administration condition that BHNL was, or was likely to become, unable to pay its debts, debt has to be proved on the balance of probabilities.

During the hearing the court looked into all of the credits, cross claims and set offs, and came to a decision that there was still a balance in excess of £1 million owing to NVC which meant that BHNL was insolvent on a net assets basis due to the amount exceeding the critical amount of £332,589. The court also had to further satisfy itself that there was a real prospect of the administration achieving one of the statutory  purposes. Ultimately, the court made the decision to place BHNL into administration.

The court was keen to emphasise that a distinction must be drawn between the practice of placing companies into administration and that of winding up on the basis of disputed debts (following the previous decision in Hammonds (a firm) v Pro Fit USA Ltd [2007] EWHC 1998 (Ch). Even so, this case would seem to suggest a developing trend in the courts towards administration applications being used as an effective means of pressurising creditors. It was so in this very case whereby BHNL tried without success to argue that the NVC’s application was a tactic designed to achieve this end.

In summary, this case is of particular significance for both Insolvency Practitioners and creditors alike as it shows a growing tendency of courts to favour administration applications by creditors even against a seemingly solvent company.

If you're interested in any of the topics raised in this article, or for further information, please contact Adrian Slater. Alternatively, you can call to speak to one of the team on 0115 9888 777. 

 

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