Court Decides To ‘Wait And See' In Its Refusal To Grant An Administration Order

Rowntree Ventures Ltd v Oak Property Partners Ltd [2016] EWHC 1523 (Ch)

Executive Summary

The High Court recently re-affirmed the discretionary nature of its right to grant an administration order. In this case, the court refused to grant an administration order even when it determined that the companies were insolvent and the statutory purpose of administration would likely be achieved if the order was granted. On reviewing the evidence before it, the court exercised its commercial judgment and considered it to be pre-mature to grant an administration order.

Background

The two companies which were the subject of the application for an administration order, were Oak Property Partners Ltd ("Oak Property") and Oak Forest Partnership Ltd ("Oak Forest") which each owned a hotel (together, the "Companies"). The business of the Companies was to sell off individual rooms in the hotels on long leases. The Companies were essentially operating as property developers. The applicants in the proceedings were two companies which had acquired leases from the Companies on terms entitling them in certain circumstances to serve notice on the owner to repurchase the lease. The applicants had served notice to repurchase on the Companies and have made their application for an administration order as prospective creditors of the Companies.

In considering their application, Judge Purle noted that before granting an administration order the two pre-conditions set out in paragraph 11 of Schedule B1 of the Insolvency Act 1986 must be satisfied, namely, that the court may make an order only if it is satisfied:

(a) that the company is or is likely to become unable to pay its debts (either on a balance sheet or cash flow test); and

(b) the order is reasonably likely to achieve its statutory purpose of either:

(i) rescuing the company as a going concern;

(ii) achieving a better result for creditor's than would be likely if the company were wound up; or

(iii) realising property to make a distribution to secured or preferential creditors.

With regard to the first pre-condition, the respondent companies produced financial projections to demonstrate the likelihood, or at least a realistic possibility, of survival to contradict the inference of insolvency put forward by the applicants. While the judge accepted that there was "ostensible" balance sheet solvency in respect of Oak Property, he considered that much of this was dependent on the recoverability of a very large debt...