In a recent judgment, the Court has reminded Insolvency Practitioners and lawyers alike that it has the final say on putting a Company into administration.
In Rowntree Ventures Ltd and another v Oak Property Partners Ltd and another, the High Court refused to grant administration orders on creditors’ applications over two companies even though it agreed that both companies were, or were likely to become, unable to pay their debts.
Furthermore, the Court acknowledged that administration orders would likely achieve a better return for creditors than liquidation but, it pointed out, “winding up is not the only option. Another option is to give [the Debtor]… the opportunity to bring the business round without being subject to either liquidation or administration.” It was on this basis that the Court went onto make its decision.
Whereas in the past courts have refrained from exercising independent commercial assessment here the Court has done just that. By determining that the best course of action was to “wait and see”, rather than rushing to put the company into administration, the Court has made an active commercial assessment on how best to proceed with the insolvent company and its creditors.
The case is a stringent reminder that the grant of an administration order is discretionary. Threatening a company with administration, should they fail to pay up on debts, needs to be thought about carefully as it is not guaranteed that such an order will be granted. In this case the court indicated that the creditors involved may have been successful in their application had there been firm evidence of past fraud, or misappropriation of assets. As such it may be worth considering, should you be making an application for administration, whether there is additional evidence that can be presented alongside the mere fact that the company is insolvent.
"In all those circumstances, and despite the (I hope healthy) scepticism with which I have approached the accounts and projections in this case, I decline in the exercise of my discretion to make the orders that are sought"