Restructuring & Insolvency analysis: Upon an application for an administration order the court exercised its discretion and concluded that a winding up order was more appropriate. The court was satisfied that the Respondent company was insolvent but could not see why administration would fulfil one of the statutory purposes.
Re Aartee Steel Group Ltd  EWHC 1701 (Ch)
What are the practical implications of this case?
There are two key practical implications to note from this case. The first is a point of principle. Even if strictly speaking the applicant for an administration order does not itself have to identify which of the statutory objectives may be achieved, the court must still be satisfied that one of the objectives would be achieved.
Secondly, it is a sage reminder for lawyers and insolvency practitioners that when making an application for an administration order, the court may take the facts presented to it and conclude that a winding up order is more appropriate.
What was the background?
The two parties to this matter were part of the same group of companies. The Applicant company was in administration. The Respondent company was a non-trading investment holding vehicle with only two subsidiaries; one being the Applicant and another company in the group which was also in administration. According to the Respondent company's accounts, its only assets were debts owed to it by the two subsidiary companies, both of which were in administration and in the process of having their assets realised by the administrators, which would likely result in a surplus and a payment to the Respondent.
The Applicant sought an administration order in relation to the Respondent. It contended that there was no requirement for it to identify the particular objective which the administration was designed to achieve but said it would result in a better return for creditors than winding up (Para 3(1)(b) of Schedule B1 to the Insolvency Act 1986) or it would result in the realisation of property for the benefit of creditors. (Para 3(1)(c) of Schedule B1 to the Insolvency Act 1986).
The Respondent opposed the making of an administration order on the basis that the debt to the Applicant was disputed and may have been statute barred. It also disputed whether one of the statutory purposes of administration would be achieved by the making of the order and said that even if one would be satisfied, the court should exercise its discretion to not make such an order. It also objected to a winding up order being made in the alternative although this was preferable to the administration order.
What did the court decide?
The court found the dispute over the debt was unfounded. The debt had been recognized in the Respondent's most recent audited accounts and there was no evidence that if given time to investigate the Respondent would have found any valid grounds to dispute the debt. Further, it was not statute barred because it had been acknowledged in the April 2022 accounts. The judge found the Respondent was insolvent on the cash flow and balance sheet basis.
The court stated that even if the Applicant was correct that it was not obligated to identify the objective which the administration would achieve, the court must be satisfied that an administration order would be reasonably likely to achieve the purpose of administration. He noted there was no suggestion that the administrators would seek to rescue the company as a going concern or that they would have an prospect of doing so. The judge could not see a reason why administration would result in a better outcome for creditors than winding up and such assertion on the part of the Applicant was unsubstantiated. The company's only substantial assets were its shareholdings in the two subsidiaries, both of which were in administration. If the Respondent were placed into administration, the role of the administrators realising the Respondent's property would be passive because it was the subsidiaries that required realisation. To the extent that that could be described as realising the Respondent's assets, "it only peripherally reflects the kind of process envisaged by para 3(1)(c)".
The judge concluded that there was no good reason to put the Respondent into administration rather than winding up. He noted that there is a statutory procedure for winding up which allows the creditors to have their say but found that such considerations carried little weight in the present matter where the creditors were in administration and those administrators were a party to this hearing. The court concluded that it not appropriate to make an administration order and instead exercised its statutory discretion under para 13(1)(e) of Schedule B1 to the Insolvency Act.
- Court: Chancery Division
- Judge: His Honour Judge Halliwell (sitting as a High Court judge)
- Date of judgment: 27/3/2023
Originally Published by LexisPSL
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