Facts

This case related to the leasehold ownership of hotel rooms. The applicants were the leaseholders of the hotel rooms and the respondent companies the lessors.

Underlying the application was the desire of the leaseholders to have the affairs of the lessor companies, and more importantly the individuals behind those companies, investigated for the way in which the properties had been marketed to them – there were concerns over the accuracy of some of the representations made in the course of the marketing, particularly because promised returns had not materialised.

The leases contained provision for the leaseholder to require the lessor to repurchase the lease upon the service of a notice. That notice and the terms of the lease required the repurchase to take place at a time at least two years after the date of service.

The issue of the solvency of the lessors was triggered by the service of a number of such notices requiring the repurchase of the leases by the lessor companies. Having served them the leaseholders made an application under para 11 of Sch B1 of the Insolvency Act 1986 for the appointment of an administrator.

Held

Despite cash flow solvency the court found for a number of reasons (including a failure to make proper provision for a bad debt owed by a related company) that the companies may be balance sheet insolvent and were likely to become insolvent in the future because of the requirement to repurchase leases in 2018.

The court was also satisfied that administration would achieve a better outcome than liquidation if only because ad valorem duty would be avoided.

However, the court then considered its residual discretion under para 11. The court concluded that neither administration nor liquidation were processes which would benefit the companies now. The court preferred to ‘wait and see’ what happened in the lead up time for the repurchases to begin.

In those circumstances, and despite the court being satisfied that the conditions were met the court refused to exercise its discretion to make an administration order.