I can show that a company is insolvent and that it is reasonably likely that the statutory purpose can be achieved. I can have an administration order, right? Eh, actually no.
Creditors issued applications for administration orders against two hotel-owning companies. The companies sold hotel rooms as leases, which provided for repurchase in certain circumstances.
The applicants claimed that they were given extravagant promises in respect of returns and were contingent creditors, presumably in respect of the potential loss between the amount paid and the amount to be received in respect of the leases.
The Judge accepted that the applicants were creditors and held that, on a balance of probabilities, the companies were likely to be unable to pay their debts in, at the very least, the future, as it did not appear that the companies would be able to fund the various buy-backs that were in the pipeline. The Judge also found that the purpose of achieving a better result for the companies’ creditors than a liquidation was reasonably likely.
However, the Judge refused to exercise his discretion to make administration orders as he suggested that liquidation was not the only option. Notwithstanding the circumstances and an offshore owning structure, the Judge held that the companies should be given the opportunity to try to turn the business around and meet their (described as highly optimistic by the Judge) projections on selling leases that they would be buying back over the next couple of years. That route would be better for creditors, if achieved.
This judgment increases the focus on the uncertain nature of the court’s discretion in making decisions. It is unlikely that creditors will appreciate further unknowns in making an application for an administration order; an application which is difficult enough already for creditors who normally have limited information about the company’s financial position.