10 April 2014
[2014] EWHC 1132 (Ch)
Chancery Division (HHJ Simon Barker QC)

Instead of making an administration order as sought and which was unopposed, the Court brought on an extant winding up petition for hearing and appointed a provisional liquidator.

After presentation of a winding up petition, S, the sole director, applied for an administration order.  The petitioning creditor and the holder of the sole floating charge consented to the admin order.  S claimed to have purchased the sole issued share from H, the former director, for £1m.  The share purchase agreement (“SPA”) made contradictory statements as to whether H owned the share beneficially or on behalf of others and the share to which it referred was a share in HHH Ltd, not the company.  The buyer was stated to be Brown Foods Ltd not S.  The terms on which the £1m was payable were uncertain, referring to ad hoc payments up to £200,000 in any one tax year subject to available cash within the business group.  A side letter with HHH Ltd referred to the server and accounts IT infrastructure, including the Sage operating system, being removed from the site within 7 days from the date of the SPA.  S’s evidence blamed the company’s losses partly on the payment of disproportionate costs and remuneration associated with H and the payment of non-business expenses and connected companies but provided no details.  There was a preferential payment of £104,000 to an unidentified connected company in respect of which a recovery of £50,000 was expected.  Bank statements showed that since presentation of the winding up petition £6,732 had been paid out to Q Ltd and £108,500 of a VAT refund to Nwn.  S’s evidence did not deal with these payments but he informed the court through Counsel that he did not authorise them.  Nwn was connected to Q Ltd and/or H.

Despite the conditions for making an administration order being satisfied, it was not appropriate to make an admin order.  In particular under s.127 of the Insolvency Act dispositions since presentation of the winding up petition were void but the effect of the making an administration order would be to neutralise this.  The post winding up payments should remain void unless and until justified.  There might also be other such dispositions because not all the relevant bank statements had been produced.  Similarly, it was not appropriate to treat the admin application as a winding up petition.  The share purchase cried out for explanation.  The judge appointed one of the proposed administrators provisional liquidator to get in assets and investigate.  He continued the moratorium and fixed a return date with directions for advertisement of the petition but allowing a window for the company’s assets to be realised in the meantime.

An exceptional case on its facts but it emphasises that the court has a genuine discretion whether to make an admin order even where all relevant parties consent and will not do so where ordinary creditors may be prejudiced.