Rowntree Ventures Ltd v Oak Property Partners Ltd

Corporate insolvency – administration – administration application – para 11 of Schedule B1 – discretion

Two companies, in relation to which administration orders were sought, owned the freehold interest in certain hotels. The companies sold individual hotel rooms and common parts to lessees on long leases. The applicants represented room owners who had acquired room leases in the hotels on terms entitling them to repurchase the lease from the relevant company.

On the administration application, HHJ Purle QC found that both of the companies were likely to become unable to pay their debts. However the companies were currently paying debts as they fell due and it could not be assumed that there was no possibility of their recovery. Any judicial scepticism about such prospects was not to be taken as a statement of certainty, being an assessment of the future position. He also found that an administration order in relation to the companies was likely to achieve the purpose of an administration. It was accepted that rescue as a going concern was not a viable alternative and, further, that administration would achieve a better result for creditors than winding up.

Nevertheless, despite the two administration preconditions in paragraph 11 of Schedule B1 being satisfied, HHJ Purle QC declined to exercise his discretion in favour of an administration order. There was evidence that, in the long term, remaining out of any insolvency process held the possibility of a better outcome for both creditors and the companies.

Also considered, but dismissed, were issues raised by the applicants associated with a possible timeshare fraud and connections to a Nevis corporation. The Judge observed that a desire to investigate was not of itself a justification for an administration as that was not part of the purpose of administration. The Judge observed his conclusion may have been different had there been firm evidence of fraud as opposed to merely a suspicion of past fraud.

Fulfilment of the pre-conditions is no guarantee of an administration order being made. The court’s discretion, and in particular its assessment of whether remaining out of any insolvency process at all holds better prospects for creditors and the company itself, is paramount.