What is required for an administration order when a business is insolvent?

Year Published: 2013

In order for a company to be placed into administration after a winding up petition has been presented, a court order is required.

In order to grant the administration order the court must be satisfied that:

  • the company is insolvent; One of the statutory purposes of administration are reasonably likely to be achieved (i.e. to rescue the company as a going concern, achieve a better result for creditors than in liquidation or to realise property for the benefit of secured creditors)

In Data Power Systems Ltd and others v Safehosts (London) Ltd and another [2013] EWHC 2479 (Ch) the Court refused to grant an administration order due to a lack of evidence to support point two of the requirements set out above.

The evidence provided to the court regarding the statutory purpose was a statement from the proposed administrator that one of the statutory purposes would be achieved. However, no information or outcome comparisons to confirm the same were provided.

In his judgment His Honour Simon Barker QC accepted submissions made on behalf of one of the applicants that the threshold for satisfying the court was that one of the statutory purposes was reasonably likely to be achieved. However, he went on to find that threshold “had simply not been crossed by the evidence submitted in support of the application”.

Given the creditor pressure and ongoing court proceedings involved, the need to act quickly when issuing an application for an administration order is understandable. However, this judgment is a salient reminder that the need to act quickly does not override the requirement for the evidence in support of such an application to be properly considered and presented.

If you are facing any of these issues or you require further information or assistance please contact our Dispute Resolution team on 0161 475 7676 or email [email protected].

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