England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Royal Courts of Justice Strand London WC2A 2LL
		4 November 2004

1. MR JUSTICE LINDSAY: I have before me an Administration Application in the matter of World Class Homes Limited. The application was made as a step in the following chronology. A Statutory Demand was served by a creditor, Madison Advertising, on 27 August 2004 for a not insubstantial debt. That led to a Winding Up Petition being presented on 20 September 2004, for hearing on 3 November 2004. But on 6 or 8 October (I find the figure hard to read), the Company, World Class Homes, by its director, applied for an Administration Order to be made. The Application in the ordinary way says that it is the Application of Mr Robert George Brewster. He is the director. It recites the incorporation of the company in 1997. It gives its registered office, which is an address at Potters Bar, Hertfordshire. It says that the applicant believes that the Company is, or is likely to become, unable to pay its debts for the reasons stated in the witness statement in support. It proposes as administrators, Geoffrey Stuart Kinman and Anthony John Sanderson, of BDO Stoy Hayward, 85 Great North Road, Hatfield, Hertfordshire. It therefore requests an Administration Order and the appointment of those two gentlemen as administrators.
2. The matter came before Mr Justice Etherton on 20 October 2004. That was before the first hearing date of the Winding Up Petition. Counsel was heard for both the applicant, Mr Brewster, and for the petitioning creditor, Madison Advertising. The matter was stood over for evidence on a timetable that made provision for both sides serving evidence, with the matter to return to court on 4 November 2004, namely today.
3. There has been quite a body of evidence served by both sides. The ultimate outcome is that administration, as such, is not opposed. I am satisfied that the current provisions which require that the court may make an Administration Order in relation to a company only if satisfied, (a) that the company is or is likely to become unable to pay its debts; and (b) that the Administration Order is reasonably likely to achieve the purpose of administration, are made good, the purposes being set out in section 3. I do not need to go into that because there is no real contest now, although there might have been earlier, on whether the pre-conditions for an administration are made good.
4. What, though, is very much in issue is the identity of the of the proposed administrator, and hence of the administrator to be appointed. I have already identified those proposed by Mr Brewster in his Administration Application, but also there is also a Statement of Proposed Administrator, a Rule 2.3 Statement, put in on behalf of the creditor, Madison. There the nominee is Jeremy Hugh Burman of Berley, Chartered Accountants, 76 New Cavendish Street, W1. He says, as of course did the BDO Stoy Hayward nominees:

"I am of the opinion that the purpose of administration is reasonably likely to be achieved."

5. That is the single statement that Rule 2.3 now requires. All proposed nominees say that that is the case. The contest therefore comes down to the question of who should be appointed. There is some guidance in this area from a case heard by Hoffman J (as he then was) in December 1991, Re Maxwell Communication Corporation plc [1992] BCLC 465, an administration, as the name rather suggests, that had lots of contests within it, large sums of money and, no doubt, great realisations and great debts.
6. The contest in Maxwell was between Messrs Touche Ross on the one hand and Messrs Price Waterhouse on the other. The regime in those days was rather different in the sense that what was then called a 2.2 report was put in by a prospective administrator. They went, in some detail, into whether the purposes of an administration - and, of course, there were slightly different purposes then specified - were likely to be achieved. A good 2.2 report would represent a great deal of work on behalf of the prospective administrators and hence, in turn, a great deal of expense on behalf of the proposers. Perhaps for that reason, and also because of the delay that was inherent in the preparation of a well-drafted, well-substantiated 2.2 report, the present regime makes much less provision. Indeed the current 2.3 form merely requires the proposed administrator to come up with a bold one-sentence statement as to his opinion, which I have read. I am therefore dealing now with a rather different regime than the one that was being dealt with by Hoffman J.
7. Miss Agnello, on behalf of Madison Advertising, the petitioning creditor in the Winding Up Petition, draws my attention to some features of Maxwell. Indeed Mr Goodison, for World Class Homes and Mr Brewster, the director, draws attention to other passages. Looking at the foot of page 467, dealing with the contest between the accountants that I have mentioned as arising in that case, Hoffman J, after reciting the background of the law, says:

"Those features of the law mean that I think one factor which I have to bear in mind in deciding who to appoint as administrators is the likelihood of there being any perception on the part of the creditors that the proposals put forward at the creditors' meeting are not going to be acceptable by reason of the source from which they come. It seems to me, in this case, that although at the moment the bank creditors may feel that Messrs Touche Ross are not their preferred choice and may therefore consider that they will view their proposals less favourably than those which come from Messrs Price Waterhouse, I rather doubt whether if it actually came to the creditors' meeting, this would be a matter of real substance. In my view it is much more likely that the banks would simply view the proposals on their merit. I do not therefore attach any particular weight to that consideration."

8. Translating that to the facts of this case, whereas it might be, at the moment, that a proposal coming from BDO Stoy Hayward, the nominee of the director, might on that account alone be less well received than one that came from a creditors' nominee, I see as relevant the observation of Hoffman J that ultimately, when it comes to a meeting, what is likely to be the crucial feature is an assessment of the proposal on its merits. To that extent indications at this early stage of a preference of one or another is not very compelling.
9. Hoffman J then turned to the fact the Price Waterhouse had had a head start in the matter, in the sense that they had been engaged and had spent some time and money looking into the company's affairs. At page 469(b) he says:

"Now taking those matters into consideration, I think that although the matter is finely balanced, the partners in Price Waterhouse ought to be appointed administrators on the ground that they are already in possession of a great deal of information and that they are able to carry on the administration more cheaply, effectively and quickly, on account of their existing knowledge of the company than Touche Ross. I do not attach a great deal of weight one way or another to any of the grounds which are being put forward and as I have said earlier, I have no doubt that both firms would, if appointed, act as independent officers of the court".

10. And then he deals with the particular conflict that was said to exist and said to lead to one firm rather than another. There is, therefore, a deal of guidance in Maxwell which I need to bear in mind.
11. Miss Agnello, for the creditors' nominee, first of all urges that a majority of the creditors, certainly a majority of what were called the "independent creditors", lean in favour of Mr Burman. It is not easy to come to any conclusive analysis about creditors; they have rather been adjusted as one has gone along in the case. Even during argument they have changed, but it is very difficult to come to much of a view from letters put in by creditors who have been canvassed because one does not know what has been said to them. It is always a problem that arises in cases such as this. Unless one knows really what was said to creditors, one does not know what weight to attach to their preference. If, for example, a creditor is told that the only prospect of getting a decent recovery is to have Mr A as administrator, that could have procured a support for Mr A, even if it transpires that Mr B would be quite as good as Mr A. I am, therefore, not at all persuaded that there is anything conclusive in a head count of creditors.
12. Mr Goodison says that the court is not obliged to conduct a head count, and does not normally conduct one. To that I add, as I have mentioned, that a head count is unreliable unless one knows what has been said. Moreover, on the facts of this case, the outcome of a headcount would very much depend, as it would seem, on whether Mr Brewster is truly a creditor of the company in the sum which he claims and whether, if he is a creditor in the sum which he claims, it would be appropriate to count him pound for pound or whether he ought to be discounted because in a sense he is not as "independent" a creditor as are trade creditors. Therefore had it been compelling that the weight of the head count was almost wholly one way and was well explained, I think perhaps I could have taken account of it and attached some weight to it, but in the particular circumstances of this head count I am not persuaded that it pushes me to any real extent in favour of one or against another.
13. Another argument that Miss Agnello advances is that, in effect, there are true grounds for loss of confidence by creditors in BDO Stoy Hayward as nominees. It is the case that in the months since August 2004, post the presentation of the Winding Up Petition and post the presentation of the Administration Application, attempts have been made by Madison in particular to gain information about the Company and that by and large that has met with a certain amount of stone-walling on the part of either the company or BDO Stoy Hayward, or both. However, I have difficulty in regarding that as a sufficient ground for loss of real confidence. Loss of confidence in Mr Brewster or in the Company's ability itself to produce reasonable information at reasonable speed is, of course, not a thing that translates into loss of confidence in BDO Stoy Hayward. It is, of course, almost inevitable, when one gets to the stage of a company facing both a Winding Up Petition and an Administration Application, that there is some lack of confidence in the Company's ability to carry on business, to produce information and accounts, and so on. None of the deficiencies in the Company or in the directors of the Company indicate some ground for loss of confidence in a nominee, be it either a nominee voluntary liquidator, or more relevant in this case, a nominee administrator.
14. Miss Agnello goes beyond criticism of Mr Brewster and says that it is plain BDO Stoy Hayward were refusing information. Again I find that difficult to ascribe much weight to. Prospective possible administrators who have some information about a company but who have not conducted a matter in depth are in something of a dilemma when they are asked for information. They are not formally agents of the Company at that stage, they are only proposed nominees as administrators. If they hand out information that they have derived from the company and it transpires to be inaccurate, as it might well be, they would be vulnerable for not having pointed out that the information was simply the company's information and might therefore be thoroughly inaccurate. It is only if they have had the opportunity thoroughly to vet the information that a prudent prospective administrator could be advised sensibly to give out information under its own imprimatur, its own letterhead and so on.
15. Therefore, although I think that BDO Stoy Hayward could have been a little more liberal with information than they were, I can see that there were grounds for them to be cautious and not to give out information without direct authority from the Company, and without themselves being able to ascertain the accuracy of what it was they were handing out. I do not see that their reaction to requests for information, which is exhibited in the correspondence, is sufficient to indicate reasonable grounds for supposing that if appointed they would not do their job as well as any other firm.
16. Miss Agnello says that Madison Advertising want to be sure that the assets of the Company fetch the best price reasonably obtainable in whatever circumstances obtained in the administration, because it is only in that way that Madison, which is a large creditor (£74,011.32), is likely to recover anything substantial. But have I been shown anything that gives me reason to believe that BDO Stoy Hayward are unlikely to be independent in their dealings as administrators if appointed? Are they likely to be venal? Are they likely to be biased or tainted in their conduct of their duties? I find absolutely nothing that suggests that that is a possible outcome. I do not find the attack made upon the Company's provision of information and the Company's figures, as tainting BDO Stoy Hayward.
17. If there are no reasonable grounds for a lack of confidence in the independence of BDO Stoy Hayward, they are in much the same place on that account as Mr Burman. Rather, as was Hoffman J's view in the Maxwell case, I do not attach great weight to the considerations of that kind for or against either firm.
18. There are, nonetheless, some factors that do seem to me to point to one firm rather than another. First of all, BDO Stoy Hayward, although by no means as far into work as if administrators or advisers to the Company and the director as had been the case in Maxwell, nonetheless have some existing acquaintance with the affairs of the company. In particular they are in a position in which they have already gauged interest from prospective buyers of the Company's assets. That is of importance because it is likely to be the way that any administration will go. In paragraph 12 of his affidavit of 2 November 2004, one of the two nominees, Geoffrey Stuart Kinman, says:

"I am aware of expressions of interest in the business from the directors and others and I had approached a number of parties to gauge interest, although that process has had to be interrupted to the uncertainty as to whether there will be an administration. Based upon what I know and my present "feel" for the situation, I believe that it would be sensible for an Administration Order to be made and remain in place for a relatively short period of time to enable the business to be offered to interested parties. My belief is that this has a much better prospect of achieving the best realisation than if the company enters into compulsory liquidation. Insofar as I need to, I am happy to give an assurance that if appointed as administrator, any party with serious interest in the business and in funds will be given every opportunity to make an offer within a reasonable timescale."

19. There one has an administrator nominee, not a man who has spent a great deal of time investigating the affairs of the company, not therefore having that advantage, but nonetheless he does have the advantage over Mr Burman, who, so far as I know, has had no contact with the Company whatsoever and no greater acquaintance with its affairs other than can be gathered from reading the papers that he was sent. Mr Kinman is already in a position to have begun to gauge interest and to be in some contact with prospective buyers.
20. A second point, although I think of less importance, is that BDO Stoy Hayward are what Mr Goodison describes as a national firm and indeed to some extent an international firm because I am told that they have an office in Oporto and an office in Lisbon. The relevance of Oporto and Lisbon may become of some significance, although I rather doubt that it will. However, as the business of the company did concern buying, selling and advertising (and so on) properties or holiday opportunities in Portugal, there might conceivably be some tiny advantage in having a firm that has branches in Portugal. It is only a very small factor but it is nonetheless a tiny advantage that BDO Stoy Hayward have over Mr Burman's firm.
21. Another minute factor is that two nominees are proposed by BDO Stoy Hayward. The reason for that is, as is common form, that if one is ill or on holiday or has to do something else, there is someone who, as duly appointed administrator, can still attend to the affairs of the Company. Mr Burman is on his own as a nominee.
22. These are only very small features one way or another. I have no reason to think that either set of nominees, if appointed, would not do their very best to do a proper job and to achieve a proper discharge of their duties. I assume that, rather as Hoffman J made a corresponding assumption in Maxwell. If the nominees are evenly balanced in that regard it is only the little factors that are likely to push one one way or another, and here those minor factors that I have mentioned do dispose me in favour of BDO Stoy Hayward nominees as the administrators. Accordingly I propose that that should be done.
23. I should add that Miss Agnello says that, if I am against her, could I provide that no sale should be made of the Company's assets without further leave of the court, or that some direction should be given that the creditors of the Company should be kept informed? It may well be that I have power to attach some such provision but on the other hand it is likely to lead to an expense that would otherwise be avoidable, and possibly to a delay that would otherwise be avoidable. I leave to the good sense of the administrators the question of whether, given the particular shape that the administration takes as they go along, it would be prudent and practical to ask leave of the court and to keep the creditors informed. I have no reason to think that they will not do their best to keep creditors informed but quite often in administrations decisions need to be made at speed, and quite often also on a basis of confidentiality. I therefore leave that to the administrators and their good sense, without making any formal requirement that either of those possibilities should be made a matter of obligation.
24. Accordingly, all I do at this stage is make the Order for Administration on the basis that the nominees, Mr Kinman and Mr Sanderson, become the Administrators.
25. I will not authorise a sum to be paid for BDO Stoy Hayward's attendance today. It was something of a gamble on their part; they did not know whether they were going to be appointed or not and whilst it has no doubt been useful that they should have heard objections to prospective actions and so on, and would then been made alive to the risks that they are running as administrators, such ends could have been achieved by report to them from the lawyers attending and without BDO Stoy Hayward incurring expenses.
26. The costs of the petitioner should be added as costs of the administration, as well as costs of attendance on the Administration Application on the part of Miss Agnello's clients.
27. I do not make any discount as to costs for alleged shortcomings on the applicant's side.
28. I make this Administration Order at 5.02pm on 4 November 2003.