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Cite as: [2007] EWHC 3534 (Ch)

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		Neutral Citation Number: [2007] EWHC 3534 (Ch)
		Case No: 4981 of 2007

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

Court No: 22
Priory Courts
33 Bull Street
Birmingham West Midlands
B4 6DS

10th September 2007

B e f o r e :

HIS HONOUR JUDGE PURLE QC
sitting as a High Court Judge
____________________

	EPIS SERVICES LIMITED
	and
	HER MAJESTY'S REVENUE & CUSTOMS

____________________

Transcript from a recording by Ubiqus
Clifford's Inn, Fetter Lane, London EC4A 1LD
Tel: 020 7269 0370

____________________

MR PAUL BURTON (instructed by Browne Jacobson) appeared on behalf of the APPLICANT
MR JAMES PICKERING (instructed by Clarke Willmott) appeared on behalf of the RESPONDENT
____________________

HTML VERSION OF JUDGMENT
____________________

HHJ PURLE:

This is a directors' application for an administration order under the provisions of Schedule B1 of the Insolvency Act 1986. It was issued on the 8^th August 2007, the company having ceased trading (it is said) at the end of July. The company, EPIS Services Ltd, was in the business of providing security equipment and services. The application is opposed by Her Majesty's Revenue & Customs whom I shall call the Revenue for short. They have an outstanding winding-up petition for a little under £87,000 in respect of VAT, though the total VAT debt has now risen. The estimate given in the skeleton argument for the Revenue is just over £125,000, and the estimated statement of affairs that has been prepared on behalf of the company puts the Revenue debt in respect of VAT at, in round figures, £135,000. There is also estimated in the statement of affairs, an additional Revenue debt of, in round figures, £80,000, trade creditors of approximately £100,000 and an item in respect of unsecured creditors (said to be "shortfall from HP") of, in round figures, £30,000. It will thus be seen that there are total unsecured creditors of an amount just in excess of £300,000. Over £200,000 of that is, as is a depressingly familiar turn of events, Crown debt.

The company's failure is explained in the evidence, and I proceed on the basis (having presently no material to find otherwise) that there has been no misconduct in the management of the trading affairs of the company. The basis upon which the administration order is sought is that the company is insolvent, which it clearly is, and that there will be a better result for creditors as a whole from an administration order rather than a winding-up. The test which has to be satisfied is set out in paragraph 11(b) of Schedule B1 of the Insolvency Act 1986: that the administration order is reasonably likely to achieve the purpose of the administration; the relevant objective in this case being to achieve a better result for the creditors as a whole.

I turn to consider whether that test is satisfied. I do so mindful of the fact that the test is not a particularly high one. It was well-established under the original Insolvency Act 1986, and it is now established (under its reincarnation in Schedule B1) that, despite changes of wording, it is not necessary to establish more than or even as much as a 50/50 chance of the purpose being achieved, it must be a real prospect. The directors rely upon the witness statements of James Keith Garner, supported as they are by the statements of the proposed administrators. Both administrators consent to act and state that each of them is of the opinion that the purpose of administration is reasonably likely to be achieved. How much weight one puts on the statements appearing in what are now standard forms required by the rules depends upon the circumstances. I am told that the proposed administrators have read the relevant papers and considered the matter fairly and fully.

The first witness statement from Mr Garner points out that he sought advice from the proposed administrators, along with his fellow directors. I am told that it was as a result of that advice that he and his fellow directors took the decision to cease trading on 30^th July and then to apply for this administration order. It appears that the staff have all been transferred to Anglo SA Security Ltd, a company which was incorporated on the 1^st May of this year, and which I shall call "Anglo". Anglo has apparently taken over existing contracts. The directors of Anglo, who are not named in the evidence, are said to be different from the directors of EPIS Services Ltd, though Anglo has called upon the services, not just of the staff, but also of at least one of the directors of EPIS. It is said that it is intended that Anglo will purchase some of the assets of the company. Paragraph 4.4 of Mr Garner's original witness statement explains that the company has a number of existing contracts which require completion which can only be achieved through Anglo and that this will reduce the number of claims for breach of contract, enhancing the prospect of recovery of payments due to the company.

Those statements are made in general terms, but are attributed to the administrators in the sense that this (i.e., allowing the existing contracts to be completed by Anglo) is said to be the administrators' proposal, having in mind the object of achieving a better result for the company's creditors as a whole. It is said that this proposal will allow the most advantageous realisation of the company's assets. This is sought to be further explained by the production of the estimated statement of affairs to which I have already referred. That statement of affairs compares the position on a liquidation with the position on an administration and there is said to be a difference of approximately £40,000 between the two after allowing for the differing costs of the two insolvency processes. It is said that there will be no return for unsecured creditors in a liquidation, but £40,000 will be available on an administration, which will produce an estimated dividend of something in excess of 11p in the pound.

However, it is pointed out by the Revenue that there are two items which are of special significance and which may well explain the whole difference. The first is the difference between the estimated realisation in respect of trade debtors of £10,000 and £52,076. There is, it is said, no proper basis for assuming such a low return for trade debtors in a liquidation. The first witness statement of Mr Garner does however endeavour to explain why it will be advantageous to appoint joint administrators. It is said, in very general terms, that they could negotiate novation of contracts, reduce claims and enable better recoveries from trade debtors.

I think it can fairly be said that the nature of the contracts which the company has with its customers is not explained in any way which enables the court to consider the reality of the position. The basis upon which those contracts might be terminated is also not explained. It is simply assumed that there would be a repudiatory breach of contract on a liquidation. This may or may not be so.

The third witness statement of Mr Garner explains that Anglo have already taken over a number of contracts and one infers from that that the risk of a termination or counter claim is, for that reason alone, diminished. Mr Burton points out that given that there are a number of contracts currently being performed by Anglo on the company's behalf, the administrators will be able to call upon Anglo to account to the company for the benefit of those contracts. I agree, but of course, a liquidator could do that as well.

The second item on the statement of affairs that is queried is the nil return given on a liquidation for plant equipment and office furniture having a book value of nearly £36,000. The same plant and equipment would, it is said, produce a return of £5,000 in an administration.

I accept that there may be some such return in an administration assuming someone is prepared to pay that. There are general statements that Anglo is prepared to pay something for the business, but coyness as to what that something might be. Given that Anglo are actually carrying on the business, I am surprised not to see something of greater specificity as to the extent to which they are or may be prepared to plunge into their pockets. The same might be said of the item of goodwill, which has no book value. It is given no estimated realisable value on a liquidation though on an administration, it would, it is said, realise £5,000.

Again, there is some evidence that the group of assets consisting of plant and equipment, office furniture, goodwill, stock and work in progress are collectively worth £15,000. That is the valuation report of a Mr Evans dated the 26^th July who produces a going concern valuation of something called, 'Control room, basement and stores room,' which seems to be a mixture of stock, plant and equipment. There is nothing there about work in progress, though goodwill is included. Quite why a goodwill figure should be incorporated in a valuation of stock, plant and equipment, I really do not know. It is not explained. However, this also is dependent upon there being a purchaser who is prepared to pay this and the only person who, in practical terms, will be able to do this, is Anglo because Anglo has now taken over a number of these contracts, albeit, it is said, on behalf of the company - a strange statement given that the company elsewhere is said to have stopped trading.

I do not find this evidence very satisfactory and, whilst mindful of the fact that a low test has to be satisfied, it is still a test. I do not accept, on this evidence, that the threshold requirement has been made out even to the relatively low standard previously indicated, demonstrating that it is reasonably likely that an administration will produce a better result for the creditors as a whole. In those circumstances, I am unable to make an administration order and do not do so. I do not therefore need to consider the discretionary elements I am urged to consider. I shall decline to make the administration order that is sought. The company will be wound up instead.

[Argument on costs followed]

I shall direct that the costs of the administration application should be dealt with in the following way: The Revenue's costs should be dealt with as part of the expenses of the liquidation. As to the applicant's costs, they will have to pay these themselves. I did consider whether or not the applicants ought to pay all or some part of the Revenue's costs, but at the end of the day the argument was about two competing forms of insolvency process and it was not, given the advice that the directors had received from the proposed administrators, unreasonable of them to proceed in the way they did. However, that is no reason why that should be at the expense of creditors.

Moreover, I am mindful of the fact that last week, the Revenue's evidence was late. It was late in a way which might have had rather more disadvantageous costs consequences for the Revenue were it not for the fact that there had been correspondence raising queries which were dealt with in a somewhat piecemeal fashion. Nonetheless, the result was that the Revenue's evidence went in at the last minute. In those circumstances, I do not think it would be wholly just to visit the directors with the costs of the Revenue's opposition. However, I am going to allow the Revenue all of their costs, including their costs of the administration application, as a liquidation expense.

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