England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

		Birmingham Civil and Family Justice Hearing Centre Priory Courts 33 Bull Street, Birmingham West Midlands, B4 6DS
		8th February 2017

JUDGE PURLE:

1. I have an application before me brought on behalf of a company called Officeserve Technologies Limited ("the company"). The company has achieved what must be the stellar ambition of many of generating a turnover, I am told, of £52,000 per annum and spending £450,000 a month doing so. That is of itself astonishing and it is not surprising to find it appearing before me today on an application made by its directors seeking some form of insolvency process: what is sought is the appointment of an Administrator. It is said that the appointment of an Administrator will achieve a better result for creditors than a liquidation.
2. There is also a pending Winding Up Petition in the Bristol District Registry, which has been adjourned until tomorrow. The petitioner is an individual, Mr. Thompson, who is owed well in excess of, it would appear, £3 million in respect of the sale of a business, and Mr. Phillips, who is owed what to most of us would be a very large amount of money but compared with Mr. Thompson is the relatively modest sum of £284,000, again as a result of the sale of a business.
3. The company has two subsidiaries. The most important is Officeserve Productions Limited ("OPL"). The company and/or its subsidiaries provide food delivery services to businesses throughout the UK by way of innovative IT platforms and applications.
4. It is clear that any value in the company's goodwill is imperilled by any form of insolvency process. It is, however, said that it would be less imperilled by the appointment of an Administrator because the Administrator can carry on trading the company. In fact, most of the trading is through the subsidiary, OPL, and not the company, which may explain why the company's overheads are so great as it may have concentrated on building up the value of its subsidiary or subsidiaries. In any event, the evidence is clear and no-one before me disputes, that the company is, on any view, insolvent. Accordingly the first statutory requirement for the appointment of an Administrator is met.
5. It seems to me that on the applicants' evidence, the statutory requirement of achieving the administration purpose (in this case that a better result would be achieved than in a liquidation) is also met: the evidence emphasises that administration is less drastic than a liquidation, and that it is easier to trade the company in administration than in liquidation. In addition, there are a number of repeat customers who it is hoped will remain loyal if the company can trade in administration.
6. Further, as was pointed out by a third party creditor appearing before me, Bird & Bird LLP, the appointment of an administrator will enable a distribution to be made to one or more secured creditors, thus achieving an alternative administration purpose if the main one advanced is not achieved.
7. I reach those conclusions bearing in mind that the threshold, at least under the first of the administration purposes advanced, is a low one. Nonetheless, I have real concerns in relation to transactions which have occurred since the presentation of the Winding Up Petition in October last year. It appears that the company, through a third party, obtained a number of further investors who appear to have subscribed for shares in the company and that a total of £1.9 million, or thereabouts, was received by the company, some of it before but most of it after the presentation of the Petition. Furthermore, those monies appear to have been spent because as of the date of the making of the application before me, the credit on the company's bank account was just under £17,000. There were additionally other funds credited in the name of OPL, to which the company had restricted access, of just under £17,000.
8. The company has also recently received a VAT refund of approximately £90,000, which has been spent, or so it would appear. The company has also made payments in respect of a rent deposit, which may require investigation.
9. What concerns me is the potential impact of s.127 of the Insolvency Act 1986, which avoids post-petition dispositions unless validated by the court. It is self-evident that substantial sums have been disposed of since the presentation of the petition. Mr. Gupta, who appears for the applicants, says an administrator will be able to examine all those payments and consider their propriety. There is a suggestion on the evidence that some of those payments may have been made to meet extravagant expense claims by a former director. If they are extravagant then I agree that it may be as feasible for an administrator, as it would be for a liquidator, to challenge those payments on the grounds of extravagance.
10. However, s.127 does not require extravagance or other wrongdoing. It is there to enforce the principle of pari passu distribution in a liquidation, and that principle may have been breached on an industrial scale in this case. We simply do not know. If we did know that might affect the conclusion that the administration purpose was established. Whilst, therefore, I proceed on the basis that that purpose is established, I am not prepared as a matter of discretion to make an Administration Order rather than a Winding Up Order because of what may turn out to be the very significant impact in this case of s.127, the availability of which ought not to be taken away from the officeholder, whatever office he may hold. If an administrator is appointed instead of a liquidator, the advantage of s.127 will be lost, and a better result may not in fact be achieved.
11. It seems to me, therefore, that the appropriate course is to wind the company up. The Winding Up Petition is not, however, before me. It is before the judge at Bristol tomorrow, but I could transfer it to this court.
12. It is said by Mr. Passfield, on behalf of the petitioner and supporting creditor in the Petition, who also resist the administration application today, that the Secretary of State could make an appointment of a liquidator (in place of the Official Receiver) almost immediately upon the making of a Winding Up Order, who could trade the company if that is the appropriate course. Moreover, much of the current trading seems to be by the subsidiary, OPL, which a liquidator could allow to continue whilst selling the shares.
13. It seems to me that the appointment of a liquidator by the Secretary of State immediately following a winding-up Order is something which ought to be investigated urgently and that priority might be given to more informed consideration of that issue tomorrow, when the matter comes before the Court in Bristol. Although it is not for me to tell the Bristol Court what to do, there may be much to be said for, in the meantime, appointing a provisional liquidator, if the matter is not wholly clear tomorrow. This was done in the case of Re Brown Bear Foods Ltd Shaw v Webb and others [2014] EWHC 1132 (Ch), a case in which HHJ Barker QC had concerns over post-petition dispositions resulting in the appointment of a provisional liquidator (rather than an administrator) with full powers, including power to sell the business.
14. It seems to me that it is often overlooked that liquidators have power to carry on the business, and that they will in an appropriate case do so. Accordingly I decline to make an administration application today, and dismiss the administration application. I will hear further argument, if anyone wishes to pursue the point further now, as to what should happen to the Bristol Petition. At the moment it is in Bristol and I have had no formal application to transfer it to this court.
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