Kimberley Claire Green v Gigi Brooks Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 24 February 2015 |
| Neutral Citation | [2015] EWHC 961 (Ch) |
| Date | 24 February 2015 |
| Court | Chancery Division |
| Docket Number | Case No: 890/2015 |
[2015] EWHC 961 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Strand
London
WC2A 2LL
Mr Justice Hildyard
Case No: 890/2015
In the Matter of:
Mr Kokelaar (instructed by North Star Law LLP) appeared on behalf of the Applicant
Miss Markham (instructed by Wiggin LLP) appeared on behalf of the Defendant
As Approved
This is an application for an Administration Order in respect of an English company called Gigi Brooks Limited. The application is brought by Kimberley Claire Green who I shall call the "Applicant". The application notice for this administration was issued on 2 February 2015.
The application was initially made in the Applications Court but it was then adjourned to be heard on an expedited basis and fixed for a hearing of one day. The application is opposed by the company, Gigi Brooks Limited, which I shall refer to as the "Company", at the instance of its remaining directors and in particular Mr Meng Ooi Kwan, whom I shall call Mr Kwan. Mr Kwan appears to be, since the removal of the Applicant as a director, in substantial and perhaps exclusive control of the Company.
The application has been supported by the Applicant with two witness statements of hers and some considerable exhibits. The Applicant has during the course of the hearing sought to supplement that evidence, with some evidence, as far as it goes, as to the likely expenses of the proposed administration as put forward by the proposed administrators. This evidence was submitted in the form of attachments to two emails. I accepted this on the basis of an undertaking to file witness statements verifying the attachments. I will return to the circumstances in which that evidence was put forward, and to its relevance, in due course.
The Applicant has appeared by Mr Kokelaar of counsel and the Company has appeared by Miss Markham of counsel. Both have provided me with valuable assistance.
As I shall elaborate later, the case is an awkward, even ugly, one in which I have drawn the distinct impression that the Company under its present control has for one reason or another taken all available steps to exclude the Applicant, even though she was in large degree the originator of the business (or at least of the idea on which it is based). The Applicant has sought in turn to find some way of rescuing herself and in particular reclaiming the means of exploiting the idea for what is in effect, I think, a children's clothes and design enterprise, which she previously carried on through another company called "Mum Said", which has become a subsidiary of the Company.
It is said, though I again return to this later, on behalf of the Applicant, that this is really in all the circumstances her only recourse in the sad state of things which has arisen. The application is thus at least in part a response to the Applicant's exclusion.
By way of completing the background to the application, for introductory purposes at least, I should note that it is undisputed that the Applicant is a creditor of the Company in the sum of £58,000 by way of what is described as the "Founder's Loan". I understand that it is disputed whether this amount has in fact fallen due, but resolution of that question does fall to be dealt with today. I am told that the Applicant is also a contingent creditor of the Company, having entered into a guarantee of its liabilities under a lease of certain premises in Lincolnshire, as well as in respect of its indebtedness to Mr Kwan under a facility agreement entered into between the Company and Mr Kwan dated 10 October 2014. I understand that there is a dispute as to whether the Applicant's guarantee in relation to the latter is in fact enforceable, but again this does not fall to be determined at this stage.
I have had explained to me the statutory architecture which defines the application and the purposes of an Administration Order when made by the court. As is familiar in these courts, this architecture is set out in Schedule B1 of the Insolvency Act 1986 which was substantially amended by the Enterprise Act 2002 in order — to put it briefly — to make the process of administration easier and more popular, it having initially not secured much support, especially having regard to other means of creditors obtaining some protection, for example, by the appointment of an Administrative Receiver.
The conditions for making an order are substantially common ground for the very reason that the statute (as amended) makes clear the threshold or pre-conditions to the exercise by the court of its discretion to make such an order. Those conditions are set out in paragraph 11 of Schedule B1, which provides that:
"The court may make an Administration Order in relation to a company (and I am satisfied that this is a qualifying company, being one incorporated in England) 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."
It is worth noting here, as it has often been noted, that the test in establishing inability to pay debts is that the company either is unable or is likely to become unable, whereas by contrast, and further to one of the amendments made by the Enterprise Act, the question as to whether the purposes of administration are sufficiently likely to be achieved is subject to the test of "reasonable likelihood". There is an important distinction between the two.
The phrase in paragraph 11(a): "unable to pay a debt" has the meaning ascribed to it by s.123 of the Insolvency Act 1986. That section provides that:
"1. A company is deemed unable to pay its debts amongst other things if:
(e) it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due;
2. …it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities taking into account for this purpose its contingent and prospective liabilities."
The first is usually referred to as the cash-flow basis of insolvency and the other as the balance sheet basis of insolvency: either or both will suffice as a requisite precondition for the making of an Administration Order.
In that context, so far as the word "likely", which, as I have remarked, is unqualified, is concerned, the authorities indicate that what is meant is that it is more probable than not that the company will or may become unable to pay its debts. The authority usually quoted for that is Re Colt Telecom Group PLC [2002] EWHC 2815 (Ch).
The first question therefore which arises here, as always, is this: is the Company unable or likely to become unable to pay its debts? The position in this regard is not as clear as it might be. That is partly no doubt a function of the fact that the Company, though incorporated on 28 June 2012, was until its first accounting reference date of 30 June 2013 dormant, and its first trading year, in effect, ran from late 2013, I think November 2013, through towards the end of 2014. As a result, both the trading position and the prospects of the Company are not as clear as they might be. The Company has not yet filed accounts at Companies House and the latest management accounts provided in evidence to the Applicant and to the court are those for the period ended 30 November 2014, together with copies of the Company's bank statements up to 19 January 2015. It may be that the Company has more up-to-date financial information, but it has been refused to the Applicant and not provided to the court. It is also worth noting that, as I understand it, the Company has had to change its accountant recently, although it now has a qualified accountant in place.
Turning to the balance sheet position of the Company — and subject to the qualifications which I have already expressed — the parties are agreed as to the descriptions of the financial position that the court should base its decision on, but are apart on whether the descriptions are accurate or properly take into account what the net asset position of the Company is.
According to the balance sheet drawn up as at 30 November 2014 and included in the evidence, the Company has total assets of some £421,000 and total liabilities in the sum of some £350,000, yielding net assets of £70,704 odd....
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...be shown that rescue is probably needed before asking for a rescue team." 13 Ms Staynings also relied upon what Hildyard J. said in Green v. Gigi Brooks Ltd. [2015] EWHC 961 (Ch): "The position on the balance sheet is, as I have explained, worrying and the erosion in its cash balances the m......