Rowntree Ventures Ltd and another company v Oak Property Partners Ltd and another company
| Jurisdiction | England & Wales |
| Judge | Judge Purle |
| Judgment Date | 10 June 2016 |
| Neutral Citation | [2016] EWHC 1523 (Ch) |
| Date | 10 June 2016 |
| Court | Chancery Division |
| Docket Number | Case No: 8046/2016. 8047/2016 |
[2016] EWHC 1523 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham Civil Justice Centre,
33 Bull Street, Birmingham B4 6DS.
His Honour Judge Purle, Q.C.
(Sitting as High Court Judge)
Case No: 8046/2016. 8047/2016
Mr A Gupta instructed by Howes Percival LLP appeared for the Applicants
Ms C Staynings instructed by Clarke Kiernan LLP appeared for the Defendants
Two companies are concerned in the applications before me, Oak Property Partners Ltd. ("Property"), which is the owner of a hotel in Hitchin, Hertfordshire, and Oak Forest Partnership Ltd. ("Forest"), which is the owner of a hotel in Hever, Kent.
When I say they are the owners, they are the freehold owners. The business model that the companies have adopted is that of selling off individual hotel rooms and common parts to lessees on long leases, so that the companies are not hotel operators. They have carried on business, effectively, as property developers.
The Applicants before me are or represent those who have acquired leases upon terms which entitle the leaseholder to a repurchase of the lease from the relevant company in given circumstances.
In the case of the Hitchin hotel owned by Property, a number of leaseholders have given notice exercising their right to repurchase, which will come into effect within the next two years or so. In the case of the Hever hotel owned by Forest, a number of leaseholders have also given notice, which will come into effect starting in October of this year. One lease has already been repurchased. The evidence is not entirely clear, but appears to suggest that the repurchase was completed in April of this year.
The Applicants seek the appointment of administrators. When they purchased their respective leasehold interests they were given what now appear to them to be extravagant promises of a guaranteed return which appear to have been more than optimistic and possibly reckless or wantonly misleading.
I say "possibly" because that issue is not before me, but it underlies the flavour of the applications made by Mr. Gupta on behalf of those prospective creditors. They say that although they are merely prospective creditors following the service of notices requiring repurchase, they nonetheless have standing, as it is common ground they do, to apply now for the appointment of administrators under the relevant provisions of Schedule B1 of the Insolvency Act 1986. It is also common ground that for that to occur there are two preconditions which must be satisfied, as specified in paragraph 11 of Schedule B1.
The court has first to be satisfied upon a balance of probabilities that the company is, or is likely to become, unable to pay its debts. Either balance sheet insolvency or cash flow insolvency will, it is accepted by both sides, suffice for the purpose of this requirement.
The court must also be satisfied that an administration order is reasonably likely to achieve the purpose of administration. This means a realistic chance must be shown.
The purpose of administration is found in paragraph 3(1) of Schedule B1, which requires an administrator to perform his functions
"with the objective of —
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company's creditors as a whole that would be likely if the company were wound up (without first being in administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors."
It is not necessary for any particular alternative to be specified in the order appointing administrators, but, as I have to be satisfied that the administration purpose is reasonably likely to be achieved, the evidence needs to establish a realistic chance that at least one of the alternatives will be achieved. Mr. Gupta, upon being pressed by me, accepted that the most realistic basis in this case is that an administration would be likely to achieve a significantly better result for creditors than a winding up, if for no other reason than the avoidance of ad valorem fees which would be incurred in a compulsory winding up on any realisations. That assumes that there would be realisations, a proposition queried by Ms Staynings who suggests an administrator would have nothing to do, as all units are now leased and the hotel is managed externally.
An officeholder might however choose to operate, at least for a while, the repurchase program which would in turn, in all probability, result in their realising either individual leases or possibly the freehold, avoiding in the case of an administration ad valorem fees which might otherwise be incurred in a liquidation.
It is said on behalf of the companies by Ms Staynings that neither of the preconditions is satisfied in this case. I only have to be, though I do have to be, satisfied on a balance of probabilities as to the first precondition. In Re COLT Telecom Group Plc [2002] EWHC 2815 (Ch) Jacob J. (as he then was) said this at [26]:
"I cannot think that parliament intended that companies should be exposed to this kind of hostile proceeding where it is more likely than not that the company is not insolvent. Administration is a rescue procedure — it must be shown that rescue is probably needed before asking for a rescue team."
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 more so. However, I do not think that it is possible for the court to be satisfied, as it must be, that the company is suffering from a deficit on its balance sheet or is unable to meet debts that are falling due. Nor can the court be satisfied that the company is likely to become unable to pay its debts. Nor that the projections and budgets are so plainly wrong as to enable me to be satisfied as to the likelihood in the future of such inability."
In this case Ms...
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