Lavin & Ors v Swindell

Introduction

BTR (UK) Ltd (“BTR”) is insolvent. The Statement of Affairs revealed assets of only £56,726 and an estimated deficiency of £464,194. On 16^th December 2011 an Administration order was made by this Court and Mr Swindell was appointed as the Administrator.

On 27^th January 2012 the Administrator completed a sale of some of the assets (“SPA”) of BTR to ITAS Global Ltd (“ITAS”) for £31,000 payable as to £5,000 on completion, 5 monthly instalments of £2,000 and a final payment of £16,000 on 10^th July 2012. The payments were supported by personal guarantees from 4 former employees of BTR.

On 6^th February 2012 the Administrator sent out his proposals to creditors. In them he envisaged that there would be insufficient funds to pay unsecured creditors and he proposed to dispense with the initial meeting of creditors. However a meeting was requested by more than 10% of the creditors and the meeting was duly convened.

The meeting initially took place on 13^th March 2012. It was adjourned until 27^th March 2012. More than 50% of the creditors rejected the Administrator’s proposals. It is also clear that more than 50% of the creditors purported to vote for a resolution requiring the Administrator to petition for a compulsory winding up of BTR.

The Administrator reported the result of the meeting to the Court but declined to apply for the compulsory winding up of BTR or to make an application to court for directions. It was his case that he is not obliged to apply to the Court and that he does not have sufficient funds to petition for a compulsory liquidation of BTR. It is in addition his view that an immediate application for a compulsory liquidation would be prejudicial to preferential creditors because of the ad valorem duty payable on realisations in a compulsory liquidation.

This is an application by 8 creditors of BTR who are concerned at events which took place immediately before the events leading to the administration. They suspect that assets which should have belonged to BTR have been transferred to ITAS . They are seeking an order that the Administrator petition for a compulsory winding up of BTR in order that the liquidator can carry out a proper investigation.

The application was initially opposed by the Administrator on the grounds summarised above. In addition reliance was placed on the fact that the final payment under the SPA was due on 10^th July 2012 and there was no reason for any liquidation to take place before then.

The application came before the Court on 18^th May 2012 when directions were given to enable a hearing to take place on 15^th June 2012. Regrettably it was not possible to accommodate the case on that date and it was re-listed for 15^th August 2012.

Only £2,000 of the £16,000 due under the SPA was paid on 10^th July 2012. On 1^st August 2012 the Administrator issued a cross application asking for directions as to whether to allow the administration to expire by effluxion of time on 16^th December 2012 or whether he ought to petition for the winding up of BTR. If so he applied for a direction that the creditors should indemnify him as to the costs and expenses associated with the petition.

The applications accordingly raise questions concerning the duty of the Administrator in cases where there are limited funds and his proposals have been rejected by the creditors. It also raises questions as to the power of the Court in such situations. As will appear later the authors of two leading text books have expressed different views and the authorities are not wholly consistent.

At the outset it is right that I should acknowledge with thanks the very considerable assistance I have received from Counsel in their very clear skeleton arguments and oral submissions.

The facts

BTR was incorporated on 23^rd February 2000. The share capital consists of 46,194 ordinary £1 shares and 31,522 £1 preference shares. Mr Reid holds 58.8% of the ordinary shares. The balance is held by Mr Hall (35.3%) and Mr Firth (5.9%). The preference shares are equally divided between Mr Hirst and Mr Firth. Mr Reid was the sole director after 28^th February 2011.

BTR traded as a secure data remover and recycler of electronic equipment. In 2011 it suffered from cash flow problems. Mr Swindell was first approached by BTR on 10^th October 2011 to provide advice on its solvency. He assisted in the preparation of the Statement of Affairs and advised that it be placed into creditors’ voluntary liquidation.

On 8^th November 2011 a Board Meeting attended by Mr Reid, Mr Fawcett and Mr Swindell resolved that BTR appeared to be insolvent and instructed Mr Swindell to arrange the necessary meetings under sections 98, 100 and 101 of the Insolvency Act 1986 (“the 1986 Act”) with a view to placing the company into creditors’ voluntary liquidation (“CVL”).

On 15^th November 2011 before any of the proposed meetings were held a petition was presented by a creditor in the Warrington County Court for the compulsory winding up of BTR. It was due for hearing on 16^th December 2011.

At this stage very little is known about the constitution of ITAS. In the proposals submitted by the Administrator it is described as an associated company taken over by a consortium of the employees of the business. In his second witness statement Mr Lavin asserts that ITAS was incorporated in 2006 and owned by Mr Aycliffe who was the sole director until 30^th December 2011.

Mr Lavin is a former director of BTR. For the purpose of these proceedings it is accepted that he is a creditor in the sum of £10,000. On 16^th November 2011 he discovered that BTR’s website had been changed and described BTR as a trading name of ITAS.

When asked for an explanation BTR stated that ITAS had made an offer for BTR but this was subject to ratification and that the web site changes were presumptive.

In his witness statement Mr Lavin makes a number of allegations as to events that occurred in October and November 2011. The sales for November and December were invoiced through ITAS; all of the staff had been transferred to ITAS by the end of October under “TUPE”, invoices contained ITAS’s bank details and VAT number.

In the course of the hearing I was shown a number of e-mails relating to these matters including:

An e-mail from Mr Lavin to Mr Swindell (copied to Mr Hall and Mr Hirst) dated 30^th December 2011 which refers to possible misfeasance in relation to ITAS and asks for Mr Swindell’s early response.

A response from Mr Swindell dated 3^rd January 2012 in which he states that

“I am in the process of undoing the involvement of ITAS with BTR. At this stage, I would describe their involvement as premature and naïve as against misfeasance.”

A long e-mail from Mr Lavin to Mr Swindell dated 7^th February 2012 (on receipt of the pack containing the proposals). This email asks for an update of the amount ITAS owes to BTR and what action has been taken in recovering any sum. The e-mail refers to the events of October and November 2011 and asserts that a significant amount of cash and other assets belonging to BTR is held by ITAS.

It is common ground that I cannot in this hearing make any findings as regards any of the allegations of misfeasance but it was accepted by Mr Groves on behalf of the Administrator that those allegations were serious and merited proper investigation.

The meeting of members eventually took place on 30^th November 2011. There are no formal minutes but there is a detailed note of the discussions. It is not necessary to go into detail. Mr Hall refused to agree to a CVL until he had seen the paperwork relating to the proposed sale agreements. He believed there was more value to be found for BTR. In the absence of Mr Hall’s agreement the relevant resolution could not be passed. The meeting was adjourned for 14 days.

By 8^th December 2011 Mr Swindell had become aware of the petition in the Warrington County Court for compulsory liquidation. On that date Mr Reid, as sole director, presented an application to this Court for an Administration Order. Mr Swindell signed the statement that he thought that the purpose of the administration was reasonably likely to be achieved. On the same day he e-mailed all the members and creditors who attended the first meeting informing them of the application which would be heard sometime in the week commencing 12^th December 2011.

On 15^th December 2011 Mr Hall sent an e-mail to Mr Swindell (copied to M Hirst, Mr Reid and the solicitor acting for BTR) asking for details about the application and whether the High Court was aware that little or no effort had been made by the directors to sell the assets of the company other than to a close friend of the Director.

On the same day Mr Hirst sent an e-mail to Mr Hall which was copied both to Mr Swindell, Mr Reid and to the solicitors acting for BTR asking for the date of the hearing so “we can pursue the matter ourselves, or name the Administrator to be appointed”.

There was no reply to either e-mail. In the result the creditors were left in ignorance of the date of the hearing and thus not able to apply (under IR 2.12(1)(k)) to be heard on the petition. In the course of his submissions Mr Groves accepted that if such an application had been made it is likely that permission would have been granted. For my part I regard it as unfortunate that the creditors were not informed of the date of the hearing. It may well be that if they had objected no administration order would have been made and the petition for the compulsory winding up order would not have been dismissed.

In any event the application proceeded unopposed on 16^th December 2011 and was granted. Mr Swindell was duly appointed as the Administrator. The winding up petition was dismissed. The costs of the petitioning creditor were an expense of the Administration.

As noted in the Introduction, on 27^th January 2012 the Administrator completed a sale of some of the assets of BTR to ITAS for £31,000 payable as to £5,000 on completion, 5 monthly instalments of £2,000 and a final payment of £16,000 on 10^th July 2012. The payments were supported by personal guarantees from 4 former employees of BTR.

It is not necessary to refer to the terms in any detail. It is, however, to be noted that the transferred assets did not include the “Old Debts” defined as meaning all book and other debts accrued prior to 16^th November 2011. In the Statement of Affairs the Debtors were stated to be £49,692.00.

In his second witness statement Mr Lavin makes the point that the SPA makes no mention at all of work in progress. He estimates that between 16^th November 2011 and 16^th December 2011 about £140,000 would have been invoiced to customers.

Some details of the marketing of the business are given in section 3 of the Administrator’s proposals. It is not necessary for me to repeat them.

On 6^th February 2012 the Administrator sent his proposals to the creditors. A number of points are worthy of note:

In section 2.1 the Administrator envisaged that there was unlikely to be a distribution to unsecured creditors and stated that in accordance with paragraph 52 of Schedule B1 of the 1986 Act (“Schedule B1”) he would not convene a meeting of creditors.

In section 6 he set out the Financial Position of the Company. He referred to the figure for debtors and pointed out that £23,000 was due from ITAS. A good part of the other debts were old and disputed. He estimated that debtors would not realise more than £30,000. He identified some 22 employees who were preferential creditors in the sum of £23,000. It is, in fact, now clear that there were 7 such employees and that preferential debts are only just over £6,000.

In section 7 he asserted that it was clear that after paying the costs of the Administration and the preferential creditors there would be no dividend for unsecured creditors.

In section 8 he set out his proposals. Many of them relate to his remuneration, the expenses and the costs of obtaining the Administration Order. He did, however, propose that:

“He continue to manage the affairs of the Company in order to achieve the purpose of the Administration and he continues to do all things reasonably expedient and generally exercise all powers as Administrator as in his discretion he considers expedient.”

The receipts and payments account shows that he had received £24,938.38 and had made payments totalling £22,428.13 including £3,000 in respect of his costs.

It is thus to be noted that there are no detailed proposals at all and, as Mr Lavin pointed out in his e-mail of 7^th February 2012, there is no reference to what steps have been taken or are proposed to be taken in respect of the events of October and November 2011.

On 6^th February 2012 Mr Hirst submitted a request for a meeting under paragraph 52(2) of Schedule B1. The request was said to be supported by Mr Lavin. The purpose was said to be :

“To discuss fraudulent activity Insolvency of Business + Vote to remove Swindell from [office] due to his part in the attempted fraud of creditors.”

Mr Swindell has taken great exception to the wording of this request and has threatened defamation proceedings against Mr Hirst. However as Mr Swindell pointed out Mr Hirst failed to pay the necessary deposit and the request was not pursued. Both parties recognised that I am not in a position to make any findings in relation to the allegations of fraud. Mr Groves however sought to rely on it as demonstrating what he described as the hostile attitude between the creditors and the Administrator.

On 8^th February 2012 Mr Lavin submitted his own request for a meeting. It was supported by creditors substantially in excess of the necessary 10% of creditors. The purpose was:

“To consider in detail the Administrator’s proposals and discuss same.”

Mr Lavin provided the necessary deposit and the meeting was summoned for 13^th March 2012.

The meeting convened for 13^th March 2012 was adjourned for 14 days. There are no formal minutes of the meeting but notes were prepared by Sophie McKelvey of Gordons LLP which contain a relatively full account of what occurred. There is a slightly different version of events in Mr Lavin’s witness statement. It is not necessary to resolve the differences in recollection.

There was a discussion about liquidation and the costs of obtaining an order. There was a debate about whether the creditors were entitled to vote in the light of the wording of the request. There was a debate about the validity of some of the proxies.

The adjourned meeting took place on 27^th March 2012. At the meeting creditors to the value of £255,656 signed proxies with specific voting instructions as follows:

that the Administrator’s proposals should be rejected;

that the expenses of summoning and holding the initial meeting be paid out of the assets as an expense of the Administration;

that the Administrator should immediately petition for the compulsory winding up of the Company;

that the Administrator should not seek his appointment as liquidator of the Company under section 140 of the 1986 Act.

There is a note of what happened at the meeting taken by Ms McKelvey. It is clear that the Administrator accepted that the proxies were valid and that there was a clear majority for items 1 and 2 of the voting instruction. The position on items 3 and 4 is less clear. It is clear that there was a discussion on the costs of petitioning for a compulsory winding up of the Company. It is however clear that the Administrator did not accept the modification to the proposals suggested by the voting instructions.

On 28^th March 2012 Lewis Onions, on behalf of the creditors, wrote to the Administrator. The letter makes a number of points:

In their view the lack of funds is not a good reason for ignoring the wishes of the majority of the creditors that an application be made to wind up the Company.

In any event, as the Administrator’s proposals have been rejected, he should now make an application to Court under paragraph 55 of Schedule B1.

If the Administrator continues to decline to petition for a compulsory winding up the creditors will do so. The Administrator was invited to consent to such a course.

On 30^th March 2012 Gordons on behalf of the Administrator replied to Lewis Onions. The points made include:

It is acknowledged that the majority of the creditors wish BTR to move to compulsory liquidation in order to enable the pre-administration actions to be properly investigated by a liquidator. It is not possible to proceed by way of voluntary liquidation because the Administrator does not think that a distribution will be made to unsecured creditors. [see paragraph 83(1)(b) of Schedule B1].

BTR is not currently in funds to facilitate transition to compulsory liquidation. The necessary application would cost at least £3,000 including the OR’s deposit. The Administrator has suggested that the transition take place in July 2012. This will allow a delay of 4 months by which time it will be clear whether sufficient realisations have been made to enable the application to be made. It is pointed out that the deferred consideration under the SPA is the means by which the Administration Expenses are to be discharged. Until July 2012 the Administrator has no means of discharging the liabilities.

Lewis Onions replied to the letter the same day making a number of comments:

The Administrator is under a duty to perform his functions in the interests of the creditors as a whole. By deferring the liquidation he is, in effect substituting his rejected proposals for the wishes of the majority of the creditors.

As the letter does not address paragraph 55(2) of Schedule B1 it is to be inferred that the Administrator does not intend to make an application to Court.

The urgency of the situation lies in the need for a liquidator to investigate the apparent diversion of assets in October and November 2011. Rapid action may well be required to preserve assets.

The Administrator has taken no steps at all to investigate those antecedent transactions and as the person who received instructions from the directors is not seen as impartial by the creditors.

The proceedings

These proceedings were commenced on 4^th May 2012 in order to compel the Administrator to apply for the compulsory liquidation of BTR. It is not necessary for me to summarise the evidence further.

On 1^st August 2012 the Administrator issued a cross application for directions. The main development was that ITAS failed to pay the £16,000 due on 10^th July 2012. Instead it paid only £2,000. In the covering letter the Finance Director acknowledged that liability under the personal guarantees was triggered but appealed to the Administrator to allow ITAS to raise funds over the next few months. There must accordingly be doubt as to the solvency of ITAS and as to the possibility of making recoveries from it.

In his evidence the Administrator referred to the additional costs of a compulsory liquidation and to the position of the preferential creditors. He produced 4 tables designed to demonstrate the position:

If this application had not been brought he estimates that there would have been £10,228 available for the preferential creditors. There would have been recoveries of £34,000 and expenses and legal fees totalling £23,772.

If an application is made for the compulsory liquidation there is a deficiency of £1,772 and thus nothing for the preferential creditors. This is because of additional expenses of £5,000 for the costs of the winding up petition and Secretary of State’s fees of £7,000.

In fact the current position is far worse. First there is £14,000 outstanding in the deferred consideration. Second he has incurred £35,000 in legal fees. There is a deficiency of £24,772.

The position is £12,000 worse if there is to be an application for the compulsory winding up of BTR.

Some of these figures are challenged in the witness statement in reply. In particular whilst it is acknowledged that some ad valorem duty would be payable it would be less than the £7,000 quoted. The estimated costs of the winding up petition and the proposed remuneration of the Administrator (which has not been approved) are excessive.

It is however to be noted that all of these examples are based on the assumption that no further assets will be recovered following the liquidation of BTR.

The initial meeting of creditors

There is no dispute as to the relevant provisions of Schedule B1. It is, however convenient to summarise them.

Under paragraph 49 the Administrator must make a statement setting out proposals for achieving the purpose of the Administration within 8 weeks of the date of the Administration. Normally the Administrator is required under paragraph 51 to invite the creditors to the initial creditors’ meeting. However under paragraph 52(1) the Administrator is not required to convene a meeting of creditors where the statement states that the Administrator thinks that the Company has insufficient property to enable a distribution to be made to unsecured creditors. However under paragraph 52(2) the Administrator is required to summon an initial creditors’ meeting if it is requested by creditors whose debts amount to at least 10% of the total debts of the Company.

Under paragraph 53 the initial creditors’ meeting is required to consider the proposals and may approve them or approve them with such modifications to which the Administrator consents or fail to approve them. Following the meeting the Administrator must report any decision taken at the meeting to prescribed persons including the Court.

Paragraph 54 applies where the Administrator wishes to propose a revision to the proposals which he considers substantial. It is only relevant to this case because one of the text books to which I was referred mentions it as an aid to the construction of paragraph 55.

The procedure adopted in this case followed the statutory route. The Administrator’s view that there would be no return to the unsecured creditors is open to the comment that he had not investigated the creditors’ complaints in relation to the transfer of BTR’s assets to ITAS. In so far as there were any recoveries resulting from these complaints and/or from the “Old debts” there could well have been a return to the unsecured creditors.

As the Administrator did not agree with the third and fourth voting instruction contained in the proxies they could not take effect as modifications of the proposals. In the result the effect of the meeting was that the proposals were rejected and that the costs of the meeting were an expense of the Administration.

Paragraph 55 of Schedule B1

Paragraph 55 is concerned with the situation where, as here, the initial meeting of creditors has failed to approve the proposals. It provides:

Mr Brown submits that where the proposals are rejected the Administrator is bound to apply to Court for directions under paragraph 55. Mr Groves on the other hand does not accept this. He submits that the Administrator has a discretion as to whether to make such an application.

Mr Groves’s submission is supported by the note of the editors (Sealy and Milman) in the current (15^th) edition of the Annotated Guide to the Insolvency Legislation 2012:

“This provision gives discretionary powers to the court in the event that proposals or revised proposals are not approved at the creditors’ meeting. Although the administrator is required to report the failure to gain approval to the court, it does not appear to be essential that he should seek any ruling from the court: in particular, if revised proposals are not approved, he is surely free to continue to act under the original proposals or to draw up a new set of revised proposals and summon a further creditors’ meeting. But despite the wide wording of para.(2)(e), the court’s powers must be of a limited nature: it could not, for example, impose on the creditors a set of proposals to which they have not agreed.”

Mr Brown’s submission is supported by paragraph 12-047 in the current (5^th) edition of Lightman & Moss the Law of Administrators and Receivers:

“The administrator is under specific duties to seek directions from or the permission of the court in the following circumstances:

(ii)

where he finds that his proposals, or any revisions to them, are not approved at a creditors’ meeting.”

Mr Brown’s submission also gains some support from a dictum of Mann J in the decision in Platinum Developers Ltd v Assignees Ltd. (unreported, 5^th October 2009). That was a case where the creditors rejected the Administrator’s proposals and the Administrator did make an application under paragraph 55. After referring to the rejection of the proposals Mann J said:

“That triggers an obligation on the administrators to bring the matter to court under paragraph 55 of Schedule B1, and hence the application before this court.”

On the other hand I was also referred to the decision of Sales J in Re Stanleybet UK Investments Ltd [2011] EWHC 2820 (Ch). In that case the Administrators sought to sell shares owned by the Company but its proposal was voted down at the creditors meeting. In those circumstances they applied to Court under paragraph 55 for an order that they cease acting as Administrators and directing them to place the Company in voluntary liquidation. In paragraphs 8 and 11 of the judgment Sales J said:

“8

… However, the Estate was not satisfied that the joint administrators had taken sufficient steps to market SUKI or the STS shares so as to get the best price. Therefore, the Estate voted down the joint administrators' proposals at the creditors' meeting on 2 September. That put the joint administrators in a quandary. They were not formally bound by the vote at the creditor's meeting and so could have proceeded with the sale to SIB. On the other hand, they had a responsibility to have regard to the views of creditors and were entitled to give considerable weight to the views of the substantial majority creditor about how to proceed. It would be unusual, though not legally impossible, for administrators to proceed with a course which 87 per cent of creditors were opposed to. The position was complicated because the joint administrators believed they had taken reasonable steps to market the STS shares in the short period of time before financial pressures on STS combined with uncertainty about its ownership meant that its business was put in jeopardy and lost value.

11

In this complex and difficult situation, the joint administrators decided to apply to the court to seek directions under paragraph 55.2 of Schedule B1 to the 1986 Act for an order that they cease to act as administrators and directing them to send a notice to place SUKI into voluntary liquidation. This was essentially to accept that the Estate, as majority shareholder, could seek to have the STS shares re-marketed with the extra cost and uncertainty of outcome that that would involve, even though the joint administrators' own judgment was that the better course would have been to proceed to accept the SIB offer.”

In both of the above cases the Administrator made the application under paragraph 55 and the question of whether he was obliged to make it did not arise. However the language of the judgments suggests that Mann J thought that the application was mandatory whereas Sales J thought it discretionary.

Whilst I see the force of the points made in Sealy & Milman I prefer the views of Lightman & Moss and Mann J.

Whilst it is true that paragraph 55 does not expressly require the Administrator to bring the matter before the Court, to my mind the language of paragraph 55(2) contemplates that there will be a hearing and indeed necessarily implies that there must be a hearing. There can only be such a hearing if an application is made. That application must ordinarily be made by the Administrator. If, as here, the Administrator does not make the application, I see no reason why it should not be made by a creditor.

Under paragraph 3(2) the Administrator must (subject to an exception in paragraph 3(4)) perform his functions in the interests of the creditors as a whole. Under paragraph 68(1) the Administrator is (subject to any contrary direction from the Court) required to manage the Company’s affairs in accordance with the proposals approved under paragraph 53.

If, therefore, the proposals are rejected by the creditors it is difficult to see how the Administrator can manage the Company’s affairs in accordance with paragraph 68 without making an application to Court.

The editors ofLightman & Moss list nine separate situations where an application to Court is necessary. These include extending the period of the Administration, the disposal of goods under a hire-purchase agreement and where he considers the remuneration fixed for him is insufficient. The Administrator’s proposals are a fundamental part of the Administration regime. It does not surprise me in the least that an application to Court should be intended if the proposals are rejected.

I accept, as Sealy & Milman point out, that the argument is less strong in a case where revised proposals are accepted. In such a case the Administrator can still manage the affairs in accordance with the approved proposals. However that is not this case.

This is a case where the original proposals have been rejected. In such a case the Administrator must make an application to court.

In the alternative Mr Brown submitted where, as here, the initial creditors’ meeting resulted in an overwhelming rejection of the Administrator’s proposals and a corresponding overwhelming desire for the Company to move immediately to liquidation, the Administrator was obliged to seek the Court’s directions before proceeding, especially where he intended to act otherwise than in accordance with the expressed wish of the creditors at the meeting.

In the light of my view that an application is mandatory it is not necessary for me to rule on this submission. However it has considerable force and my provisional view is that it is correct.

It is plain from paragraph 55(2) that the Court has the widest powers in an application under paragraph 55. These include a power to terminate the Administration, to adjourn the hearing to give directions to the Administrator, and to make any order that the Court thinks appropriate. In Stanleybet Sales J terminated the Administration and directed the Administrator to place the Company in voluntary liquidation. In Platinum Developers Mann J made an order under paragraph 55(2)(e) convening another meeting to enable the Administrator’s proposals to be put again to the creditors.

I have little doubt that I have power to direct the Administrator to present a winding up petition. Paragraph 42(3) prevents the Court from making a winding up order whilst BTR is in administration. Once the Administration is terminated a winding up order could be made. Paragraph 43(6) prevents the institution of any legal process (including legal proceedings) against BTR whilst it is in administration without the consent of the Administrator or the permission of the Court. The paragraph is headed “Moratorium on other legal process” in contradistinction to the heading for paragraph 42 which is headed “Moratorium on Insolvency Proceedings” and, at one time, I thought that paragraph 43 did not apply to the presentation of a petition. On reflection, however, it seems to me that the presentation of a winding up petition is a legal process within paragraph 43(6) and thus within the moratorium. I could however grant the necessary permission to the creditors and adjourn the hearing of this application to enable the creditors to present the petition. On the return date I could terminate the Administration and make a winding up order on the petition.

During the course of the hearing the question arose as to whether the Court could terminate the Administration and make a winding up order of its own motion. Mr Groves, whilst urging extreme caution, drew my attention to the decision of Neuberger J (as he then was) in Lancefield v Lancefield [2002] BPIR 1108 where the following passage appears at 1111F – 1112D

“If one looks at the commonest case, that of registered companies, s 122 of the 1986 Act empowers the court to wind up a company if one or more of the circumstances set out in s 122(1) applies. Section 124 then provides how an application for the winding-up of a company can be made by certain categories of person. It seems to me, therefore, that two propositions are clear. First, if one or more of the circumstances in s 122 exist, the court has power – not an obligation; note the word ‘may’ in s 122(1) – to make a winding-up order. Secondly, if a person seeks a winding-up, then by virtue of s 124, he has to apply by petition, and has to be within the ambit of that section.

   However, I do not see why that should mean that, where a matter concerning the company is before the court and the court is quite satisfied that there is jurisdiction to make a winding-up order because one or more of the circumstances in s 122(1) applies, the court is in every case powerless to act simply because nobody has petitioned for the winding-up under s 124(1). I do not see why, in the case of a registered company, the court should not, in an appropriate case, of its own motion, decide on the facts before it that it has power to make a winding-up order under s 122(1) and that it should make such an order. …

   Having said that, I think it would require a thoroughly exceptional case before the court would even consider making a winding-up order in relation to a company where there is no petition. It would be plainly undesirable if parties to litigation thought that there was, in normal circumstances, even a real possibility of the court, of its own motion, at the risk of prejudicing people who were not before the court, making an order winding up a company. In virtually any case where the possibility of a winding-up order is to be considered – whether a registered company, an unregistered company or a partnership – it seems to me clear that the court should require a properly presented petition. However, there will be circumstances in which a petition will not be necessary because the circumstances are so plain, and the inevitability, appropriateness and urgency of a winding-up order are so clear, that it would be a denial of justice, and a waste of time and money, for the court to refuse to make an order there and then.”

It follows from this that there is power to make a winding up order under paragraph 55(2)(e) but it is a power to be exercised cautiously and in an exceptional case.

Discussion

In the course of his submissions Mr Groves placed considerable reliance on the position of the preferential creditors. In effect he submitted that the actions of the creditors have increased the costs of the Administration so that they will now receive nothing.

There are in my view a number of answers to this submission. First there will be cases where it is plain that there will be no return for the unsecured creditors. In such a case the views of the unsecured creditors will carry less weight than if there were to be a return. It is no doubt for that reason that the Administrator is not obliged to convene a meeting of creditors if he thinks there will be no return. The Administrator has expressed the view that there will be no return in this case. However he has also acknowledged that there are legitimate concerns in relation to events in October and November 2011 which require investigation. In those circumstances it cannot be said that it is plain that there will be no return to the unsecured creditors. So far the Administrator has taken no steps to investigate the complaints. It is equally not clear what steps he has taken to recover the “Old debts”.

Second it is by no means clear that there would ever have been sufficient funds for the preferential creditors. It is only on the first of Mr Swindell’s calculations that there are such funds. As noted above ITAS has not paid the final instalment under the SPA. Furthermore the calculation involves completely ignoring the claims of the unsecured creditors. I agree with Mr Groves that the Administrator’s task involves something of a balancing exercise between the claims of the unsecured creditors and those of the preferential creditors. However, where, as here, there is a genuine need for an investigation and there are genuine bona fide claims from the unsecured creditors I do not accept that the balancing exercise entitles the Administrator to ignore the claims of the unsecured creditors. It has to be remembered that the preferred creditors amount to only £6,000 out of unsecured claims of £450,000.

In any event it is now clear that there is no money for the preferential creditors.

In my view compulsory liquidation is the appropriate way for the insolvency of BTR to proceed. BTR is insolvent. There are plainly matters which the creditors wish to have investigated. They have not been investigated in the Administration. A compulsory liquidation is the only effective way for this to happen.

As noted above there are three ways that a compulsory liquidation can be achieved. Although the Court has power to direct the Administrator to present a petition this is to my mind the least attractive option. First the Administrator is unwilling to present a petition. Second he has no funds. This objection was countered by an offer by the creditors to fund the cost associated with the petition. Third the creditors contend that the Administrator’s estimate of the costs is too high. In this respect it is to be noted that the Administrator’s estimate is £2,000 higher than the costs of the dismissed petition. It is difficult to see why this should be so.

In my view the real choice is between granting permission to the creditors to present a petition (and facilitating such petition by dispensing with advertisement and terminating the Administration) or making an immediate winding up order without the need for such a petition.

In my view this is an appropriate case for the Court to exercise the exceptional jurisdiction envisaged by Neuberger J. It is in my view a plain case where a winding up order would be made on a petition. It is not a case where persons not before the Court will be prejudiced. It is a case where one creditor has already petitioned for such an order. The petition was dismissed as a result of the making of the Administration Order. The Administration has failed in the sense that the Administrator’s proposals have been rejected. The costs of the first petition are an expense of the Administration. In those circumstances it seems expedient that the creditors should not be put to the expense of a second petition. There is to my mind a degree of urgency. It is already 9 months since the events of November 2011. The sooner the liquidator is appointed the more likely he is to be able to investigate the events successfully. The solvency of ITAS is to put it no higher in doubt. I do not accordingly share the Administrator’s views that there is no urgency.

Conclusion

In all the circumstances I propose to terminate the Administrator’s appointment with immediate effect under paragraph 55(2)(a) of Schedule B1 and to make a compulsory winding up order in relation to BTR.