Vol 11 (2014) - Issue 5

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Data Power Systems Ltd and others v Safehosts (London) Limited and another, Administration Order Prevented by a Lack of Evidence that the Statutory Purpose was Achievable

Introduction
On 17 May 2013 judgment was handed down in Data Power Systems Ltd and others v Safehosts (London) Limited and another. Mr Justice Barker ('Barker J'), sitting in the Chancery Division of the High Court refused an application for an administration order against Safehosts (London) Limited ('SLS') and instead appointed a provisional liquidator to SLS on the basis that there was no substantive evidence that any of the statutory purposes of administration could be achieved.

Court’s power to make an administration order
An administrator may be appointed to an insolvent company by the court pursuant to paragraph 11, Schedule B1 of the Insolvency Act 1986 ('IA 1986') following an application by the company, the directors of the company or one or more creditors of the company.
On hearing an application for an administration order the court has several options including, but not limited to, making the administration order sought, dismissing the application, adjourning the application or treating the application as a winding-up petition.
Paragraph 11, Schedule B1, IA 1986 states that in order to grant an administration order the court must be satisfied that: (a) 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.a

The purpose of administration
The purpose of administration is set out in Paragraph 3(1), Schedule B1, IA 1986 which provides that an administrator of a company must perform his functions with the objective of:

a) rescuing the company as a going concern;
b) achieving a better result for the company’s creditors as a whole than 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.

In order to be satisfied that the purpose is reasonably likely to be achieved the courts have applied the 'real prospect' test set out by Hoffman J in Re: Harris Simons Construction Ltd. Hoffman J held that it was sufficient that the court should consider that there was a 'real prospect' that one or more of the statutory purposes might be achieved. The 'real prospect' test was confirmed by Lewison J in Re: AA Mutual International Insurance Co Ltd and in the recent case of Auto Management Services Ltd v Oracle Fleet UK Ltd Warren J said that if the result from an administration were reasonably likely to be better than the result from a liquidation, in all but the most unlikely circumstances, this would be a significant influence on the court to decide in favour of administration.