Administration orders – looking back to move forward

Insolvency Bitesize - April 2018

The case law is inconclusive on whether the court actually has jurisdiction to make a retrospective administration order. But there are several decisions in which the court has proceeded on the basis that it can, notably to correct an earlier defective appointment. A recent example highlights a key point about timing.

The practice of asking for a retrospective administration order can be traced back to a decision of Hart J in Re G-Tech. Yet because he died before approving the draft judgment, subsequent decisions have rightly been wary in placing too much reliance on it.

In a case late last year, the parties accepted that an out-of-court appointment by a company’s directors was invalid. At the time of the purported appointment, a creditor had already presented a winding-up petition. The directors therefore applied for a retrospective administration order which the court granted.

The court found that the requirements of Schedule B1 were satisfied:

  • the evidence showed that the company was “unable to pay its debts”; and
  • the administration order would be reasonably likely to achieve the purpose of administration. The administrators had already undertaken work to find a potential purchaser for the business and it was in the best interests of creditors for them to be allowed to continue to do so.

A retrospective administration order can be a practical solution where there are concerns about the validity of an appointment. But it is not without its pitfalls:

  • it’s simple to check whether a winding-up petition has already been filed before making an administration appointment – failing to do so risks an invalid appointment;
  • the court may, in appropriate circumstances, be willing to make a retrospective administration order; but
  • the court must be satisfied from the evidence that the company is insolvent and the administration purpose is likely to be achieved at the time of the administration application - not at the time of the original invalid appointment.