Administration order preferred to adjournment for CVA proposal (Legacy Education Alliance International Ltd v Progression Ltd)

Administration order preferred to adjournment for CVA proposal (Legacy Education Alliance International Ltd v Progression Ltd)  

Jon Colclough, barrister at New Square Chambers, examines a High Court decision to exercise its discretion to make an administration order sought by the applicant creditors rather than adjourn the hearing so that the respondent insolvent company could prepare a proposal for a company voluntary arrangement (CVA).

Legacy Education Alliance International Ltd v Progression Ltd and others [2019] EWHC 3498 (Ch)

What are the practical implications of the judgment?

First, it reminds practitioners that the court’s discretion to make an administration order is of a 'wide and general nature' (in the words of Sir Geoffrey Vos, the Chancellor of the High Court, in Rowntree Ventures Ltd v Oak Property Partners Ltd [2017] EWCA Civ 1944) and that, when coming before the court, applicants need to address the competing interests of all interested parties, with a particular focus on the views and wishes of creditors.

Second, it will likely make it harder for companies to buy time on administration applications (and, potentially, winding-up petitions) by reference to some loosely-defined future CVA proposal. If the company is insolvent and there are real difficulties with a CVA proposal, it is unlikely that a company will be given time to make a CVA proposal in the vague hope that something will turn up.

Third, it shows the importance of applicants and their lawyers preparing proper evidence in support of their applications. In this case, Morgan J was particularly influenced by the evidence in support of the application showing the perilous financial position of the company and the views of a significant number of supporting creditors.

What was the background?

The respondent was a company which was in the business of providing property and financial markets investment training to students.

Four creditors and six supporting creditors (collectively owed more than £1m) brought a creditors’ application for an administration order in respect of the respondent. The applicants wished to place the respondent into administration as they said that they had identified a potential purchaser of its assets and the sale of the assets by administrators would result in a better return to creditors as compared with a liquidation. The respondent opposed the application and wished to adjourn the hearing for five to six weeks so as to enable it to propose a CVA to its creditors and, it was hoped, continue to trade under its current ownership and control.

To succeed on an administration application, it is usually necessary for an applicant to:

  • show that the conditions of paragraphs 11(a) and 11(b) of Schedule B1 of the Insolvency Act 1986 (IA 1986) are met, namely that the company is or is likely to become unable to pay its debts and that an order is reasonably likely to achieve one of the purposes of administration  
  • persuade the court to exercise its discretion to make the order under IA 1986, Sch B1, para 13

As Morgan J noted at para [4] of the judgment, the application was slightly unusual in that the parties agreed that the conditions of IA 1986, Sch B1, paras 11(a) and 11(b) were both satisfied, and that the only contested issue was whether the court should exercise its discretion to make the order sought.

What did the court decide?

At para [7] of his judgment, Morgan J referred to 'the wide general nature of the [court’s] discretion and the multitude of factors to be taken into account' by reference to the Court of Appeal case of Rowntree Ventures. The judge considered the advantages and disadvantages of the alternatives urged on him by the parties (ie administration order or adjournment for CVA proposal) by reference to the interest of the relevant parties, such as creditors, shareholders etc.

It appears from the judgment that Morgan J was particularly influenced by the following factors. First, at para [20], the respondent's dire financial position. Second, at para [25], the fact that the creditors favoured an administration over the proposed CVA. Third, at para [29], the existence of a proposed purchaser and the risk that it might not be a willing purchaser in a number of weeks’ time following an adjournment. Fourth and finally, at para [31], the concern that certain suppliers to the respondent might not continue to supply services if an adjournment were granted.

Taking account of these factors, the judge concluded at paras [32]–[33] that 'an administration order is the entirely natural and usual response to the circumstances of this case' and that 'the prospect of the CVA going through and being successful [is not] particularly high'. Accordingly, an administration order was made.

Case Details

  • Court: High Court, Chancery Division, Insolvency and Companies List
  • Judge: Mr Justice Morgan
  • Date: 15 November 2019

Jon Colclough appeared for the applicant creditors in this case.

Interviewed by Robert Matthews.

The views expressed by our legal analysis interviewees are not necessarily those of the proprietor.

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