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Kate Rogers, barrister at Radcliffe Chambers, London, considers the decision in Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd  EWHC 938 (Ch),  All ER (D) 177 (Feb), in which the court considered the test applicable when a creditor applies for an administration order on the basis of a debt that the company claims is disputed and/or offset by way of cross claim. The court determined that a creditor has standing to bring the application, despite the fact that the debt is disputed and/or subject to a cross claim. However, where that same debt is relied upon to demonstrate that the company is unable to pay its debts, or likely to become unable to pay its debts, then the debt must be proved on the balance of probabilities.
They key practical implications are:
Newbury Venture Capital Limited (in liquidation) (NVC) applied for an administration order in respect of Berkshire Homes (Northern) Limited (the company) on the footing that it was a creditor of the company and in reliance on IA 1986, Sch B1, para 12(1)(c).
There was an inter-company debt showing in the books as owing to NVC. However, the company disputed that NVC was a creditor. The company argued that the debt was disputed and/or it had cross claims exceeding the value of the debt.
The issue for the court was the applicable tests to be applied on a creditor’s administration application: (a) as to the standing to bring an application; and (b) as to when the same debt used to give the creditor standing is also used to prove that the company is unable to pay its debts pursuant to IA 1986, Sch B1, para 11(a).
All that is required for standing to bring an application for an administration order pursuant to IA 1986, Sch B1, para 12(1)(c) was that the applicant was a creditor and it did not matter that the debt was disputed. The court has jurisdiction to hear the application without having to resolve the dispute about the debt. It is then a matter of discretion whether to make an administration order applying the test in IA 1986, Sch B1, para 11. NVC was clearly a creditor—whether the debt was disputed or not—and therefore had standing to bring the application seeking an administration order.
However, if the same debt that gives the applicant standing to bring the application is also relied upon to establish that the company was, or was likely to become, unable to pay its debts within the meaning of IA 1986, Sch B1, para 11(a), then that debt must be proved on the balance of probabilities (the word ‘likely’ in IA 1986, Sch B1, para 11(a) meaning ‘more likely than not’). The court concluded that, as to the inter-company position, the analysis of NVC was correct and therefore NVC was a creditor of the company in at least some undisputable sum. NVC relied upon the company accounts and the bank statements, which it was said (and which was accepted) could not be challenged. If the company wanted to argue that despite what appeared on the face of it, the debt was disputed and/or there was a cross claim, then that was a matter for the company to prove. The company could not do so. The court concluded that the cross claims were ‘tenuous and entirely speculative’. The company was therefore unable to pay its debts, or likely to become so.
The court was also satisfied that the purpose of the administration could be achieved in accordance with IA 1986, Sch B1, para 11(b) and therefore the administration order was granted.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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