Can a creditor with a disputed debt apply for an administration order? (Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd)

Can a creditor with a disputed debt apply for an administration order? (Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd)

Kate Rogers, barrister at Radcliffe Chambers, London, considers the decision in Berkshire Homes (Northern) Ltd v Newbury Venture Capital Ltd [2018] EWHC 938 (Ch), [2018] 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.

What are the practical implications of this case?

They key practical implications are:

  • A debt that is disputed and/or subject to a cross claim still gives a creditor sufficient standing to apply for an administration order.
  • Where that disputed debt is also relied upon to satisfy paragraph 11(a) of Schedule B1 of the Insolvency Act 1986 (IA 1986) then the debt must be proved on the balance of probabilities. Proving the debt on the balance of probabilities does not necessarily involve disproving the dispute and/or cross claim entirely. It must follow that a debt can be proved for an administration order to be made despite there being some recognised dispute.
  • The onus is on the respondent to prove that the debt is disputed or that a cross claim exists.
  • The statutory purpose of the administration pursuant to IA 1986, Sch B1, para 11(b) is irrelevant for the above consideration.
  • There is only one purpose of administration—IA 1986, Sch B1, para 3 simply provides a hierarchy of the aims of administration.
  • The court considered Hammonds (a firm) v Pro-Fit USA Ltd [2007] EWHC 1998 (Ch), [2007] All ER (D) 109 (Aug) and Fieldfisher v LLP Pennyfeathers Limited [2016] BCC 697. There was no prima facie reason for importing into administration applications the practice developed in respect of disputed debts/cross claims in the winding up procedure.
  • There was no suggestion within the judge’s reasoning that he was aligning the test for the purposes of IA 1986, Sch B1, para 11(a) with the test to be considered in respect of disputed debts/cross claims in the winding up court. The court was in fact clear that the applicant had

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.