Administration order not made on contingent creditor's application

The wide breadth of discretion granted to the courts in deciding whether to make an administration order was demonstrated recently in Re VST Enterprises Ltd (2021 EWHC 887 Ch). In this case there had been a previous dispute between the parties, VST and IDS, which was concluded by settlement agreement. By clause 2 of that agreement, IDS had waived their right to present a winding-up petition and could only enforce the terms of the settlement agreement. 

VST had paid two out of three instalments due; the third would only be payable once VST received further funding of £1 million. This had not happened by the time of the hearing. In addition, IDS had brought separate winding-up proceedings petition on the basis that the court should exercise its discretion to permit an investigation of VST's affairs. VST argued, amongst other things, that the funding it was still seeking would be unlikely to be secured in an administration and it would be unjust for an administration order to be made where overlapping issues were live in the winding up petition.

Whilst it was clear VST was balance sheet insolvent, the court held it was not appropriate to exercise its discretion and did not make an administration order. It placed great significance on the fact it "offended against clause 2", but was reluctant to find that the petition was an abuse of process. The court concluded that an administration order should not be based on a contingent liability, although the nature of the debt did not prevent IDS from having standing to bring the application.

The case evidences the high bar set by Re Maud (2015 EWHC 1626 Ch) for examples of where creditors can be found to have used a petition to put undue pressure on a debtor or gain some collateral advantage and that the same applies to administration orders. Creditors should be aware that terms of settlement may lead to them later being prevented from seeking a winding-up order or administration order.