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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

23 NOV 2012

Guest Post from Stephen Hunt: A Strange Definition of Insolvency

I have seen two examples of Administrations where an unusual interpretation of insolvency has been used, one of them in a para 12 case.

In both cases the sole director/shareholder died, leaving what was a very successful business without a living signatory to the company bank account. Their companies went into administration on what I would say is a quite literally interpretation of "unable to pay debts as they fall due" without understanding what that really means.

I wondered if anyone else had come across this fairly rare circumstance or what they think of this argument.

 

My solution is to point to para 61(b) sch B1.  If you find yourself in a position where insolvency is caused by the lack of a director and for whatever reason there is an inability to appoint a new director, the moment the Administrator is appointed they could use para 61 and remedy the basis for 'insolvency'. If that is the only basis for the Administration, you have thus achieved the purpose of para 3(1)(a), rescuing the company.  It’s a one day administration!

 

It came up in a case of Hobbs & Anor v Gibson & Ors [2010] EWHC 3676 (Ch) (17 December 2010)  http://www.bailii.org/ew/cases/EWHC/Ch/2010/3676.html

 

Purle J mentions : "The administration applications were presented by a creditor on the basis that, though comfortably balance sheet solvent, the effect of the death of Mr Chittenden, as sole signatory to the bank account, was that the companies were in fact unable to pay their debts and were in that sense insolvent. It appears that the expectation or hope was that the companies might either be rescued and kept as going concerns, or at least that the result would be better for creditors than a liquidation."

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