Moss Groundworks Ltd, Re [2019] EWHC 2825 (Ch)

Directors of an insolvent groundworks company sought an administration order to facilitate a pre-packaged sale to a connected party. The court refused to make an immediate order due to wholly inadequate marketing (only 48 hours) and insufficient compliance with SIP 16 requirements, adjourning for further evidence.

Facts

Moss Groundworks Limited was a civil engineering contractor incorporated in 2013, employing 11 people. Despite historically trading profitably with turnover of £6 million in 2018, the company experienced cash-flow difficulties and recorded a loss of approximately £96,000 in the 11 months to June 2019. The directors approached Leonard Curtis for insolvency advice in August 2019 and concluded the company was insolvent and would run out of money after 6 September 2019.

The directors applied for an administration order with the intention of conducting a pre-packaged sale. Marketing consisted only of advertisements placed on two websites on 2 September 2019, requiring offers by 5 p.m. on 4 September 2019 – a maximum of 48 hours. The only offer received was from a company connected with the existing directors, proposing to acquire assets with a book value exceeding £1 million for £130,000, with only £25,000 payable immediately.

Issues

Main Legal Issues

1. Whether the court should make an administration order where a pre-packaged sale to connected parties was proposed.

2. Whether the marketing process and compliance with Statement of Insolvency Practice 16 (SIP 16) were adequate to demonstrate the best outcome for creditors.

Judgment

Mr Justice Snowden refused to make an immediate administration order, finding the information provided wholly inadequate to explain compliance with SIP 16 marketing essentials.

The judge noted the court’s role in pre-pack cases, citing Re Kayley Vending Ltd [2009] BCC 578:

“It seems to me that in exercising its discretion in pre-pack cases, the court must be alert to see, so far as it can, that the procedure is at least not being obviously abused to the disadvantage of creditors in any of the ways outlined above.”

Regarding the inadequacy of the marketing and evidence, the judge stated:

“In my judgment, at the moment, the information provided to me in the proposed administrators’ report is wholly inadequate to explain how those marketing essentials in SIP 16 have been complied with.”

The court further observed:

“Unless a better explanation is given, I would therefore be unable to satisfy myself that this case does not bear the hallmarks of the type of abuse of the administration process to which reference was made in Re Kayley Vending Ltd by His Honour Judge Cooke.”

Implications

This case reinforces the court’s vigilance over pre-packaged administrations, particularly sales to connected parties. It emphasises that:

• Marketing must be conducted for an appropriate length of time and broadcast widely
• SIP 16 compliance requires substantive explanation, not mere assertion
• Courts will not approve administration orders where the process appears to disadvantage unsecured creditors without proper justification
• The pre-pack pool should be consulted in connected party sales

The decision demonstrates that whilst courts do not approve the substance of pre-pack sales when making administration orders, they will refuse orders where inadequate marketing and compliance create an appearance of potential abuse.

Verdict: The court refused to make an immediate administration order due to wholly inadequate marketing and insufficient compliance with SIP 16. The application was adjourned to allow the company and proposed administrators to reconsider the evidence, reopen marketing, and provide further evidence demonstrating appropriateness of an administration order.

Source: Moss Groundworks Ltd, Re [2019] EWHC 2825 (Ch)