High Court orders administration

The High Court has ordered that a company be placed into administration.

This case¹ was brought by a creditor who owns a unit in a hotel complex. The hotel is leased and the lessee had failed to pay amounts due to the creditor (among others) under the lease, notwithstanding it was receiving amounts from operation of the hotel.

The creditor sought the order for appointment of an administrator to take control of the hotel to determine whether the lessee could continue trading, and to ensure that the rents were being properly collected and distributed.

Section 239L of the Companies Act provides that, on the application of a creditor, the court may appoint an administrator if it is satisfied that:

• the company is insolvent; and
• an administration is likely to result in a better return for the company's creditors and shareholders than would result from an immediate liquidation of the company.

The court was in no doubt that the company was insolvent.

In determining whether administration would be likely to result in a better return for the creditors, the court considered it legitimate to look at the expression "likely to result in a better return" in a broad way and determined that it does not necessarily need to be confined to receipt of income in the short term. It concluded that an administrator would ensure that the rental income was at least equitably shared among all of the creditors and that, on balance, the grounds for making the order to appoint an administrator were made out.

¹ Strategic Options Limited v Swordfish Lodge Management Limited, High Court, Auckland 4 March 2008, CIV 2008-404-1017

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