Neutral Citation Number: [2012] EWHC 1693 (Ch)
Case No.3185 of 2012
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT 
Royal Courts of Justice
Rolls Building

Date: Tuesday, 29th May 2012

Before:

MR. JUSTICE MORGAN
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B E T W E E N :

HEALTHCARE MANAGEMENT SERVICES LTD
Applicant

-  and  -

CAREMARK PROPERTIES LTD
Respondent
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MR. T. ROBINSON  (instructed by Edwin Coe)  appeared on behalf of the Applicant.

MISS T. KYRIAKIDES  (instructed by Lawrence Graham)  appeared on behalf of Jenmark Limited.

THE RESPONDENT  did not appear and was not represented.
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J U D G M E N T

MR. JUSTICE MORGAN:

1	This is an administration application in relation to a company, Caremark Properties Limited.  The application is made by Healthcare Management Services Limited in its capacity as a creditor of Caremark.  

2	The application has been presented today by Mr. Robinson of counsel on behalf of Healthcare.  Another creditor, namely Jenmark Limited has appeared and has been represented by counsel, Miss Kyriakides.  As will appear, there is no real dispute as to the appropriateness of the court making an administration order, but battle has raged as to the identity of the administrators to be appointed by the court.

3	I will deal, first, with the appropriateness of making an administration order in this case.  My jurisdiction to make such an order is conferred by para.11 of schedule B1 to the Insolvency Act 1986.  I must be satisfied that the company is or is likely to become unable to pay its debts, and further satisfied that the administration order is reasonably likely to achieve the purpose of administration.

4	On the evidence before the court, I am satisfied that the company is unable to pay its debts.  I am also satisfied that the administration order is reasonably likely to achieve the purpose of administration.  The purpose of administration is elaborated in para.3 of schedule B1.  It is not necessary for me to identify which of the various purposes is applicable here, but I do say that it is established to my satisfaction to the requisite standard that the purpose of achieving a better result for the company’s creditors as a whole, as compared with the case of the company going straight into liquidation is reasonably likely to be achieved.

5	Under para.13 of schedule B1, I have a discretion as to whether to make an administration order or to take some other course.  I am satisfied that there is no reason why I should not make the administration order which is sought.  

6	Healthcare, as a creditor and as applicant for the administration order which I have indicated should be made, has approached and identified two insolvency practitioners who are now nominated by the applicant to be the administrators in relation to this administration.  The two individuals are a Mr. Cork and a Miss Milner, who are directors of Cork Gully LLP.  They have complied with the formal requirements in relation to an appointment to be made in relation to them.  

7	Those nominees do not find favour with the other creditor to whom I have referred, Jenmark.  Jenmark has proposed that the administrators be a Mr. Mather and a Mr. Morris of Begbies Traynor (Central) LLP.  The parties have resolutely failed to agree as to the nominees to be appointed as administrators, and therefore the court has to make the decision as between the rival candidates.  I will make my decision, and I will appoint one set of nominees, but before I indicate which set I will appoint, I ought to say that so far as I am concerned, there is nothing between the rival candidates.

8	So far as the evidence goes, they are persons of competence and experience and persons of integrity.  They will perform the office which is to be conferred upon them in a way which will be entirely satisfactory so far as the court is concerned and so far as all those persons having a legitimate interest in the company should be concerned.

9	The administration in this case would not appear to be a difficult affair.  The company has one principal asset, that is a development property.  It seems clear that the future for that property is that it should be sold and the proceeds of sale realised and distributed.

10	There are two substantial creditors, the creditors to whom I have referred, Healthcare and Jenmark.  The evidence indicates that any other creditors are very modest in amount and their position does not call for any separate mention.

11	The creditors, Healthcare and Jenmark, have identified the debts which they say are due to them.  Detailed submissions have been made in the course of this hearing as to whether the debts which are identified are truly owed by Caremark, or whether the debts put forward have been somewhat exaggerated or even falsely created.  It will be for the administrators of Caremark to scrutinise the claims made by these creditors.  In relation to some of the claims, I would expect the administrators to maintain a healthy degree of scepticism and require supporting material to be provided before they accede to the assertions that monies are indeed owing as claimed.

12	I have no reason to choose between the candidates as regards the duties which fall to be performed.  I am confident that each pair of nominees will be well able to discharge the relatively light duties that are likely to be involved in this administration.

13	In the course of the argument, my attention has been drawn to a statement made by Lewison J (as he then was) in Med-Gourmet Restaurants Ltd v Ostuni Investments Ltd [2010] EWHC 2834 (Ch).  At para.14 of the judgment Lewison J referred to the public interest in office holders appointed as administrators not only acting but being seen to be acting in the best interests of the creditors generally.  This was said to be part of the wider principle that justice must not only be done, but must also be seen to be done.

14	Although there were suggestions in the evidence and in the submissions that a well informed person adopting a reasonable attitude might have a concern about one set of nominees being appointed, in my assessment there is nothing in that point.  Justice will be done and will be seen to be done irrespective of which set of nominees I select.  

15	In due course, I will refer to other matters that might be material in other cases but which are not material here but first I must deal with the submission that is made on behalf of Jenmark.  Miss Kyriakides submits that, if everything is equal, then I should select the nominees put forward by the larger of the two creditors in this case.  She submits there is a general principle that where the dispute is between one creditor and another, or one group of creditors and another group of creditors, the majority in terms of value must prevail.  That requires me to examine a question of fact as to which is the larger of the two principal creditors in this case, and then to look at the principle on which Miss Kyriakides relies.

16	I am not in a position to make a final determination of the amount of the debts owed to Healthcare and to Jenmark respectively.  However, I feel I am in a position to reach the conclusion that the debt owed to Jenmark is, on the balance of probabilities, greater than the debt owed to Healthcare.  

17	Some information about the amount of the debts is given in the witness statement of a Mr. Dhanani, who is a director of Healthcare Management Systems Limited.  He says, in para.9 of his witness statement, that the debt owed to Jenmark has been stated to be in the sum of £1, 624,837.  He says that he does not believe that Caremark disputes this sum .  

18	There is information in the exhibits to the witness statement as to how that figure is computed.  In particular there is a breakdown which identifies a large sum advanced by Jenmark to acquire the development property to which I have referred, that is the sum of £1·15 million.  The other figures are then briefly described, specific figures are given and the total is arrived at.  So, that is the information one has about the debt owed to Jenmark.  

19	As to the debt said to be owed to Healthcare, Mr. Dhanani states that that is in the sum of £1,591,463.  That figure is arrived at by taking, first, a contribution by Healthcare to Caremark of £1·15 million and adding further sums totalling £409,626 which have been the subject of invoices served by Healthcare on Caremark in recent months.  

20	These further invoices totalling some £409,000 have been the subject of considerable criticism in the submissions made at today’s hearing.  It is not for me to determine the final figure owed to Healthcare, but it seems to me on the balance of probabilities that the figures put forward in those invoices are likely to be reduced somewhat -- I need not say to what extent – when the claims are examined.  I say that because the invoices contain no real narrative as to the basis of the charge, and there are background circumstances which have been identified in the course of submissions that make one sceptical as to the accuracy of the figures which are put forward.  In any case, even if every penny in the invoices turns out to be a debt validly due to Healthcare, the sum which Healthcare says is due to it is still smaller than the sum which Healthcare does not seriously challenge as being due to Jenmark.  So, Jenmark is the larger of the two creditors, and it may be that the disparity in the amount of the debts is more favourable to Jenmark than Mr. Dhanani’s witness statement would indicate.

21	So much for the factual basis of Miss Kyriakides’ submission.  I therefore accept what she says, that Jenmark is the larger creditor.  That being so, if everything else is equal, should the views of the larger creditor prevail?  I have been shown a certain amount of authority on that question.  

22	The first authority is referred to in the decision in Med-Gourmet Restaurants and Ostuni Investments Limited.  It is the decision of His Honour Judge Maddocks in Fielding v Seery [2004] BCC 315.  Lewison J in the Med-Gourmet case quotes part of the principles set out in Fielding v Seery.  I do not, I think, have the full set of principles which Judge Maddocks identified.

23	In another case, Stanley International Betting Ltd v Stanleybet UK Investments Ltd, [2011] BCC 691, Mr. Isaacs QC sitting as a Deputy Judge of the High Court also referred to Fielding v Seery, and he paraphrased the judge’s principles in four propositions set out at para.35 of his decision .  

24	What appears from Fielding v Seery and appears to be endorsed by the two later judgments to which I have referred, is that in the ordinary case where the conflict is between the views of one group of creditors and the views of a rival group of creditors, the majority in terms of value will prevail as between the creditors.  Of course, the majority view does not bind a court which has the final say. In that way, the majority of the creditors do not have an absolute right to choose the identity of the liquidator or the administrator (this being an administration case).  In the present case, it is not being said that the majority have an absolute right to determine the identity of the administrators.  What is being said is that when there is nothing else to guide the court, then the tie-breaker comes by reference to the majority in value of the groups of creditors.

25	If I pause there, that would indeed carry the day, and I would give effect to the views of Jenmark and the nominees that they have put forward.  Mr. Robinson says that to accede to that approach is to concede that “might is right”.  He also submits that adopting that approach is likely to lead to inappropriate challenges to nominees as administrators, which inappropriate challenges the court should be vigilant to prevent and do nothing to encourage.  

26	There is a considerable temptation to adopt those submissions by Mr. Robinson. That temptation is only increased by the experience of this hearing before me.  The court has taken approximately two hours to have a debate on this subject which I regard as barren from beginning to end.  When I come to the costs involved in this exercise I will reflect that sentiment in the order that I will hold to be appropriate. However having heard the dispute, I consider that I ought to decide it in accordance with principle.

27	I would not want to see another dispute similar to the present come before the court.  This dispute between these parties has got nothing to do with the suitability of the rival candidates as administrators. It has nothing to do with justice being seen to be done. It is to do with a serious falling-out between the two groups of creditors who are also shareholders as joint venturers in the company in question.  Because one side says they want Mr. X, the other side says it cannot be Mr. X.  That type of dispute reflects no credit whatever on the participants to it and I am very sorry that it has happened in this case.  I would not want it to be repeated in another case. 

28	Having said that, I must return to the facts of this case.  There is nothing to choose between the rival candidates, and there does appear to be a principle identified in the authorities, that where one has a difference of view between creditors, that the views of the majority are to be given greater weight.  If there is nothing else to put against that weight, then that is the weight which will prevail.

29	I want to guard against anyone in any other case regarding my decision as a kind of encouragement to dispute the choice of the nominated person put forward by an applicant for an administration order.  In other cases, the views of the majority creditor may not prevail.  In other cases, there will be something to put alongside and perhaps counter-balance the weight to be given to their views.  It may be, for example, that the nominated persons will have been involved with the company in question.  They may have investigated many issues that will need to be dealt with in the course of the administration.  They may have made substantial progress in forming their views and giving advice about those matters in circumstances where it will be helpful to the administration process that they should be appointed without delay and without causing further costs and delay if an alternative candidate for administrator were to be appointed.  As it happens, the facts of this case being relatively straightforward, and the involvement of the applicant’s nominees apparently being recent, there is no point of that kind to which I can give any particular weight.  In those circumstances, since the parties have failed to agree on something they should not have had a difficulty with, since it falls to me to choose between the rival candidates, I will use, as a tie-breaker, the relative value of the debts owed to the creditors.  Jenmark succeeds on that narrow basis, and I will therefore appoint as administrators the nominees put forward by Jenmark.

30	As I have already indicated, this is an unfortunate dispute which should not have been argued, and I will take a great deal of persuasion before I make any order as to costs shifting -- apart, that is, from the formal costs involved in issuing the application and perhaps in relation to the winding-up petition which had been issued by Jenmark.  

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