Antiaging Clinic Ltd (Company) carried on the business of a health, beauty and wellbeing clinic known as The Galen Clinic. The shareholders of the Company were Marko Ventures Ltd (MVL) (owning 60% shares) and London Med Aesthetics Ltd (LMA) (owning 40% shares).
In addition to owning majority shares in the Company, MVL was the principal funder and had provided a significant amount of financial support for the business.
MVL had provided a £7.5 million loan facility to the Company but remained unpaid after the business failed to become profitable and was unable to meet its financial obligations. MVL demanded payment of the outstanding debt.
In December 2024, MVL made an application pursuant to para.12(1)(c) of Schedule B1 to the IA 1986 in respect of an administration order (in its capacity as a creditor of the Company). However, LMA opposed the application, arguing that an implied term in the shareholders agreement between the parties prohibited shareholders from placing the company into administration based on debts owed to them.
MVL’s proposed administration involved a pre-pack sale to Reborne Longevity, a newly incorporated entity owned by the same individuals behind MVL. Reborne offered £195,000 for the business, assumed all trade creditor liabilities, and ensured continued employment of the 22 employees.
MVL's standing to bring the Administration
LMA’s case that it was an implied term of the SHA that the shareholders in the Company would not be able to place it into administration, based on debts owing, or alleged to be owing, to them. This was disputed by MVL. The Court was required to consider whether MVL and standing as a creditor to bring the Application or at least as a factor in exercising my discretion whether or not to make an administration order.
Clause 5.1: "The Shareholders shall, for as long as they hold Shares, procure (so far as is possible in the exercise of their rights and powers) that the Company shall not, without the prior written consent of Marko and LMA; and pass any resolution for the Company’s winding up or present any petition for its administration."
Clause 5.2: "Each Shareholder undertakes to the other Shareholders that at all times during the continuance of this agreement it shall: promote the best interest of the Company and ensure that the Business is conducted in accordance with good business practice, in each case if and for so long as it is within their power and authority to do so; exercising all voting rights and powers of control available to it in relation to the Company so as to give full effect to the terms and conditions of this agreement; and comply in all respects with the Articles.
Clause 5.3: "The Company shall, and the Shareholders shall procure that the Company shall, conduct the Business: on arms’ length terms; and in the normal course of business."
Judgement
In granting MVL's application, the Court considered four issues in its judgment:
i. Issue 1: whether MVL had standing to make the application. The Court held it did. The Court did not see the basis for an implied term to be incorporated into the SHA: if the parties intended that a shareholder was to be restricted in its own ability to apply for an administration order in its capacity as a creditor, then that would and should have been expressly set out. The Court held it was unlikely that MVL as the prime funder for the Company’s business would have limited its ability to take such steps against the Company in circumstances where the Company was itself insolvent and the relationship between the shareholders had broken down.
ii. Issue 2: if paragraph 11(a) condition under Schedule 1 was satisfied (i.e. an administration order will be made if the Court is satisfied that the company is or is likely to become unable to pay its debt). The Court noted that this is not a mere formality satisfied by assertion only, but rather requires cogent evidence. In this case, the Court held that paragraph 11(a) condition was satisfied. The Company has been dependent on continued funding from MVL to carry on business and to pay its creditors. The Company has been operating at a substantial operating loss every month. The Company, at the time of the administration application, owed MVL approximately £505,000 along with creditors to which it could not repay its loan. As at 31 August 2024, the Company's balance sheet showed that it was balance sheet insolvent with a deficit of £2,699. The position had deteriorated since then. The Court accepted that MVL was longer prepared to continue to fund the Company and that as a result this condition was satisfied.
iii. Issue 3: if paragraph 11(b) condition under Schedule 1 was satisfied (i.e. that the administration order is reasonably likely to achieve the purpose of administration). The Court held that paragraph 11(b) condition was also satisfied. The Court accepted that an administration order with the Reborne Proposal would achieve a better outcome for creditors as a whole than going straight into liquidation. The Company lacked the cash reserves to pay off creditors. Under the Reborne Proposal, if the business was to be acquired by Reborne, it would assume liability for all the trade creditors. Reborne had placed its solicitors in funds and was ready to complete the sale, which would result in the trade creditors being paid in full within 7 days of completion. Reborne would also ensure that the Company's mployees would be paid. Given that Reborne wanted to run the business as a going concern, it will naturally want to satisfy both trade creditors and the employees if they were to continue to supply and service the business.
The Court also considered that the main creditor, MVL, was seeking an administration order. The price being offered by Reborne pursuant to the pre-pack reflected that MVL was giving up its claim to be repaid by the Company of the substantial sums it had lent.
iv. Issue 4: Court's discretion: Even where the conditions for an administration order are satisfied, the court has a discretion as to whether or not to grant an administration order, which requires close scrutiny even if the application is unopposed. The granting of a administration order is a serious matter where even if unopposed will require close scrutiny by the Court. The present application required particularly careful scrutiny in that it was against the backdrop of a shareholder dispute and what was being sought was an outcome where the business would end up via a pre-pack sale in the hands of a new company set up set up by the beneficial owners of MVL. The Court's views can be summarised below [paras 56 and 60].
"When the matter came before me on 22 January 2025, I was not satisfied that there had been any proper marketing exercise. It had been done in too much of a rush and little information was provided. That said, since that hearing a proper marketing exercise has been carried out and the options have been properly explored. LMA and Dr Androulakakis were unable to come up with any package or proposal that could provide a better outcome for the business or creditors…. There are distinct benefits of the administration order and the Reborne Proposal. Trade creditors should get paid in full. The 22 employees will remain employed at the Galen Clinic. The Galen Clinic will continue to provide services to its clientele and the public. Mr Schuster will at least get £50,000 of his investment back. This is not at all a likely outcome if the Company were to go straight into liquidation. Balancing the various factors set out above, I have no doubt that an administration order is appropriate in all the circumstances."
This decision serves as a useful reminder that the Court's power to grant an administration order is discretionary, and that it must be properly demonstrated in evidence the applicant has standing to make the application, and that the purpose is reasonably likely to be achieved.
