Founder loses bid to unwind administration

The High Court of England and Wales has dismissed a founder’s bid to invalidate the administration of The Sustainable Bathroom Company Ltd, dismissing her argument that her “business was ruined when it was solvent” and holding that a trade finance lender was entitled to enforce its floating charge and appoint administrators after the company breached trust and payment obligations.

The application was brought by Sophie Perhar, the company’s sole director and shareholder. Ms Perhar invented "The Clean Toothbrush", an electric toothbrush with a replaceable bamboo head. The Sustainable Bathroom Company was incorporated in January 2019 as the vehicle to "grow and develop" what was then just an idea. By early 2021 the toothbrush was ready for marketing.

In January 2022 Aldi indicated agreement to purchase product and replacement heads for sale in Germany, Denmark and Holland. Mrs Perhar and her family did not have the means to finance the order. In March 2022 the company entered a trade finance facility agreement with Synergy in Trade Ltd. There were delays, and it was not until the end of February 2023 that Aldi made payments. On 5 June 2023 Synergy appointed administrators over the company under its floating charge.

Ms Pehar argued that the appointment of administrators was invalid because the floating charge was not enforceable at the time, was effected defectively, and was motivated by an improper purpose. The Court disagreed.

Under the parties’ facility letter and debenture, Synergy paid suppliers upfront and was contractually entitled to priority repayment from customer receipts, which were to be paid into a designated account or held on trust. The Court found that substantial Aldi payments were instead received into an account controlled by the company and used to pay personal and other liabilities without Synergy’s consent, in breach of express trust and priority provisions. Those breaches triggered enforceability of the debenture and entitled Synergy to appoint administrators.

The Court rejected arguments that service defects or timing issues rendered the appointment invalid. Although a posted demand would not have taken effect the same day, the emailed demand operated under the facility letter, and in any event the debts were payable on demand and could not realistically have been satisfied. The judge held that paragraph 16 of Schedule B1 to the Insolvency Act 1986 concerns whether the chargeholder’s right to enforce has arisen, not whether enforcement steps were perfectly executed.

The Court also dismissed claims that any procedural defects caused substantial injustice. On the evidence, the company could not meet the amounts due, had unpaid creditors, and had no viable alternative to an insolvency process. Any defect could have been cured by a renewed demand, and administration would have followed in any event.

The Court further rejected allegations of improper motive under paragraph 81, finding that Synergy’s decision was taken to protect its financial position in the face of ongoing non-compliance, not to punish Ms Pehar or destroy her business.

Read the decision here.

Eleanor Temple KC of Kings Chambers (instructed by Howes Percival) represented Synergy.