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Fletcher Day acts for Joint Administrators from Quantuma LLP in urgent application to the High Court on 18 October 2018 concerning the validity of their appointment

Fletcher Day acts for Joint Administrators from Quantuma LLP in urgent application to the High Court on 18 October 2018 concerning the validity of their appointment

Published: 19 November 2018

Administrators appointed out of court…but when? Three recent High Court judgments to note

In the case of Ross v Fashion Design Solutions Limited (Re. NJM Clothing Limited) [2018] EWHC 2388 the High Court considered the question of the date and time of appointment of administrators to be inserted into the Notice of Appointment on an appointment by the directors of a company pursuant to paragraph 22 of Schedule B1 of the Insolvency Act 1986.  Rule 3.24 (1) (j) of the Insolvency Rules 2016 requires that the ‘date and time of appointment’ of the administrators be specified on the Notice of Appointment (although there is arguably no express requirement that this reference should appear in the NoA prior to be it being filed at court).  The rest of rule 3.24 sets of other matters which are required to be referenced in the NoA.  Paragraph 29(1) of Schedule B1 reads as follows:

“A person who appoints and administrator of a company under paragraph 22 shall file with the court (a) a notice of appointment”. 

It is only when the requirements of paragraph 29 have been satisfied that an appointment can take effect (paragraph 31).  One such requirement is the filing at court of the NoA (although in practice when using the CE-Filing system, the filing still requires the approval of the court staff before a NoA is sealed and the appointment takes effect).

HHJ Klein concluded, having considered r.3.24(1)(j) (and r.3.26), that the appointment procedure involved a two-stage process (with two other stages denoting, first, the resolution or decision to appoint and, secondly, the giving of a notice of intention to do so, if relevant).  An appointment took place at whatever date and time was inserted in the NoA by the directors (or company or qualifying floating charge holder, as the case may be) and this was then followed by, effectively, confirmation of that appointment by the court at a later time. The NoA in the NJM Clothing case had stated that:

The administrators’ appointment was made on the date and time this notice is filed with the court”.

HHJ Klein decided that an actual date and time in words and dates should be included on the NoA but on this occasion was content to exercise his judicial discretion pursuant to rule 12.64 in order to cure a defect, i.e. failing to state a specific date and time (other than by reference to some event in the future – here, the filing of the NoA at court). He concluded, albeit with some difficulty, that the date and time of appointment was when filed at the court at 2.50pm on 17 October 2017.

In the subsequent case of Towcester Racecourse Company Limited (The) (In Administration) [2018] EWHC 2902 (Ch) HHJ Paul Matthews concluded that the appointment of the administrators was valid but disagreed with HHJ Klein in concluding that it did not constitute a defect to refer to the date and time of appointment as being the date and time the notice was filed with the court.

The decision of HHJ Nugee in Spaces London Bridge Limited (In Administration) [2018] EWHC 3099 (Ch), sitting in the urgent applications court of the High Court on 18 October 2018 (and before judgment had been handed down in the Towcester Racecourse case), again concluded that the administrators’ appointment was valid.  On this occasion, the NoA did not include a date and time of appointment, referring only to the words “hereby appoint” and the statutory declaration being sworn by the director, Mr Puri, on 4 June 2018.  The NoA was filed at 2.39pm on 4 June 2018 and the appointment of the administrators took effect at that time.

Whilst HHJ Nugee did not disagree with HHJ Klein in that a strict interpretation of the Insolvency Rules 2016 resulted in the aforementioned multi-stage process of appointment (i.e. including a ‘prior act’ of appointment before filing), HHJ Nugee decided that failing to insert an express date and time of appointment on the NoA before filing it at court did not in fact constitute a breach of the rules and that, accordingly, there was no defect in the appointment.   HHJ Nugee also affirmed that, were he to have been wrong on that, he would have invoked r.12.64 and cured the defect.  

The Judge’s rationale for deciding that there had been no breach was based on the proposition that the requirement of r.3.24(1)(j) to state a date and time of appointment served no purpose; that it was “otiose”:

No consequences follow from the appointment having been made at one time rather than the other” – in the context of an appointment not being effective until and at the date and time of filing with the court.  HHJ Nugee referred in his judgment to the fact that the prescribed form in use prior to the IR 2016 did not require the date and time to be stipulated (other than that of filing and endorsing by the court) and he went on as follows:

if one had to speculate why the draftsperson of 3.24(1) of the 2016 rules had included the requirement, it seems to me preferable to speculate that the draftsperson had taken from it the requirement in the previous prescribed form to specify a date and time, but that, as we have seen, was the date and time of filing not of the prior act”.

HH Nugee then concluded that:

although one can describe the prior act as an appointment, it is not a fully effective appointment. There is only a fully effective appointment once all the necessary stages have been gone through, the last of those being the filing of the notice with the court”.

Finally, and of particular note to insolvency practitioners and lawyers (not least given the decision in the case of Towcester Racecourse), HHJ Nugee suggested (without it in fact being necessary) that “it is, perhaps, better practice to include express provision in the notice as filed saying, This appointment will take effect at the date and time specified below as the date and time when the notice is filed’”. Words of similar effect would, presumably, also suffice.

It will be interesting to learn of any further judgments on this issue – and to see if the Insolvency Rules 2016 might, perhaps, be amended accordingly in due course.

Alejandro Worthington  | Partner | Insolvency | Licensing 

For further advice, or to discuss your cases generally, please contact Alejandro Worthington at alejandro@fletcherday.co.uk or on 020 7632 0087

 

 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.