Defective Administration Appointments; Heading Towards Consistency

• Published date: 25 May 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy
• Law Firm: Moon Beever
• Author: Mr Robert Paterson

Applications dealing with defects in the appointment of administrators continue without the final answer the insolvency professions have been waiting for, but a measure of consistency of approach appears to be emerging - for the time being.

In Wessely & Anor (Zoom UK Distribution Ltd) v Rubra & Ors [2021] EWHC 800 (Ch) the administrators had been appointed out of court by the company's directors on 5 May 2020 under para 22(2) Sch B1 Insolvency Act 1986. Under para 26(1)(b) they should have given at least five business days' written notice of their proposal to appoint to the debenture holder. Para 28(1) has the effect that an appointment under para 22 may not be made unless, inter alia, the notice period has expired or each person to whom it has been given has consented in writing to the making of the appointment. In this case the directors had failed to give the requisite written notice, a fact of which the administrators only became aware on 25 August 2020.

As is well known, Sch B1 does not specify the consequences of a failure to comply with para 26(1)(b). The issue before the court was, then, whether the directors' failure to give notice to Lloyds, the debenture holder, made the appointment of administrators void or merely defective and therefore capable of cure.

Counsel for the administrators submitted that, although there were conflicting first instance decisions, none was binding on the court; but, she contended, the most recent High Court and Insolvency and Companies Court decisions showed a consistent approach in favour of the view that a defective appointment was to be treated as such and not as void.

Stuart Isaacs QC, sitting as a deputy High Court judge, noted the review by HHJ Davis-White QC of the conflicting authorities on failure to comply with the requirements of Sch B1 in Re A.R.G. (Mansfield) Limited [2020] BCC 641 and the judgment of Arnold J in Re Ceart Risk Services Ltd [2013] Bus LR 116, but ultimately lighted on the decision of ICC Judge Jones in Re Tokenhouse VB Ltd (formerly VAT Bridge 7 Ltd) [2021] BCC 107 which he noted that, although not binding, was "The only decision which is directly in point." In that case, the qualifying floating charge holder who had not been given the requisite notice under paragraph 26(1)(b) had contended that the wording of the provisions of Sch B1 made clear that the appointment of administrators could not have been effective; the administrators had submitted that Norris J's approach in Re Euromaster...