Out Of Court Administration Appointments - Beware Of The Pitfalls

Directors need to be extremely careful when making out of court administration appointments, in light of two recent High Court decisions, which contradict one another. Stuart Evans and Cassandra McCarthy from our Commercial Litigation Team consider this in more detail. Directors need to be extremely careful when making out of court administration appointments, in light of two recent High Court decisions, which contradict one another. Stuart Evans and Cassandra McCarthy from our Commercial Litigation Team consider this in more details.

In the recent decision of National Westminster Bank plc v Msaada Group (a firm) and others [2011] EWHC 3423 (Ch) 921 December 2011) the court had to consider the validity of an out of court administration appointment. If a company intends to make an out of court administration appointment, it must take certain steps which are set out in the Insolvency Rules 1986. Such steps include, but are not limited to, an insolvent company's directors formally notifying its intention to appoint a administrator to the holder of a Qualifying Floating Charge ("QFC"); the company itself and the persons detailed below:

any person who is or may be entitled to appoint an administrative receiver of the company, and any person who is or may be entitled to appoint an administrator of the company under paragraph 14; to such other persons as may be prescribed. This needs to be done a minimum of 5 business days in advance.

Even if there is no QFC holder, the court held that the directors must still give notice of their intention to all parties referred to above. In the event that notice is not given, the court held that any administration appointment will be rendered invalid.

Conversely, the High Court held in Re Virtualpurple Professional Services Ltd [2011] EQHC 3487 (Ch) a director did not have to formally notify the company...