When is a Defective Appointment Too Defective to be Cured?

Originally published May 11, 2012

Keywords: insolvency act, appointment of administrators, FSA, FSMA

The Court has heard another case dealing with a defective appointment of administrators under paragraph 22 of Schedule B1 Insolvency Act 1986 ("Schedule B1")1. Following hot on the tail of a recent series of conflicting cases relating to defective appointments, the Court has held that:

the appointment of administrators of a company authorised by the Financial Services Authority ("FSA") was valid despite having obtained and filed the FSA's consent (which was required to be filed along with the appointment under s362A Financial Services and Markets Act 2000 ("FSMA")) only after the time of appointment, albeit that the appointment was effective only from the date on which the consent was filed at Court; and the sale of the company's assets, which completed before the defect in the appointment was cured by filing the FSA's consent, was valid in spite of the defect in the administrators' appointment, because the defect was capable of being cured. Background

The administrators were appointed in respect of Ceart Risk Services Limited ("Ceart") by notice of appointment of the company (as there was no qualifying floating charge holder no notice of intention to appoint was given). Following the administrators' appointment, the FSA informed the administrators that, pursuant to s362A FSMA, the FSA's consent was required, which consent was to be filed at Court "along with" the notice of intention to appoint or should "accompany" the notice of appointment. Following a subsequent request, the FSA provided such consent and that consent was later filed at Court. After the FSA consented to the appointment but before that consent was filed in Court, the administrators sold the assets of the company to a third party.

Was the appointment valid?

In respect of the first question, whether the appointment was valid despite the fact that consent was not given by the FSA in advance of it, the Court considered the construction of s362A FSMA to determine whether or not the lack of consent at the date of the notice of appointment was a defect that was cured by the subsequent consent. Although there was no authority on that provision, the Court considered the various conflicting cases of Hill v Stokes2 and Virtualpurple3 on the one hand and Minmar4 and Msaada5 on the other.

In the former pair of cases, the Court held that where there was no qualifying floating charge...

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