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 of its
intention to make an out of court administration appointment, if
there are no QFC holders. It went on to conclude that even if the
director did not notify the company of its intention, where it was
required to, it did not necessarily make any subsequent appointment
invalid.
It can therefore be concluded that directors must give notice of their intention to make an out of court administration where there is a QFC holder. However, the recent decisions have made it unclear as to whether notices need to be issued and if so to who, where there is no QFC holder. Accordingly, in view of the conflicting decisions directors are best advised to err on the side of caution and either notify all parties detailed above whether there is a qualifying floating charge holder or not, or they should just avoid making out of court administration appointments pending clarification of the position by the court.
If you are in any doubt about what you should do when considering the appointment of an administrator, please do not hesitate to contact the Commercial Litigation Team or your regular RB contact to discuss what steps you should take.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
