The Court of Appeal has set aside a Notice of Intention to Appoint an Administrator by a director (NOI) on application by a disgruntled unsecured landlord creditor, on the grounds that the notice was invalidly given as the director had no settled intention to appoint administrators.
The facts were a bit complicated – the director filed a series (4) of NOI while he explored options for the company, which at various points during the life of the NOIs included administration. The evidence showed that he had not made a firm decision to opt for administration. By the time of the third and fourth notices, the director had proposed a CVA, and used the NOI process to obtain a moratorium to allow the proposal to be put to creditors without risking creditor action. The CVA was approved, with modifications, but ultimately failed some months later.
The Court of Appeal has made it very clear that a NOI can only be filed where the statutory pre-requisite of a settled intention to appoint administrators exists. The purpose of filing an NOI is only to allow a Qualifying Floating Charge Holder (QFCH) to appoint its own choice of administrator, and should not be used as a way of getting a moratorium when the directors are simply considering options or trying to get a CVA approved.
Mr Justice David Richards said:
“The ground for the order to remove the copy of the notice from the court file is, in my judgment, the straightforward ground that the notice was invalidly given, because the statutory pre-requisite of a settled intention to appoint was not satisfied. The notice was not validly given under paragraph 26 nor was a copy of it validly filed with the court under paragraph 27, with the result that the interim moratorium was not validly invoked. To give a notice and file a copy with the court in these circumstances is no doubt, in a technical sense, an abuse of the court’s process. But it is not necessary in this case to say more. There is no reason to suppose that either [director] or the experienced insolvency practitioners and solicitors advising him and the company did not believe that he was entitled to give and file the notices. For the future, it will be clear, by reason of this court’s decision, that a conditional proposal to appoint an administrator does not entitle or oblige a company or its directors to give a notice under paragraph 26 of schedule B1.”
Where there is no QFCH:
The Court of Appeal was clear that parties cannot file an NOI.
“First, the purpose of giving notice is both limited and specific. Notice is to be [sic] given, and a copy of the notice is to be filed in court, only if there is a person with a prior right to appoint an administrator. The purpose of the notice is to enable that person to exercise their prior right of appointment. The purpose of filing a copy of the notice in court, and the purpose of the interim moratorium triggered by filing the copy, is to protect the company and its assets while that person decides whether to appoint an administrator, and if he decides not to do so, to provide the same protection pending an appointment by the person giving the notice. If the scheme of the legislation envisaged that an appointment by the company or its directors might well not follow in the absence of a prior appointment, it is difficult to discern the real purpose of the interim moratorium.
If there is no person to whom notice must be given under paragraph 26(1), there can be no interim moratorium. If the company in this case had not granted a qualifying floating charge, there could not have been an interim moratorium pending consideration of the CVA proposal. This confirms the limited purpose of both the notice and the interim moratorium and supports the view that notice was to be given only if the company or its directors had a settled intention to appoint an administrator”
What does this mean?
In this case, no administration appointment was made on the back of the NOI that was removed from the Court file. If there had been, the upshot of this decision would have meant that the administrators were not validly appointed (following the line of cases in 2010 and 2012 where notice was required but hadn’t been given).
While the decision does represent a departure from what has been standard practice – it is clear and has the weight of a CA judgment.
Is it still ok to file successive NOIs? The Court did not specifically overrule Re Cornercare. In that case, and many that followed, the company’s directors did not want to appoint the administrators during the moratorium after the first NOI due to “funding difficulties with the purchase of the new premises to which the business was to be moved”. Judge Purle found that was a genuine reason. We often come across the situation where the company cannot be rescued so that administration or liquidation are the only options but where 10 business days of breathing space afforded by the moratorium is not enough to get the best outcome for creditors. This could be because of funding difficulties or for specific operational reasons – for example the need to transfer licences or secure new facilities. For future cases, it is clear that a concrete intention to appoint administrators is essential. Filing successive NOIs without genuine reasons or keeping stakeholders informed is highly risky**. Our view is that for the right reasons (which should be recorded clearly and made available to the court) and provided administration is from the outset the chosen process, Re Cornercare is still good law.
For further information, please contact:
Hannah Drozdz, associate, Corporate Recovery
T: 0121 234 0230