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Out of court administration

The line of cases which began last year with Minmar (929) Limited Khalastchi ([2011] EWHC 1195 (CH)) when the High Court decided that an out-of-court appointment by directors was invalid because of the failure to give notice to the Company, i.e. its shareholders, has had three additions.

There has developed a practice of companies or directors filing a Notice of Intention to Appoint Administrators in cases where there is no Qualifying Floating Charge Holder (QFCH).

National Westminster Bank plc v Msaada Group [2011] EWHC 3423 (CH)

In the Msaada case, the High Court held that the directors must give five business days’ notice of their intention to make an out-of-court appointment to those parties referred to in Rule 2.20 of the Insolvency Rules 1986. Failure to give that notice would render any subsequent appointment automatically invalid.

Beziers Acquisitions Limited ([2011] EWHC 3299 (CH))

By contrast in this case the High Court refused to declare an appointment invalid even though there had been a failure by the directors to give formal notice by service on the Company at its registered office. It will be sufficient if the directors could show that the Company had in some way been notified of their intended appointment.

Virtual purple Professional Services Limited ([20111] EWHC 3487 (CH))

Similarly, the Court decided that in the absence of a requirement to serve notice on a QFCH there was, in fact, no need to give notice to any of the parties referred to in Rule 2.20.

OUR COMMENT

These are all High Court cases and we may have to await clarification by a higher Court. The judgements in Virtual purple and Beziers seem to represent a retreat from the apparent rigidity of the stance taken in Minmar. However, that case still points strongly to the need for directors to follow the Company’s Articles in the requirement to hold a valid directors meeting or other method of reaching collective decisions. Furthermore, if the board members and shareholders are not identical it would be prudent to ensure that notice is given to the shareholders in compliance with Rule 2.20.

The more recent cases indicate that a more flexible approach can be taken where the directors’ decision is effectively endorsed by the shareholders.

In Wright Hassall LLP v Morris HHJ David Cooke refused an application by solicitors to order an administrator, for whom they had acted in litigation against third parties, to be personally liable for the solicitors costs. He confirmed that in entering into a contractual arrangement (here, a CFA) the administrator acted as agent of the Company (Wright Hassall LLP v Morris [2012] EWHC 188 (CH)).