The Procedure for an Out of Court Appointment
Where the directors of a Company wish to appoint an Administrator of that company under Schedule B1 of the Insolvency Act 1986 (the "Act"), they can do so by filing the requisite Notice of Appointment of an Administrator at Court. This is known as an "out of court appointment".
Where the company has granted a qualifying floating charge to one or more secured lenders, before filing the Notice of Appointment at Court, the directors must file at the court and serve on all interested parties a Notice of Intention to Appoint an Administrator ("Notice of Intention").
Once such a Notice of Intention has been filed at the court, then, pursuant to paragraph 28 of Schedule B1 to the Act, the subsequent appointment of the Administrator may not be made after the period of 10 business days beginning with the day on which the Notice of Intention was filed at Court.
The company is granted a moratorium preventing certain action and legal proceedings being commenced or continued against it during that period.
The Practice of Filing More than One Notice
A practice has developed over time whereby, if the directors of a company had filed a Notice of Intention but had not been in a position to file a Notice of Appointment within the stipulated 10 day period, they would file a further Notice of Intention and commence the process again.
There had been concern amongst some critics that this process of filing more than one Notice of Intention could be deemed to be an abuse of the court process and could result in any subsequent appointment of an Administrator upon a subsequent Notice of Intention being void.
Judicial Approval of the Practice
Insolvency Specialists will be pleased to note that the Court has now given judicial approval of the practice that has developed of filing more than one Notice of Intention.
This approval was given in the recent case of Re Cornercare Limited  EWHC 893 (Ch).
In that case the High Court gave a declaration that the directors could appoint administrators by an out of court appointment, despite a previous Notice of Intention having been filed and having expired without an appointment being made.
The court held that the prohibition in paragraph 28 of Schedule B1 to the Act (preventing an appointment after the expiry of the 10 day period) only operated to prevent directors from appointing administrators after that period expired on a particular Notice of Intention. It did not however prevent the directors from issuing a fresh Notice of Intention and commencing the process again.
Potential Abuse of Court Process
There are often good reasons why an appointment of an administrator cannot be made within the 10 day period (i.e. if funding options are still being explored in order to purchase the business and assets of the company).
Notwithstanding this, the court did make it clear in the Cornercare case that the repeated filing of Notices of Intention by unscrupulous directors who are simply seeking the protection of an extended moratorium and who are not actively addressing the company's financial difficulties would constitute an abuse of the court process.
The court suggested that, if a creditor or other interested party suspected that such an abuse were taking place, the following measures might be used to control such abuse:
- To seek an order from the court restraining the directors from lodging further Notices of Intention;
- To seek an order from the court vacating the Notice of Intention; and/or
- To seek an order from the court granting creditors a blanket permission to enforce debts against the company, despite the existence of a Notice of Intention.
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