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Warning to Proposed Administrators: Give As Much Notice As You Can To Avoid an Invalid Out Of Court Appointment

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There have been various cases decided over the last few months as to the technical requirements for notifying various persons of a proposed out of court appointment of Administrators.

A failure to properly and fully comply with the precise notice requirements set out in the Insolvency Act 1986 (the “Act”) and Insolvency Rules 1986 (the “Rules”) will result in an invalid appointment which the Court cannot subsequently ratify.

It is therefore important that all proposed Administrators and the appointors ensure that the notice requirements (as currently understood) are followed to the letter to ensure that the appointment is valid.

On 21st December 2011 two High Court decisions were made in different courtrooms but on that exact same day, with neither Judge knowing of the other’s decision.  Both judges granted orders that wholly contradict each other, but both decisions hold the same degree of authority in terms of setting a binding precedent.

The conflicting decisions are:

Re Virtualpurple Professional Services Ltd [2011] EWHC 3487

This case followed the Hill v Stokes decision rather than the Minmar decision.

In this case it was held that where there is no QFCH, the directors have no obligation to give the company (or indeed any of the persons referred to in Rule 2.20(2)) any notice of intention to appoint an administrator.

The court went further and also held that, even if there were an obligation to notify the parties in Rule 2.20(2), a failure to do so did not automatically make the appointment invalid, with the court having discretion to waive any procedural defect if appropriate.

CONCLUSION

Until such time as a further case is decided on whether and to what extent the parties in Rule 2.20(2) must be given notice of intention to appoint an administrator or the Act or Rules are amended, it would be prudent to adopt the following course of action:

Practitioners should also remain aware of the requirement in Minmar which remains unaffected, namely that any appointment by the directors under paragraph 22(2) of Schedule B1 to the Act must be made from a decision of the directors that is in accordance with the company’s Articles of Association.  The practitioner should ensure that a board meeting was validly convened, review the board minutes from that meeting and ensure it accords with the requirements set out in the company’s Articles.

 

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