Insolvency – Administration – Floating charge – Claimant companies owning properties subject to floating charge in favour of bank — Bank purporting to appoint administrators – Whether administrators being validly appointed – Claimants challenging appointment of administrators – Whether insolvency provisions precluding directors’ challenge to validity of appointment – Application dismissed The claimant companies were the developers of leasehold land upon which a hotel had been constructed. The third defendant bank had financed the development and held floating charges over the claimants’ properties. When the claimants went into administration, the bank appointed joint administrators, pursuant to paragraph 14 of schedule B1 to the Insolvency Act 1986. The claimants, supported by two directors challenged the validity of the appointments on the ground that paragraph 16 of Schedule B1 prohibited the appointment of administrators when a floating charge was not yet enforceable. They applied to the court for a declaration that the purported appointment of the joint administrators was invalid and of no effect.
Issues arose (i) whether the directors had had the authority to cause the claimants to challenge the appointment of the administrators and whether such authority had been dependent upon the provision of an indemnity for costs which depended the true construction of paragraph 64 of schedule B1 and the meaning of “management power”; and (ii) whether the third defendant was estopped from making an immediate demand for repayment of the money because there was a mutual understanding between the third defendant and the claimants that it would not enforce its security against the claimants without reasonable notice.
Held: The application was dismissed. (1) The concept of “management power” as defined in paragraph 64 of Schedule B1, as inserted by paragraph 1 of Schedule 16 to the Enterprise Act 2002, was primarily intended to catch powers that, if exercised by the directors, could impede the exercise of similar powers by the administrators. It was not intended to catch a power on the part of the directors to cause the company to make an application challenging the logically prior question of whether the administrators had any powers to exercise at all. There was long-standing authority to the effect that the board of directors of a company retained a residuary power to instruct lawyers to challenge the appointment of a provisional liquidator and, if a winding up order was made, to appeal against the making of that order. Equally, there were numerous reported cases in which directors of companies had caused the companies to challenge the appointment of a receiver and there was no reason in principle why the position should be any different as regards the appointment of an administrator by a qualifying charge holder. Moreover, it would be an anomalous result if it were within the authority of the directors to cause the company to resist an application by a qualifying charge holder to the court for the appointment of an administrator under paragraph 10 of Schedule B1 to the 1986 Act, but outside their authority to cause the company to challenge the validity of an appointment under paragraph 14 of Schedule B1: Sutton v GE Capital Commercial Finance Ltd [2004] 2 BCLC 662 applied. Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] 1 QB 814 considered. (2) For a plea of promissory estoppel to succeed, there had to have been a clear and unequivocal statement; and that if ambiguous words were used which could reasonably be interpreted in several ways, one of which would not support the alleged estoppels, then those words would not found an estoppel unless the representee sought and obtained clarification of the statement. In the present case, the claimants stood no real prospect of establishing that the third defendant’s statements or conduct amounted to a clear and unequivocal representation that it would not exercise its legal right to require immediate repayment of the claimants’ debts or its right to take enforcement action while negotiations with the claimants were continuing or until the third defendant had given a period of notice to the claimants to enable them to conclude financing negotiations with third parties. In all the circumstances, the third defendant was not estopped from appointing administrators: Hughes v Metropolitan Railway (1877) 2 App. Cas. 439, Low v Bouverie [1891] 3 Ch 82, of Bute v Barclays Bank [1955] 1 QB 202, Woodhouse AC Israel Cocoa v Nigerian Produce Marketing [1972] AC 741 and Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239; [2013] PLSCS 90 applied.
Eileen O’Grady, barrister
