Administrators – Appointment — Validity – Administrators of property company obtained invalid extension to administration by consent — Administrators applying to court to waive defect or make fresh administration order — Whether court having power to waive defect in appointment under Insolvency Rules 1986 – Whether court having power to make retrospective administration order – Applications allowed in part
B Ltd was incorporated in February 2004 to acquire and redevelop a Grade II listed hospital. F Ltd was incorporated a year later to act as a holding company for B Ltd. The bank that provided facilities to B Ltd funded the development. However, it was unsuccessful and the companies went into administration.
The applicant administrators were appointed under para 22(2) of Schedule B1 to the Insolvency Act 1986. Under paragraph 76(1), the appointments ceased to have effect after one year unless it was validly extended. Since negotiations for the sale of the various units were proceeding at the end of the one-year period, the applicants sought an extension to their appointment by consent. The necessary consents under para 78 of Schedule B1 were obtained in respect of F Ltd but not B Ltd, although the applicants continued to act on the assumption that their appointment had been extended for both companies.
At the end of the second year, the applicants sought a court order for a further extension in respect of both companies, as required by the 1986 Act. An extension was granted in respect of F Ltd because the first extension had been valid and the application for a second extension had been made in good time. However, the applicants’ original appointments in respect of B Ltd had expired and, since the necessary consents had not been obtained for the first extension, the court was not empowered to grant a second extension by virtue of para 77(1)(b) of Schedule B1.
The applicants applied, under r 7.55 of the Insolvency Rules 1986 to the court to waive the defect in their appointment. In the alternative, they argued that a new appointment could be made with retrospective effect.
Held: The applications were allowed in part.
Rule 7.55 could not be used in the instant case in order to cure the defect in the purported extension by consent of the administration of B Ltd. The failure to obtain the necessary written consent in good time meant was that the initial period of administration expired in January 2010 and the court had had no jurisdiction to extend it thereafter. Such a defect was fundamental and, apart from the absence of any existing insolvency proceedings, it fell outside the scope of r 7.55. It followed that the administrators had acted without authority since January 2010 and if they were to be reappointed as administrators, a new application for that purpose had to be made: Re Blights Builders Ltd [2006] EWHC 3549 (Ch); [2007] 3 All ER 776 and Re Kaupthing Capital Partners II Master LP Inc [2010] EWHC 836 (Ch); [2011] BCC 338 considered.
However, the court would accept that it had jurisdiction under para 13(2) of Schedule B1 to the 1986 Act to reappoint administrators and backdate the appointment up to 364 days before the date of the order. It could immediately make a further order pursuant to para 76(2), extending the administrators’ term of office for a specified future period: Re G-Tech Construction Ltd [2007] BPIR 1275 and Re Dershaw Ltd [2011] EWHC 1565 (Ch) followed.
The administrators could not make the new application themselves because they had no standing to do so. As a matter of general company law, the decision as to whether to place a company into administration was to be taken by its directors and not by an ordinary resolution of the shareholders, although, by special resolution, they might direct the board to do so. Since it would not be practicable to trace the directors in the present case, the bank should reapply in its capacity as a creditor of the company pursuant to para 12(1)(c) of Schedule B1.
Per curiam: If, and to the extent that, a practice had developed in the Companies Court of purporting to waive defects of this or a similar nature in reliance on r 7.55, such practice had no solid foundation in law and had to cease. Although it might be convenient for the court to have a power to waive defects of a relatively technical nature in the out-of-court appointment of administrators, r 7.55 could not be pressed into service for that purpose; only legislation could bring about such a change.
Siward Atkins (instructed by TLT LLP, of Bristol) appeared for the applicants.
Eileen O’Grady, barrister
