Common sense decision on the appointment of administrators

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Common sense decision on the appointment of administrators

When a company finds itself facing financial difficulty, as a means of rescuing all or some part of the company, directors may choose to appoint an administrator. However, the appointment process is governed by complex court rules that have been amended and revised over time but not always simplified! Such is the case for completing a Notice of Appointment (“NOA”) of an administrator by a company or the director(s) of a company.

New rule for date and time of appointment to be specified

 

Insolvency Rule 3.24 (1)(j) contains a new requirement from April 2018 that the NOA confirm “the date and time of the appointment” of the administrator.  As the NOA is required to be filed with the Court in order for the appointment to become effective, the approach taken by most insolvency lawyers was to view the appointment as taking effect from the time the NOA is filed with the Court rather than at a time prior to making the application, which seemed the most logical interpretation of the new Rule. However, in April the Court took a different view which set feathers flying in the dovecote!

 

High Court decision causes alarm

 

In the case of Re NJM Clothing Ltd the Court held that an appointment might be defective if the NOA submitted to the High Court failed to state the time and date of the director’s (or company’s) decision to appoint Administrators.  In other words, the decision to appoint an Administrator was to be treated as a separate matter from the requirement to notify the court that such a decision had been made. So, in the more literal interpretation of the new Rule by the Court, the time and date of appointment noted on the NOA must be a time and date which occurred prior to filing the NOA with the court.

 

The NJM decision meant that a director could not file a NOA without specifying the time and date that the decision was made to  appoint Administrators, which may not be possible in circumstances where, for example, an appointment is finely timed to coincide with a pre-pack sale and the appointment of Administrators is intended to occur at the point at which the filing of the Notice of Appointment is made.  Luckily for NJM the Court decided that there would be a “presumption of regularity” and that it would be assumed directors had already chosen to appoint an administrator by the time they filed the NOA, but the ruling cast a shadow over the validity of NOAs previously filed.

 

Common sense prevails at last

 

So it is likely to be of some relief to insolvency practitioners and the turnaround market generally that the High Court decision in Re Towcester Racecourse Company Ltd (in administration) [2018] EWHC 2902, 2 October 2018 has now clarified the position. Matthews J. ruled that a NOA is not defective if it records the date and time by reference to the point of filing, and that the date and time of appointment does not need to precede the date of filing but could be at the same time.  Not only does this provide welcome clarification going forward but also reassurance that any appointment since the NJM case that did not specify a separate time and date would be construed as valid.

 

Inserting the date and time on the face of the NOA is still an irksome requirement but as this can now, where appropriate, be defined by reference to the time of filing, the validity of the appointment is no longer affected.  Common sense has prevailed and this decision will provide welcome reassurance for insolvency practitioners.

 

If you wish to discuss further please contact Claire Butler

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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