Out-of-hours appointment of administrators - judicial calls for reform

Following on from our recent update, judicial pressure is mounting to reform the manner in which qualifying floating chargeholders (“QFCs”) may appoint administrators outside of court hours.

By way of reminder:

• The High Court requires all court documents to be filed through its online e-filing portal, following the introduction of CPR Practice Direction 51O. The e-filing system was intended to bring the courts into the 21^st century and (generally) permit the filing of documents 24 hours a day, 7 days a week.
• Under the Insolvency (England and Wales) Rules 2016 (“IR16”), only QFCs are permitted to appoint administrators outside the usual court hours. However, where an appointment is made by QFCs out-of-hours, rule 3.20 IR16 only permits an appointment to be made by faxing or emailing the notice of appointment to the High Court; the e-filing system cannot be used.
• In the recent case of Eason and another v Skeggs Beef Ltd [2019] EWHC 2607 (Ch), the High Court held that the purported appointment of administrators out-of-hours by a QFC using e-filing was defective. However, the defect was not fundamental in nature and therefore found to be capable of remedy under rule 12.64 IR16.

In the case of Causer and another v All Star Leisure (Group) Ltd [2019] EWHC 3231 (Ch), HHJ Cooke (sitting in the High Court) condemned the irregularity created by the combination of IR16 and Practice Direction 51O for creating uncertainty and called for legislative reform. That case again concerned a QFC appointment of administrators made out-of-hours through the e-filing system, where a pre-pack business sale was completed immediately after the appointment. The appointment was found by the court to be defective but was again validated under rule 12.64 IR16.

In his judgment, HHJ Cooke branded the current situation an “apparent absurdity” and considered that any potential policy arguments for restricting the ability of QFCs to appoint out-of-hours through e-filing had become confused with a blanket ban on the ability to appoint administrators out-of-hours by other parties (such as company directors).  This is undoubtedly an area in which legislative reform is required to safeguard the unique power of QFCs to validly appoint administrators out-of-hours, particularly in circumstances (as here) where there is a pending winding up petition outstanding. The commentary from HHJ Cooke in this case (with his careful examination of the policy behind the current rules) is helpful in that regard. However, in the current political climate, it seems unlikely that parliament will be prioritising a resolution to this issue imminently - watch this space as judicial pressure continues to mount!