Following the controversial High Court decision in Re NJM Clothing Ltd [2018] EWHC 2388 (Ch) which we wrote about last month here, the question of when an administrator is appointed using the out-of-court procedure had been left open to doubt. Thankfully, the more recent case of Re The Towcester Racecourse Company Ltd (in administration) [2018] EWHC 2902 (Ch) has provided some welcome clarity.
Legal framework
To recap, paragraphs 29 and 31 of Schedule B1 to the Insolvency Act 1986 (“Sch B1”) provide that the appointment of an administrator by a company or its directors using the out-of-court route is effective when a number of requirements are completed, the last of which being the filing of the notice of appointment at court.
Rule 3.24 of the Insolvency Rules 2016 (“IR16”) provides that the notice of appointment must contain (a) a statement that the company or directors have appointed the named person as administrator and (b) the date and time of appointment.
Consequently, the ‘date and time of appointment’ (as stated on the notice of appointment) is often stated as “the date and time of filing the notice of appointment at the court”, since the appointment cannot be effective before the notice is filed at court.
Re NJM Clothing Ltd (2018)
In Re NJM Clothing, HHJ Klein had difficulty accepting this wording on the notice of appointment. He considered that the requirements of rule 3.24 IR16 implied that the company or directors must have already appointed the administrator at some point prior to filing the notice at court. Consequently, the time of filing could not be simultaneous with the time of the appointment. The judge therefore assumed that a notice containing the above wording would be defective.
However, the requirements of Sch B1 are clear: the appointment of the administrator cannot be effective until the notice of appointment has been filed at court. This decision created ambiguity around how the notice of appointment should be drafted to avoid defect, which could obviously have wide-ranging implications given the popularity of out-of-court appointments for their relative ease and expediency.
Re The Towcester Racecourse Company Ltd (in administration) (2018)
This more recent case has provided much needed and timely guidance on the drafting of the notice of appointment.
HHJ Matthews held in this case that a notice of appointment would not be defective if the time of appointment is stated as “the time of filing of the notice of appointment at court”. This would be sufficient for compliance with rule 3.24 IR16 and it followed that the appointment of administrators by the company or directors does not need to precede the filing of the notice at court. HHJ Matthews also noted that comments made by HHJ Klein in Re NJM Clothing regarding defects with the notice of appointment were assumptions rather than findings, and therefore not binding.
Insolvency practitioners will breathe a sigh of relief following this recent case which restores the status quo for drafting notices of appointment. The potential irregularity with the drafting of rule 3.24 IR16 and Sch B1 however remains an issue for resolution by amending legislation.
Lucy Trott