The Return (or Part 3) of "So when is an administrator appointed?"

Can you name three great trilogies?  How about:

• Francis Ford Coppola's “The Godfather Trilogy” (The Godfather, The Godfather: Part II and The Godfather: Part III)
• John le Carré's “The Karla Trilogy” (Tinker, Tailor, Soldier, Spy, The Honourable Schoolboy and Smiley's People)
• The High Court’s “Date and Time of Appointment of Administrators’ Out-of-Court Trilogy” (Re NJM Clothing Ltd [2018] EWHC 2388 (Ch), Re The Towcester Racecourse Company Ltd (in administration) [2018] EWHC 2902 (Ch) and Re Spaces London Bridge Limited [2018] EWHC 3099 (Ch))

The first two listed above are quite obvious and no doubt of significance to many of our readers. The third example may not be so obvious, but it is significant for companies, insolvency practitioners and lawyers involved in the restructuring and insolvency world.  And while continuing the saga, it brings the matter of the timing of an administrator’s appointment, out-of-court, to a satisfactory conclusion (or at least for now).

Background to the saga and recap on parts 1 and 2 of the trilogy

We have previously reviewed parts 1 and 2 of the trilogy here and here, respectively, but 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 (i) a statement that the company or directors have appointed the named person as administrator and (ii) the date and time of appointment. Accordingly, the “date and time of appointment” is often stated on the notice of appointment as “the date and time of filing the notice of appointment at the court”, since the appointment cannot be effective until the notice is filed at court as per Sch B1.

In Part 1 of the trilogy, HHJ Klein concluded that rule 3.24 IR16 implied that the company or directors must have already effectively appointed the administrator at some point prior to filing the notice at court. This meant that the time of filing could not be simultaneous with the time of the appointment and, as a result, a notice stating the time of appointment as “the date and time of filing the notice of appointment at the court” was defective.  This conclusion was at odds with the wording of Sch B1 and created ambiguity around how an out-of-court notice of appointment should be drafted to avoid defect.

Part 2 of the trilogy provided much needed and timely guidance on this subject.  HHJ Matthews held 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 was sufficient for compliance with rule 3.24 IR16. It was noted by HHJ Matthews that comments in Re NJM Clothing regarding defects with the notice of appointment were assumptions rather than findings, and therefore not binding.  Now, to Part 3!

Part 3 – Re Spaces London Bridge Limited [2018] EWHC 3099 (Ch)

Re Spaces London Bridge Limited [2018] EWHC 3099 (Ch) also concerned the timing of appointment of administrators to a company and the validity of their appointment.

HHJ Nugee agreed that the draughtsmen of Sch B1 and IR16 had assumed that a company or directors' act of appointing an administrator would precede and be separate from the point at which the appointment became effective.  Put another way, there was a notional “time of appointment” when the administrator is appointed by the directors or company, but that the time of appointment is “a matter of supreme irrelevance” because it is not effective until the notice of appointment is filed at court as per Sch B1.

Accordingly, the requirement to state that date and time of appointment of administrators was not a reference to the notional time of appointment (which had the potential to mislead third parties as to an effective appointment having been made). It was instead fulfilled by the court inserting the date and time of filing on the notice of appointment, which is in fact the effective time of appointment. Consequently, it is correct to insert the time of appointment as “the date and time of filing of this notice at court” and notices of appointment completed in this way will not be defective.

Comment

Tim Carter, co-head of Restructuring & Insolvency at Stevens & Bolton comments:

“While the irregularity with the drafting of rule 3.24 IR16 and Sch B1 will not be finally settled until there is some amending legislation or further judgment of the appellate courts, insolvency practitioners and lawyers can take comfort from this third instalment of the saga.  It confirms the court’s desire to protect administrators’ appointments against challenges purely on the grounds of what date and time is specified on a notice of appointment.”

“The case also offers some useful guidance both on the language to include on any notice of appointment i.e. ("This appointment will take effect at the date and time specified below as the date and time when the notice is filed") but also that a failure to include it should not amount to a breach of IR16 or constitute a significant defect so as to invalidate the appointment.”