Is a person who issues a notice of intention to appoint an administrator under paragraph 26 of Schedule B1 of the Insolvency Act 1986 (paragraph 26) required to have a settled intention to appoint administrators or can this intention be conditional or one of a number of possible options?


The case of JCAM Commercial Real Estate Property XV Limited v Davis Haulage Limited [2017] EWCA Civ 267 has recently highlighted the circumstances in which a person intending to appoint administrators is entitled or obliged to file a notice of intention to appoint administrators.

The Court of Appeal held that a conditional proposal to appoint an administrator does not entitle or oblige a company or its directors to give a notice under paragraph 26. This could have the effect of curtailing the use of the filing of a notice of intention as a means of securing an interim moratorium over the company during a period of creditor pressure, where the appointment of administrators is not the only possible outcome for a company.

Facts

The sole director of Davis Haulage Limited (DHL) filed a notice of intention to appoint administrators. Without the knowledge of this notice, DHL's landlord, commenced forfeiture proceedings.

Two further notices of intention to appoint administrators were filed by the director upon the expiry of the 10 business day period of each of the preceding notices.

On 3 March 2016 a CVA proposal in respect of DHL was filed at court and circulated to creditors. On 4 March 2016, a fourth notice of intention to appoint administrators was filed by the director. Following the issue of the CVA proposal, creditors with a value greater than the minimum voting requirement had intimated to the director they did not intend to support the CVA and as such, he was advised that, if the CVA was not approved DHL would need to be placed into administration or liquidation. Ultimately, the CVA was approved with modification but then failed in December 2016. DHL went into administration on 23 December 2016.

First judgment

JCAM applied to the court in order to remove the fourth notice of intention from the court file on the basis that it was an abuse of process. JCAM argued that the director didn't have a fixed intention to appoint administrators and would only have done so had the CVA not been approved.

JCAM submitted that the word "proposes" in paragraph 26 should be read as "intends" but this was rejected by the judge, saying that if a person proposes one thing he is also open to other outcomes. The judge concluded that there was nothing on the facts of the case which would prevent a director proposing both a CVA and an administration.

Appeal

On appeal, the first instance decision was overturned.

Firstly, David Richards LJ considered the word "proposes" to be synonymous with "intends" and, regardless of its interpretation, the issue was whether a person giving notice must unconditionally propose or intend to appoint administrators or whether that person could propose or intend for a number of differing outcomes based upon one or more conditions.

David Richards LJ considered it important to understand both the purpose of the giving of a notice of intention to appoint administrators and also to consider the facts in the light of the legislative background to a CVA proposal.

In respect of the purpose of the giving of the notice, the Court of Appeal was clear that the interim moratorium afforded to a company upon the filing of the notice was provided to enable the status quo to be preserved in respect of the company whilst a person with the benefit of a qualifying floating charge holder considered whether it wished to seek the appointment of its own nominated administrator. Paragraph 26 obliges a company or its directors to give notice if it/they intend to appoint an administrator which, the Court of Appeal considered, works easily where there is a settled intention to appoint an administrator. Should it only be a possible outcome, the obligation works less well as a company could face the prospect that a CVA proposal is frustrated should the qualifying floating charge holder decide to appoint an administrator upon receiving notice of an intention to appoint administrators by the company or its directors.

In respect of the legislative background to a CVA proposal, a company only obtains the benefit of a moratorium in respect of a CVA in limited circumstances, and David Richards LJ considered that, should a person be entitled to file a notice of intention to appoint administrators in these circumstances it would provide an indirect means of obtaining a moratorium where it is not otherwise directly available.

Effect of the judgment

The effect of the decision of the Court of Appeal is that, going forward, a conditional proposal to appoint an administrator will be insufficient and that a company or its directors must have a fixed or settled intention to appoint administrators following the filing of a notice of intention to appoint administrators. Any use of the filing of notices of intention to appoint administrators solely as a tactical means of securing a period of breathing space from creditor pressure (absent a fixed intention to appoint administrators) will no longer be tolerated.

The Court of Appeal did not comment upon the use of so-called "back-to-backing" of a number of notices of intention, but it follows that, at each point that a notice is filed, the company or the directors must have a fixed or settled intention to appoint.

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