We are seeing a run of invalid appointments across our visits at present. Here are a few tips to show how they arise and what you may be able to do to fix them.
Administrations
The recently reported case of GTech has a small, but for us significant flaw in its narrative. For those who care, it was not “an eagle eyed member of staff” that spotted that an IP had not been appointed administrator just before the administration he had been running for a year expired. It arose as a result of something we found during one of our visits and we doff our caps to Ian Grier at Sprecher Grier Halberstam for helping his/our client find the solution once we had found the problem. I won’t repeat it all here, given that it has been reported and was also mentioned in the legal updates at Conference Lite and SESCA but the decision shows both the need to ensure that you dot all the i’s and cross all the t’s when effecting an appointment and that the Court’s are prepared to find solutions where problems are found.
Voluntary liquidations
The main deficiencies appear to be in failing to give adequate notice of the general meeting to qualifying floating chargeholders (QFCH) and members and failing to have a quorum present at the meeting.
The best fix is to put a reminder to give at least 5 business days notice of the general meeting in both creditors’ and members’ voluntaries (not just the normal bank notice of any section 98 meeting) to any QFCH in your standard checklists and to get a copy of the company’s articles to check the notice and quorum requirements for members. If you do this, the situation should never arise.
However, we have recently seen all of the following: No notice being given to QFCH in both case types - even where the bank is not owed anything, the wording of the requirement is such that you must give notice; 14 days notice being given to members per the Companies Act 2006 – the company’s articles still rule and if they are table A under earlier versions of the act they will almost certainly require 21 days; only one person present at the members’ meeting sometimes with a proxy for a second member and sometimes without – this is more complex, but the 1985 Act table A articles require two persons present in person or by proxy to conduct any business unless a single member company with earlier versions requiring three and unless amended not allowing for proxies or single member companies.
If you have an invalid appointment on one of these grounds, you may be able to use rule 7.55 or 12.9 to get around them, but the arguments in the GTech case above could undermine this route and we’d recommend that you use an experienced insolvency lawyer to help with any application.
Voluntary arrangements
The main area we see here is in the (non-) approval of modifications. You have to get any modifications approved by the debtor/directors before the arrangement can be approved. Your file evidence needs to be consistent with this, so it is no good saying that the directors approved the modifications in the meeting minutes then having a telephone record for the next day that says “told X about the approval of the arrangement and he agreed the modifications”.
There is no perfect solution that balances compliance and commerciality, but we recommend that you contact the debtor/director on receipt of each set of modifications and get them approved as early as possible, preferably in writing (e.g. email) before the meeting.
Ensure that in interlocking IVAs you have approval from both debtors to every modification. With a combined pot going forward, every modification impacts on the future of the arrangement and needs approval by both parties, so it is not enough to have ‘him’ approve ‘his’ modifications and ‘her’ approve ‘hers’.
Finally, reconcile modifications carefully and deal with any inconsistencies or conflicts. See the further article on this below.
Again, if you have a potentially invalid arrangement, you should see a specialist insolvency lawyer. Section 262(8) and/or section 376 may assist in such cases and we’d be happy to talk it through, but you should use the professionals (and rely on their PII not ours!).
