In keeping with the style of this Blog, I’ll not go into too much detail about what the applicable rules and paragraph numbers say, but we have recently come up against an issue that could be very widespread indeed.
In an unreported case, one of our clients was criticised in a Directors’ out of court administration appointment because “notice of intention to appoint” was not given to the company, even though there was no floating chargeholder. Although his appointment and actions were ratified by the court, costs were awarded against him personally, indicating that the court attributed a degree of culpability to the administrator.
We originally thought this was daft, as we could not see that “notice of intention to appoint” was required. After all, if you have no floating chargeholders and are not giving notice to anyone else, why would you give notice to the company?
However, even though we don’t think it was intended when Schedule B1 and the accompanying rules were written, it appears that, taken together, their impact is to require that notice of intention to appoint is given to the company if the directors are making the appointment (for those who want to work their way through it, see rule 2.20 and para 26(2)). This is the interpretation you will see in Sealey and Millman and the Insolvency Service has confirmed that this is the effect of the rules as they stand.
Gareth has asked the Insolvency Service to consider a legislative fix to resolve this, but since any such fix, if applied, would take time and would probably not be retrospective, we think that you now have to take the following action:
Future cases:
Only use the “No notice of intention to appoint” route for company appointments. Use the “Notice of intention to appoint” route for all other appointments and ensure that the company receives a copy of the notice, even where there is no floating chargeholder. Note that you only have to give the company “notice”, there is no defined notice period or need for consent as there would be for example for a secured chargeholder.
Current cases:
As always, take legal advice if you are unsure and consider applying to court to have your appointment ratified. Offer the court a draft order and ask for the hearing to be dealt with without attendance to reduce costs to a minimum. Do not seek an order for costs and don’t charge any time to the case for the corrective action.
We don’t think anyone will have been picked up on this by a regulator yet, because we have only heard of the one instance where it was an issue. However, if our guess is right, it is because until now the regulators all thought that such notice was not required or had not noticed that it was. Now though, we know that the Insolvency Service will be asking the regulators about it and we would expect monitors to be looking out for it. That may be a bit scary, but I suspect that the potential for adverse costs rulings from the court may be a more persuasive argument.
As usual, you know where to find us if you want to discuss this.
