Fliptex Ltd v Hogg & Ors

An out-of-court appointment of an administrator under Schedule B1 to the Insolvency Act 1986 takes effect when the statutory notice and accompanying documents are filed and the requirements of paragraph 18 are satisfied. Documents executed earlier operate subject to that condition and do not make the appointment effective before filing. A company may also be estopped from challenging an appointment after acquiescing in it and allowing substantial fees and liabilities to accrue. Inability to pay debts as they fall due is assessed by reference to the company’s actual cash-flow position, even if it may be balance-sheet solvent. The application for an injunction was dismissed.

Fliptex Ltd sought an interim injunction restraining the first and second defendants, its administrators, from accepting the surrender of two leases held by HDS Studios Ltd. Fliptex challenged the validity of their appointment, arguing that it had been made before the relevant floating charge became enforceable and that Fliptex was able to pay its debts as they fell due. It also argued that the balance of convenience favoured injunctive relief. The central issues were when the appointment took effect, whether Fliptex was estopped by delay and acquiescence, and whether the statutory cash-flow insolvency condition was satisfied.

1. The application was dismissed. The court rejected the challenge to the administrators’ appointment and refused the injunction.
2. Under paragraphs 18 and 19 of Schedule B1 to the Insolvency Act 1986, the appointment took effect only when the notice of appointment and prescribed accompanying documents were filed at court. The appointment therefore took effect on 24 November 2003, after the demand had been made. Earlier execution of documents was conditional and did not create an effective appointment. The prescribed statutory declaration could be made within the period permitted by rule 2.16(3) of the Insolvency Rules 1986.
3. In any event, Fliptex was estopped from challenging the appointment. After its initial correspondence, it acquiesced in the administrators acting, cooperated with the administration and allowed them to incur fees exceeding £300,000. A challenge brought at that late stage would be inequitable.
4. Fliptex was unable to pay its debts as they fell due within section 123 of the Insolvency Act 1986. Its only income was insufficient rent, while significant creditors were pressing for payment. Balance-sheet solvency did not displace the evidence of cash-flow insolvency.
5. Alternatively, if the legal conclusions had been wrong, the balance of convenience would narrowly have favoured an injunction pending a speedy trial. This was a contingent observation and did not affect the decision.