Minmar (929) Ltd & Anor v Khalatschi & Anor

Paragraph 105 of Schedule B1 to the Insolvency Act 1986 permits an act by a majority of the directors, but it does not dispense with the company’s ordinary internal-management requirements. A validly convened meeting, proper notice and a quorum remain necessary unless the articles provide otherwise.

An appointment of administrators made without those requirements is invalid. The same result follows where the appointing directors fail to give the company the prescribed notice under paragraph 26(2) and Insolvency Rule 2.20(2)(d). The court may set aside the invalid appointment and may do so of its own initiative under CPR 3.3(4).

Minmar (929) Ltd’s directors purported to appoint administrators under paragraph 22(2) of Schedule B1 to the Insolvency Act 1986. The appointment was made at a purported meeting attended by one individual representing only one of three newly appointed directors. Existing directors received no notice, and the company received no notice of intention to appoint.

The company’s director, Mr Chohan, applied to set aside the appointment. The interveners argued that paragraph 105 allowed a majority of directors to act without a properly convened meeting and that paragraph 26(2) imposed no independent notice obligation. The court also considered whether Mr Chohan had standing to challenge the appointment.

1. Paragraph 105. The provision gives an act of a majority of the directors the same validity as an act of the directors as a whole. It does not remove the ordinary rules of internal management. The majority must act as directors, with the authority of the company, and must comply with the articles concerning notice, meetings and quorum. Re Instrumentation Electrical Services Ltd remained applicable. Re Equiticorp International Plc was confined to a properly convened meeting at which a majority resolution had been passed.
2. The purported meeting was invalid. Existing directors had deliberately received no notice. Only one person was present, so there was neither a quorum nor a valid meeting. Paragraph 105 therefore did not validate the appointment under paragraph 22(2).
3. Paragraph 26. Paragraph 26(2), read with Insolvency Rule 2.20(2)(d), imposed an additional obligation to give the company notice of the intention to appoint an administrator. That obligation did not depend on there being a person entitled to notice under paragraph 26(1). The word “also” and the reference in paragraph 28(1) to “any requirement” supported that construction. No notice was given to Minmar, providing an additional reason why the appointment was invalid.
4. The invalidity should be recognised even if a later appointment could cure the defect, as illustrated by Re G-Tech Construction Ltd. The court was also entitled under CPR 3.3(4) to make the order of its own initiative after a full hearing, so any objection to Mr Chohan’s standing did not prevent relief.
5. The appointment of the administrators was set aside.