Derfshaw Ltd. & Ors, Re

For an administration order, the court must be satisfied that the company is, or is likely to become, unable to pay its debts and that the order is reasonably likely to achieve an administration purpose. The court then has a discretion whether to make the order. Where an earlier out-of-court appointment was invalid because the prescribed notice was not served, the court may make a retrospective administration order under paragraph 13 of Schedule B1 to the Insolvency Act 1986, so as to validate the intervening administration, provided the statutory conditions are met.

Directors applied for administration orders in respect of seven companies. Administrators had previously purported to take office out of court, but the directors had not served the company with the prescribed notice of intention to appoint. Following Minmar (929) Ltd v Khalatschi and another [2011] EWHC 1159 (Ch), the applicants accepted that the earlier appointments were invalid and sought fresh court appointments. The central issue was whether the court could make those orders retrospectively to the dates of the purported appointments.

1. The applications were granted and administration orders were made in respect of all seven companies.
2. Under paragraphs 11 and 12(1)(b) of Schedule B1 to the Insolvency Act 1986, the directors were entitled to apply. The court was satisfied in each case that the company was, or was likely to become, unable to pay its debts and that administration was reasonably likely to achieve a better result for creditors than liquidation, within paragraph 3(1)(b). The court therefore had jurisdiction and a discretion under paragraph 13 to make the orders.
3. The court accepted the reasoning in Minmar (929) Ltd v Khalatschi and another [2011] EWHC 1159 (Ch). Paragraph 28(1), read literally, required compliance with the requirements of paragraph 26, including the paragraph 26(2) requirement, supplemented by rule 2.20 of the Insolvency Rules 1986, to serve the company with the notice of intention to appoint. The earlier out-of-court appointments were therefore treated as invalid.
4. Following Re G-Tech Construction Ltd [2007] BPIR 1275, the court held that paragraph 13 permitted an administration order to take effect retrospectively. Although the statutory language could have been clearer and the earlier decision had proceeded on one-sided argument, it had been applied in other cases without being challenged. The desirability of preserving the validity of steps already taken in the purported administrations justified exercising the jurisdiction.
5. The orders were made with retrospective effect from the times when the purported out-of-court appointments were intended to take effect, subject to minor amendments to the draft orders.