Frontsouth (Witham) Ltd & Anor, Re

A fundamental failure to satisfy a statutory prerequisite for the appointment or continuation of an administrator cannot be waived as a formal defect under rule 7.55 of the Insolvency Rules 1986. Such a failure means that no valid administration exists, and the rule cannot convert a mandatory requirement into an optional one.

The court may make a fresh administration order taking effect retrospectively under paragraph 13(2) of Schedule B1 to the Insolvency Act 1986, but retrospective appointments cannot be successively stacked to overcome the statutory time limit. An application must be made by a person with statutory standing and in accordance with the company’s internal allocation of powers.

Frontsouth (Witham) Ltd and its subsidiary, Bridge Hospital (Witham) Ltd, were placed into administration. The administrators obtained the necessary consent to extend Frontsouth’s administration, but failed to obtain the required written consent of a secured creditor of Bridge Hospital before the original term expired.

The administrators subsequently obtained a court extension on the assumption that the first extension had been valid. They applied for a further extension and sought waiver of the defect under rule 7.55 of the Insolvency Rules 1986, validation of their acts, or alternatively a fresh administration order with retrospective effect. The central issues were whether the defect could be waived, whether a fresh appointment could be backdated, and who had standing to apply.

1. The application concerning Frontsouth was granted. Its earlier extensions were valid and a final 12-month extension was appropriate.

2. The purported extension of Bridge Hospital’s administration by consent was invalid because the written consent of a secured creditor had not been obtained in time. Under paragraph 77(1)(b) of Schedule B1 to the Insolvency Act 1986, the court could not make an extension order after expiry of the administrators’ term.

3. Rule 7.55 could not cure the defect. Following Re G-Tech Construction Ltd [2007] BPIR 1275, Re Blights Builders Ltd [2006] EWHC 3549 (Ch) and Re Kaupthing Capital Partners II Master LP Inc [2010] EWHC 836 (Ch), the failure was fundamental rather than formal or irregular. No valid administration had continued, and the administrators had acted without authority since expiry. Any Companies Court practice purporting to waive such defects had no legal foundation.

4. A fresh court appointment could nevertheless be made retrospectively under paragraph 13(2) of Schedule B1. The court followed Re G-Tech Construction Ltd and Re Derfshaw Ltd [2011] EWHC 1565 (Ch) in treating a retrospective appointment of up to 364 days as available. Successive retrospective appointments could not be used to evade paragraph 77(1)(b), applying Re Kaupthing Capital Partners II Master LP Inc.

5. The administrators themselves lacked standing to apply. The Bank, as creditor, made the fresh application under paragraph 12(1)(c), and the court made an administration order backdated to 25 June 2010.

6. Where the company’s articles allocate management powers to the directors, the decision to place the company into administration is for the directors and cannot be taken by an ordinary shareholder resolution. The judge left open whether unanimous shareholders could take over management under Re Duomatic Ltd [1969] 2 Ch 365, or whether the administrators had become de facto directors. He provisionally considered that internal-management principles identified in Minmar (929) Ltd v Freddy Khalatschi [2011] EWHC 1159 (Ch) applied by analogy.

First-instance decision. No appellate history is stated in the judgment.