Business Dream Ltd, Re Insolvency Act 1986

Where a company files a notice of intention to appoint an administrator, the interim moratorium under Schedule B1 takes effect even though a winding-up petition is pending, provided the notice is not an abuse of process. A pending petition prevents the out-of-court appointment itself; it does not prevent filing the notice. The court may strike out an abusive notice, but such relief will not retrospectively validate a winding-up resolution passed during the moratorium. The court may also permit withdrawal of the notice. Until then, a members’ resolution for voluntary liquidation is invalid and the court has no jurisdiction under section 166 to sanction the purported liquidator’s acts.

Christopher Brooksbank applied as purported liquidator of Business Dream Ltd for sanction under section 166 of the Insolvency Act 1986 to sell company assets to a new company controlled by a former director and to disclaim leases.

A winding-up petition had been presented before the directors filed a notice of intention to appoint Mr Brooksbank as administrator. The members subsequently resolved to enter creditors’ voluntary liquidation before the 10-business-day period following filing of the notice had expired. The central issues were whether the notice created an interim moratorium, whether the liquidation resolution and appointment were valid, and whether the court could sanction the proposed sale and disclaimer.

1. Appointment invalid. Filing the notice under paragraph 27 of Schedule B1 to the Insolvency Act 1986 brought the interim moratorium under paragraph 44 into effect. It continued until the administrator’s appointment took effect or the paragraph 28(2) period expired. During that period paragraph 42 prevented a resolution for winding up.
2. A pending winding-up petition made an out-of-court appointment under paragraph 22 unavailable under paragraph 25, but did not prevent the company from filing a paragraph 27 notice. The notice was not an abuse merely because the petition had been presented, since the directors were unaware of it, genuinely intended to appoint an administrator and had complied with the formal requirements.
3. The court recognised an inherent power to strike out a paragraph 27 notice where it was filed without a genuine intention to appoint, or otherwise to obtain the moratorium abusively. Even if the notice were struck out, the relief would not retrospectively validate the winding-up resolution passed during the moratorium. A filed notice was not a nullity merely because a petition was pending.
4. The members’ resolution and purported liquidator’s appointment were therefore invalid. There was no jurisdiction under section 166(2) to sanction the disposal of assets. The judge indicated that the directors, rather than the purported liquidator, should apply to withdraw the notice. If withdrawn, the moratorium would end and a valid voluntary liquidation resolution and the section 98 creditors’ meeting could proceed.
5. The observations on the proposed sale and disclaimer were expressly obiter. Section 166(2) protects creditors before the section 98 meeting. Consent by the creditor with the greatest financial interest would be a powerful reason to sanction an urgent transaction, absent a relevant connection with the old or new company. The proposed sale nevertheless raised concerns because it transferred assets to a former director’s new company at a low price on weak valuation evidence.