Assured Logistics Solutions Ltd & Anor, Re

Failure to give a prescribed notice in an out-of-court administration appointment does not necessarily make the appointment a nullity. Once the prescribed appointment form and documents have been filed and sealed, the appointment is valid unless the defect is shown to justify setting it aside. The court should consider all the circumstances, including prejudice and the constitutional validity of the directors’ decision. Where directors act properly as a board, the company is fully aware of and approves the appointment, and no prejudice is caused, failure to notify the company alone is insufficient. The court may also apply Rule 7.55 of the Insolvency Rules 1986 to an irregularity that is not fatal to the appointment.

The applications concerned out-of-court appointments of administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986. In one case the appointment was made by the sole director; in the other it was made by the directors. Neither company had a qualifying floating charge holder or an administrative receiver.

The applicants sought declarations that the appointments were valid, alternatively retrospective administration orders. The appointments were made without prior notice to the companies, but all directors participated in properly convened board meetings, the prescribed forms and documents were filed, and the appointments were sealed by the court. The central issues were whether notice to the companies was required under paragraph 26 and, if so, whether its omission invalidated the appointments.

1. The appointments were valid. The court made the declarations sought and found it unnecessary to consider retrospective administration orders.
2. The court considered the construction of paragraphs 26 and 28 of Schedule B1. The word “also” in paragraph 26(2), the absence of a prescribed notice period for additional recipients, and the prescribed forms suggested that the additional notice requirement might arise only where paragraph 26(1) was engaged. The judge did not decide the conflict between Minmar (929) v Khalastchi and Hill v Stokes Plc.
3. Following the second limb of Hill v Stokes Plc, the judge held that failure to give notice to an additional prescribed person was not necessarily fatal to an appointment. The court must consider all the circumstances when deciding whether to set aside the appointment or remove administrators. The completed appointment remained valid, and the burden lay on the challenger to show why it should be set aside. Failure to notify the company, where the directors acted as a board and there was no conceivable prejudice, was insufficient by itself.
4. Rule 7.55 could apply to an irregularity that was not necessarily fatal. A defect that prevented an appointment from ever coming into existence would create a nullity to which the rule could not apply. Here, however, insolvency proceedings existed and there was no prejudice.
5. The directors had acted constitutionally, the appropriate Form 2.10B and accompanying documents had been filed, and the court had sealed the notices. The requirements of paragraph 29 had therefore been complied with. Any possible inaccuracy in the statutory declarations was addressed by the statutory penalty regime and did not invalidate the appointments.

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