National Westminster Bank Plc v Msaada Group (a firm) & Ors

For an out-of-court appointment of an administrator to a partnership, the notice requirements in paragraph 26 of Schedule B1 to the Insolvency Act 1986 must be read with the prescribed requirements in Rule 2.20 of the Insolvency Rules 1986. Notice must be given to the prescribed persons even where no notice is required under paragraph 26(1). Compliance with paragraph 26(2) is also required by paragraph 28, so failure to notify a voluntary arrangement supervisor invalidates the appointment.

When choosing between competing administrators, the court must assess the statutory objectives, the realism of each proposed strategy, the quality of the proposed investigations and the interests of creditors. The statutory hierarchy of objectives does not require appointment of the nominee pursuing the first objective if that approach is unrealistic.

National Westminster Bank plc, a substantial creditor of an insolvent partnership operating care homes, challenged the out-of-court appointment of Gordon Craig as administrator. The appointment had been made by the partners without prior notice to the joint supervisors of a partnership voluntary arrangement.

The Bank sought a declaration that the appointment was invalid and, alternatively, an administration order appointing its nominees. The central issues were whether Rule 2.20(2) required notice to the supervisors under paragraph 26(2) of Schedule B1, whether paragraph 28 made that requirement a condition of validity, and which proposed administrators should be appointed.

1. The appointment was invalid. Rule 2.20(2) of the Insolvency Rules 1986 prescribes both the persons to be notified and the notice for the purposes of paragraph 26(2) of Schedule B1. It applies even where paragraph 26(1) does not require notice to a qualifying floating charge holder or another person. The word “also” does not make service conditional on notice under paragraph 26(1).
2. Paragraph 28(1), read with paragraphs 26 and 27, prevents an appointment unless the requirements of paragraph 26 have been satisfied. The reference to paragraph 26 is not confined to paragraph 26(1). The parenthetical wording in paragraph 30 and defects in the prescribed forms could not displace the clear statutory language. The failure to notify the voluntary arrangement supervisors therefore invalidated the appointment.
3. The court declined to follow Hill v Stokes plc [2011] BCC 473. The reasoning based on the purpose of notice, the prescribed forms, flexibility and proportionality did not justify reading paragraph 28 down. The court concurred with the construction indicated in Minmar (929) Ltd v Khalatschi [2011] EWHC 1159 (Ch); [2011] BCC 485.
4. The partnership was unable to pay its debts on a cash-flow basis, satisfying the relevant requirement for an administration order. In selecting administrators, the court had to conduct a balancing exercise. The statutory preference for rescuing the partnership as a going concern did not require appointment of a nominee whose refinancing strategy had no realistic evidential foundation.
5. The Bank’s nominees had a developed strategy, relevant experience, funding for continued operations and substantially better preparation. Mr Craig had conducted insufficient investigations, produced no credible refinancing proposal and had no articulated fallback strategy. The Bank’s nominees were appointed as administrators.