Virtualpurple Professional Services Ltd, Re

Directors appointing administrators with immediate effect under paragraph 22 of Schedule B1 to the Insolvency Act 1986 do not have to give the company a separate prior notice of intention to appoint where no qualifying chargeholder is entitled to that notice. The references in paragraph 28 of Schedule B1 and Insolvency Rule 2.20 are read principally by reference to paragraph 26(1). In any event, failure to give such notice does not automatically make the appointment void. The court must consider the consequences of non-compliance and whether Parliament intended total invalidity. Where the directors’ knowledge is the company’s knowledge and their authority is undisputed, failure to notify the company will not invalidate the appointment.

Virtualpurple Professional Services Ltd traded as a software development company and was in significant financial difficulty. Its sole director resolved to appoint administrators immediately under paragraph 22 of Schedule B1 to the Insolvency Act 1986, using Form 2.10B. There were no qualifying floating chargeholders, and no separate notice of intention to appoint was given to the company.

The administrators and the director sought a declaration that the appointment was valid. The application arose against conflicting first-instance decisions, including Hill v Stokes Plc and Minmar (929) Ltd v Khalatschi. The issues were whether a separate notice was required and, if so, whether its omission invalidated the appointment.

1. Construction of the notice provisions. The references in paragraph 28 of Schedule B1 and Insolvency Rule 2.20 to paragraph 26 are references to paragraph 26(1), concerning persons entitled to appoint an administrative receiver or administrator. The statutory scheme, prescribed forms and immediate-notification provisions indicate that Form 2.8B is directed to cases where such a person is entitled to notice. Where no qualifying chargeholder exists and the appointment is immediately effective, the directors may appoint without giving the company a separate prior notice of intention.
2. Alternative conclusion on non-compliance. Even if notice to the company were required, the imperative language of Insolvency Rule 2.20(2) would not by itself make compliance a condition precedent to validity. The court must focus on the consequences of non-compliance and determine whether Parliament intended total invalidity. The absence of a prescribed minimum notice period, the knowledge-based nature of the obligation, and the statutory preference for facilitating business rescue all weighed against automatic nullity.
3. Application to the facts. The sole director’s knowledge was the company’s knowledge, and there was no doubt about her authority or any division between directors and shareholders. Failure to give notice effectively to herself of an immediate appointment, followed by formal notification by the administrators, did not invalidate the appointment.
4. The court aligned itself with Hill v Stokes Plc and respectfully disagreed with the contrary obiter observations in Minmar (929) Ltd v Khalatschi. It declared that the appointment of the administrators was valid. The costs of the applications were ordered to be paid as an expense of the administration, without prejudice to the creditors’ right of challenge.

First-instance decision. The judgment refers to related first-instance decisions, including Re Bezier Acquisitions Ltd, Hill v Stokes Plc and Minmar (929) Ltd v Khalatschi, but no appeal from the present proceedings is stated.