Re Ceart Risk Services

The court considered whether an appointment of administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986 made without the prior consent of the Financial Services Authority (FSA) under section 362A of the Financial Services and Markets Act 2000 was incurably invalid or a curable defect. Applying the statutory wording and a purposive approach to construction (following the approach in R v Soneji), the judge held that failure to obtain prior consent did not necessarily render an appointment incurably invalid; the defect could be cured by subsequent written consent of the Authority.

The court concluded that, because paragraph 31 of Schedule B1 makes the appointment effective when the requirements of paragraph 29 are satisfied and section 362A(4)(b) requires the FSA's written consent to be filed with the court where section 362A applies, an appointment in such a case takes effect when the FSA's written consent is filed with the court. The court further held that paragraph 104 of Schedule B1 validated acts done by the administrators between the defective appointment and the date when the consent was filed, and therefore those acts were valid.

This was a first-instance application by the sole shareholder/director (Peter Bootes) and two administrators (Jeremy Frost and Stephen Wadstead) of Ceart Risk Services Ltd for declarations concerning the validity and effect of the administrators' appointment. The Company was an FSA-authorised insurance intermediary. On 19 January 2012 the Company resolved to appoint administrators under paragraph 22 of Schedule B1; no FSA consent under section 362A FSMA 2000 was obtained or filed at that time.

The FSA subsequently wrote requesting information and inviting the administrators to seek its consent; the administrators supplied the information and received written consent from the FSA on 8 February 2012. The administrators entered into a sale agreement on 9 February 2012. The FSA's written consent was later filed at Croydon County Court (the judgment notes the filing occurred but the evidence did not establish the exact filing date).

The applicants sought (i) a declaration that the administrators were validly appointed notwithstanding the absence of prior FSA consent, or alternatively that the appointment took effect on the date of the FSA's consent, (ii) a declaration under paragraph 104 of Schedule B1 validating acts done before the appointment became effective, and (iii) alternatively a retrospective appointment. The principal issues framed by the court were (a) whether the absence of prior FSA consent rendered the appointment incurably invalid or merely defective and curable, (b) if curable, the date on which the appointment took effect (date of purported appointment, date of FSA consent, or date the consent was filed with the court), and (c) whether paragraph 104 validated acts done before the appointment became effective.

The court applied a purposive construction, emphasising the regulatory purpose of section 362A to enable the FSA to vet proposed administrators and the consequences of non-compliance. The judge concluded that Parliament did not intend prior consent to be an absolute condition making an appointment incurably invalid; rather, the defect was capable of cure by subsequent written consent. The court held that, by reason of paragraph 31 of Schedule B1 read with paragraph 29(1)(b) and section 362A(4)(b), the appointment takes effect when the FSA's written consent is filed with the court (assuming the notice of appointment had already been filed). Having found the defect curable and the appointment effective upon filing of the consent, the court held that paragraph 104 validated the administrators' acts done between the defective appointment and the filing of the consent. As a result a retrospective appointment order was unnecessary.

This first-instance court declared that the administrators' appointment took effect when the FSA's written consent was filed with Croydon County Court and that, notwithstanding the defect in the appointment on 19 January 2012, the administrators' acts between that date and the date when the FSA's consent was filed with the court were valid. The rationale was that failure to obtain prior FSA consent under section 362A FSMA 2000 constitutes a curable defect and, under paragraph 31 read with paragraph 29(1)(b) and section 362A(4)(b), the appointment becomes effective when the consent is filed; paragraph 104 then validates acts done during the interim.