BXL Services, Re

The claim concerned whether directors’ out-of-court appointments of joint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986 were invalid because the directors did not give prescribed prior notice to the company under paragraph 26(1) and (2) of Schedule B1 and the Insolvency Rules 1986. The company, a charitable company limited by guarantee, was insolvent due to Government cuts and a large pension deficit; the directors resolved to appoint administrators on 23 January 2012 and confirmed consent to short notice, but no formal prescribed notice was served on the company.

The court held that, even if Schedule B1 required notice in a prescribed form to the company, the failure to give such notice did not invalidate the appointment. The judge followed the purposive approach adopted in Re Virtualpurple Professional Services Ltd and, more recently, Re Ceart Risk Services Ltd, preferring that line of authority over decisions which had held the omission fatal. A contrary earlier decision, Re M.T.B. Motors Ltd, was considered but the court regarded the more recent purposive decisions as settling the law at first instance.

This is a first instance application asking the court to determine the validity of a directors’ out-of-court appointment of joint administrators of a charitable company limited by guarantee under paragraph 22 of Schedule B1 to the Insolvency Act 1986. The company had become insolvent following Government cuts and an inherited pension deficit. The directors resolved on 23 January 2012 to appoint joint administrators; there was no person entitled to appoint an administrative receiver or an administrator under paragraph 14 who required notice, and the board resolution recorded the company directors' consent to short notice and to the appointment, but no formal prescribed notice was given to the company.

The principal issue was whether the failure to give prescribed prior notice to the company under paragraph 26(1) and (2) of Schedule B1 (and related provisions of the Insolvency Rules 1986) rendered the appointment void. The judge reviewed conflicting first instance authorities including Re Virtualpurple (Norris J) and National Westminster Bank plc v Msaada Group (Warren J), his own earlier decision in Re Assured Logistics Solutions Ltd, and later decisions including Re Ceart Risk Services Ltd (Arnold J) and Re M.T.B. Motors Ltd (Judge Hodge QC). The court adopted a purposive construction of Schedule B1 and followed the reasoning in Virtualpurple as approved by Arnold J in Ceart Risk: omission to give prescribed notice to a prescribed party does not, in itself, invalidate a directors’ appointment of administrators. The court concluded that the appointment was valid and made a declaration to that effect. The judgment notes the existence of conflicting authorities but treats the more recent purposive decisions as settling the law at first instance.

The court declared that the out-of-court appointment of joint administrators by the directors was valid. The judge followed the purposive construction of Schedule B1 and the reasoning in Re Virtualpurple and Re Ceart Risk, holding that the failure to give prescribed prior notice to the company did not invalidate the appointment.