Gaardsoe v Optimal Wealth Management

Proceedings issued against a company in administration without the required permission are not a nullity. They exist, but remain suspended and cannot be pursued during the administration unless permission is obtained. The inhibition ends when the administration ends, so the proceedings may then continue. Alternatively, the court retains jurisdiction to grant retrospective permission after the administration has ended. That jurisdiction is exceptional and discretionary. Section 130(2) of the Insolvency Act 1986 does not apply to a voluntary winding-up.

The claimant sought permission under the Insolvency Act 1986 to pursue negligence and breach of contract proceedings against the defendant, a company which had entered administration after the claim form was issued. The claimant sought to establish liability so as to pursue the company’s insurance under the Third Parties (Rights Against Insurers) Act 1930.

The defendant contended that the proceedings were a nullity because they had been instituted without the permission required by paragraph 43(6) of Schedule B1 to the 1986 Act. It also argued that retrospective permission could be granted only while the company remained in administration, and that delay justified refusal. By the hearing, the administration had ended and the company was in creditors’ voluntary liquidation.

1. Nature of the proceedings. Proceedings instituted against a company in administration without prior permission under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 are not a nullity. They are existing proceedings capable of being validated by late permission. The court applied the reasoning in In re Saunders (a bankrupt) [1997] Ch 60 and accepted the corresponding reasoning in Carr v British International Helicopters Ltd [1993] BCC 855.
2. The prohibition on continuing proceedings during administration operates by suspending them. It does not retrospectively invalidate proceedings. Once the administration ends, the inhibition on prosecution ends.
3. Section 130(2) of the 1986 Act does not apply to a voluntary winding-up. Proceedings may continue without permission under that subsection. A stay may instead be sought through sections 112 and 126.
4. Alternatively, the court has jurisdiction to grant retrospective permission after the administration has ended. Paragraph 43(1) of Schedule B1 defines the paragraph’s ambit but imposes no temporal limit. The discretion was exercised in the claimant’s favour because the delay was explained, the claimant had not known of the administration when proceedings were issued, and no prejudice was shown. Concerns affecting other creditors could be addressed by an application for a stay.

Retrospective permission was granted.