Pui -Kwan v Kam-Ho & Ors

An attempted appointment of an administrator by directors is a nullity where the directors’ meeting is inquorate under the company’s constitution. The insolvency rules governing formal defects cannot validate an appointment where no qualifying decision of the directors, and therefore no insolvency proceedings, ever came into existence.

Where an administrator sends a conversion notice under paragraph 83 of Schedule B1 before the expiry of the appointment, the conversion provisions are triggered even if the Registrar receives the notice after expiry. The administration is impliedly extended until registration, allowing a seamless transition to creditors’ voluntary liquidation.

The applicant, a director and shareholder of Melodious Corporation, sought declarations concerning the company’s status and the destination of money held in a stakeholder account. The company was registered in England as a branch of a British Virgin Islands company.

The applicant contended that the purported appointment of the fourth respondent as administrator was invalid because only one of the company’s two directors attended the relevant meeting, contrary to the articles’ quorum requirement. She also disputed whether a conversion notice had been sent and received before the administrator’s one-year term expired.

The central issues were whether Melodious had entered administration or liquidation and what legal consequences followed from the attempted conversion.

1. Appointment invalid. The court found that only one of Melodious’s two directors attended the meeting on 29 October 2007. The articles required both directors for a quorum. The purported resolution under paragraph 22(2) of Schedule B1 was therefore invalid and the company was never placed in administration.

2. Rule 7.55 unavailable. Rule 7.55 of the Insolvency Rules 1986 applies to insolvency proceedings affected by a formal defect or irregularity. It cannot apply where an essential precondition to the appointment was absent and the purported appointment was a nullity. The court followed the analysis in Re Frontsouth (Witham) Ltd [2011] EWHC 1668 (Ch) and agreed with the approach in Re Euromaster Ltd [2012] EWHC 2356 (Ch). The reasoning in Minmar (929) Ltd v Khalastchi [2011] EWHC 1159 (Ch) supported the conclusion that a decision must comply with the company’s internal management rules.

3. Conversion notices. For completeness, the court held that paragraph 83(6) of Schedule B1 is triggered where a conversion notice is sent before the administrator’s term expires, even if receipt by the Registrar occurs later. That construction accords with the literal wording of the provision, avoids dependence on postal or administrative delays, and facilitates a simple and seamless conversion from administration to liquidation.

   The court agreed with the reasoning in Re E Squared Ltd [2006] EWHC 532 (Ch) and Re Property Professionals Ltd [2013] EWHC 1903 (Ch). It explained that Globespan Airways Ltd [2012] EWCA Civ 1159 decided that conversion takes effect on registration and that an administrator’s appointment is generally extended until then, but did not expressly decide the precise issue of a notice sent before expiry but received afterwards.

4. Orders. Melodious had never entered administration or liquidation. Transfer of the stakeholder money was not precluded by any administration or liquidation of the company.