Gregory & Ors v A.R.G. (Mansfield) Ltd

This case concerned the effect of the directors' purported out-of-court appointment of administrators for a company regulated by the Financial Conduct Authority where FCA consent had not been appreciated or obtained prior to the appointment. The judge held that section 362A FSMA 2000, when read with the provisions of Schedule B1 to the Insolvency Act 1986 and the Insolvency Rules 2016, requires regulator consent to be obtained and filed by the time the notice of appointment becomes effective; retrospective consent does not retrospectively validate an appointment that is otherwise a nullity. The judgment applied the approach in R v Soneji to determine whether non-compliance with statutory requirements produces automatic invalidity or merely a curable procedural irregularity and reviewed the scope of paragraph 104 Schedule B1 and rule r12.64 IR 2016. On the facts the court (on the basis of the parties' agreed practical outcome) made an administration order back-dated to the date of the original appointment and, as an alternative and without prejudice, removed the administrators insofar as their appointment had been valid but irregular.

Background and facts.

The company, A.R.G. (Mansfield) Limited, a building contractor, was placed into administration by directors' appointment in January 2020. At the time the directors and proposed administrators did not appreciate that the company was registered on the FCA register as an appointed representative under a slightly different name variant, so FCA consent was not obtained before the appointment. The administrators acted and produced a creditors' report; later searches revealed the FCA registration and the administrators sought retrospective consent from the FCA, which was given by letter dated 5 March 2020 but expressly only from that date.

Nature of the application. The applicants sought relief to regularise the position of the administrators. The principal remedies considered were (i) validation of the administrators' acts under paragraph 104 Schedule B1, (ii) cure of any procedural defect under r12.64 IR 2016, and (iii) a court appointment of administrators with retrospective effect to the date of the original purported appointment.

Issues framed.

• Whether section 362A FSMA 2000 requires FCA consent to be obtained and filed before a directors' appointment of administrators becomes effective.
• If that requirement was breached, whether the breach rendered the appointment a nullity or was a curable procedural irregularity (applying the Soneji approach to statutory non-compliance).
• Whether paragraph 104 Schedule B1 or rule r12.64 IR 2016 could validate the administrators' acts taken prior to any filed consent.
• Whether the court has jurisdiction and should exercise the discretion to make an administration order retrospectively.

Reasoning and conclusions.

The court analysed the statutory architecture: Schedule B1 (paragraphs 22, 26–31, 44 and 104) and s362/362A FSMA 2000 together with relevant Insolvency Rules. The judge concluded that the legislative scheme requires FCA consent in writing (section 362A) to be filed with the court at the latest by the time the notice of appointment is filed and the appointment becomes effective. The Soneji approach was applied to ask whether Parliament intended non-compliance to produce total invalidity; the judge considered the FCA consent requirement to be a condition defining when the power to appoint arises rather than a mere procedural formality. Consequently, failure to obtain and file FCA consent prior to the appointment will, in principle, render a directors' appointment a nullity rather than a merely curable irregularity. The court observed conflicting authorities (notably Re M.T.B. Motors and Re Ceart) and reviewed the jurisprudence on paragraph 104 and r12.64, stressing that routine validation without scrutiny is undesirable where regulatory consent is designed to protect public and creditor interests.

Outcome on the facts. Although the judge considered the appointment to be, in law, a nullity (an obiter view given the form of orders ultimately made), the court found that the statutory conditions for a court appointment were met and, exercising its discretion, made an administration order back-dated to the date of the original purported appointment. The order also provided that, insofar as the original appointment was only irregular and not void, the administrators be removed from office under that appointment.

The court made an administration order back-dated to the date of the original purported appointment of administrators and, alternatively, removed the administrators insofar as their original appointment was only irregular. The judge concluded (obiter) that section 362A FSMA 2000 requires written FCA consent to be obtained and filed by the time a directors' appointment becomes effective and that failure to obtain and file such consent ordinarily renders the appointment a nullity. Applying the Soneji approach and having reviewed paragraph 104 Schedule B1 and r12.64 IR 2016, the court exercised its discretion to regularise the position by a retrospective court appointment; validation of the administrators' earlier acts was approached with caution and the FCA's limited retrospective consent did not amount to a full ratification of prior acts.