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

For an out-of-court administration, written consent from the appropriate financial regulator must be obtained and lodged by the filing of the notice of appointment. Retrospective consent does not itself satisfy that requirement. The requirement concerns the circumstances in which the power to appoint arises, rather than a merely procedural step, so breach may render the appointment a nullity. The consequence of non-compliance depends on statutory construction, having regard to legislative purpose and the practical consequences of breach. Where an appointment is invalid, the court may make a retrospective administration order if the statutory conditions are satisfied at the hearing and retrospective relief is appropriate. Such an order does not necessarily ratify every intervening act.

The directors of an FCA-regulated company purported to appoint administrators without first obtaining the FCA’s consent under section 362A of the Financial Services and Markets Act 2000. The company had been recorded on the FCA register under a version of its name which omitted punctuation, and the need for consent was overlooked. The FCA later gave consent, expressly limited to the date of its letter and without ratifying earlier acts.

The directors applied for a retrospective administration order. The court considered the timing and filing requirements, the effect of breach, the possible validation of acts under Schedule B1 to the Insolvency Act 1986, and the jurisdiction to make a retrospective order.

1. Order. A retrospective administration order was made, appointing the persons who had purported to act as administrators from the date of their original purported appointment. If that appointment was valid despite the defect, they were removed from office under the order, with their consent.
2. Statutory requirement. Section 362A of the Financial Services and Markets Act 2000, read with paragraph 29 of Schedule B1 to the Insolvency Act 1986, required written consent from the appropriate regulator to be obtained and lodged no later than the filing of the notice of appointment. The judge did not decide whether consent had to be obtained or filed earlier. Retrospective consent was not contemplated as satisfying the statutory requirement.
3. Effect of breach. The former mandatory-directory distinction was not the governing analysis. Applying the approach in R v Soneji, the court had to construe the legislation by reference to its purpose and the practical consequences of non-compliance. Requirements defining the circumstances in which the power to appoint arose were fundamental and breach was more likely to produce a nullity. Procedural defects were more likely to be irregularities capable of validation under rule 12.64 of the Insolvency (England and Wales) Rules 2016. The conclusion that the FCA-consent defect made the purported appointment a nullity was expressly obiter.
4. Regulatory purpose. Regulator consent enabled the regulator to vet proposed administrators, consider whether the statutory purpose of administration was likely to be fulfilled, and draw attention to obligations applying to regulated companies. Later consent could leave the regulator faced with a fait accompli after important decisions had been taken.
5. Retrospective relief. The jurisdiction to make retrospective administration orders had been exercised consistently for many years. The statutory conditions for an administration order were satisfied at the hearing, administration remained beneficial for creditors as a whole, the breach was inadvertent, and no specific prejudice was identified.
6. The retrospective order treated the relevant acts and decisions as having been undertaken as administrators. It did not determine that every act or decision had been correctly made or amount to general ratification.