Strategic Advantage SPC v Rutter & Ors (Rev 1)

Failure by directors to give a qualifying floating charge holder the notice required by paragraph 26(1) of Schedule B1 to the Insolvency Act 1986 does not automatically invalidate an out-of-court administration appointment. The requirement is procedural. The court must consider the purpose of the requirement, the consequences of non-compliance and the statutory scheme as a whole. The breach is ordinarily an irregularity, subject to the categories identified in Re Skeggs Beef Ltd. The court may cure the breach by appropriate discretionary relief, including replacing administrators. The relevant considerations include substantial injustice, the commercial rationale for the relief, continuity of the administration and the statutory objectives of administration.

The applicant was a qualified floating charge holder in respect of Tokenhouse VB Ltd. The company’s directors appointed administrators without giving the applicant the five business days’ notice required by paragraph 26(1)(b) of Schedule B1 to the Insolvency Act 1986.

The court had already ordered that the purported administration cease and that a court-appointed administration begin. It had to decide whether the original appointment was void and, if not, whether the breach should be remedied by replacing the administrators with nominees of the applicant.

1. The appointment was not void. The court followed the statutory-interpretation approach in Re Ceart Risk Services Ltd and Re Euromaster Ltd: the question was whether Parliament intended non-compliance to produce total invalidity, assessed by identifying the purpose of the requirement and the consequences of breach.
2. Paragraphs 26–32 of Schedule B1 prescribe procedural requirements for exercising the power to appoint. They do not define the existence of that power. A breach therefore naturally falls to be treated as an irregularity, although the categorisation remains fact-sensitive and is governed by the three categories identified in Re Skeggs Beef Ltd.
3. The notice protects the chargeholder’s opportunity to appoint its own administrator, agree the nominee or seek directions. Nevertheless, automatic invalidity would potentially jeopardise the statutory objectives of administration and could produce a disproportionate result. Administrators are licensed, independent officers of the court, and the court retains supervisory powers. These features supported treating the breach as an irregularity rather than an incurable nullity.
4. The case fell within the second Re Skeggs Beef Ltd category: the defect was not fundamental and did not require automatic invalidity. The presumptions of validity in section 232 of the Insolvency Act 1986 and paragraph 104 of Schedule B1, together with Rule 12.64 of the Insolvency Rules 2016 and CPR Rule 3.10, supported that conclusion where applicable. Re G-Tech Construction Ltd was not followed.
5. The court had power to remedy the breach by replacing administrators. The breach was an important factor with considerable weight, but the court had to consider all relevant circumstances, including the proper operation of the administration, justice between interested parties, continuity, cost, commercial rationale and any conflict of interest. Improper motive, if established, would be relevant but would not itself determine the remedy.
6. The court replaced the original court-appointed administrator with the applicant’s second nominee, alongside the applicant’s first nominee, subject to satisfaction of the statutory appointment requirements.

First-instance decision. The judgment states that it did not resolve the conflict between High Court Judge-level authorities and directed that any future case requiring resolution of that conflict should be listed at High Court Judge level.