Wessely & Anor (Zoom UK Distribution Ltd) v Rubra & Ors

Non-compliance with the notice requirement in paragraph 26(1)(b) of Schedule B1 to the Insolvency Act 1986 does not necessarily invalidate an out-of-court appointment of administrators. The court must identify the purpose of the breached requirement and then assess the consequences Parliament intended to attach to non-compliance. A failure to notify a qualifying floating charge holder may be a procedural irregularity rather than a nullity, particularly where the defect causes no substantial injustice and can be cured. Paragraph 104 of Schedule B1 validates acts done by an administrator whose appointment is defective, but not acts following a legally null appointment. The court granted declarations validating the administrators’ appointment and acts, and ordered the directors to bear the relevant costs.

The joint administrators of Zoom UK Distribution Ltd applied under paragraph 63 of Schedule B1 to the Insolvency Act 1986 for declarations that their appointment on 5 May 2020 was valid despite the directors’ failure to give Lloyds the notice required by paragraph 26(1)(b), and that their acts were valid. Alternatively, they sought an indemnity from the directors.

The directors supported that application and separately sought a retrospective administration order if the appointment was invalid. Lloyds did not oppose the declarations. The central issue was whether the failure to give notice made the appointment void or merely defective and capable of cure.

1. The Directions Application was granted. The administrators’ appointment on 5 May 2020 was valid, and their acts since that date were valid. The Indemnity Application and, except as to costs, the Retrospective Administration Order Application were unnecessary to determine.

2. The court followed the statutory-construction approach in Soneji (Kamlesh Kumar) [2005] UKHL 49: the question is whether Parliament intended non-compliance to produce invalidity. That requires identification of the purpose of the requirement and assessment of the consequences of breach.

3. The failure to give notice under paragraph 26(1)(b) was not a fundamental defect. Applying the reasoning adopted in Tokenhouse VB Ltd (formerly VAT Bridge 7 Ltd) [2021] BCC 107, the breach fell within the category of a non-fundamental breach causing no injustice. The appointment was therefore defective but not a nullity, and the defect was curable.

4. Paragraph 104 of Schedule B1 validates an administrator’s acts despite a defect in appointment or qualification, but does not validate acts where the purported appointment was a nullity. Rule 12.64 of the Insolvency (England and Wales) Rules 2016 likewise prevents insolvency proceedings being invalidated for a formal defect or irregularity unless substantial injustice has occurred and cannot be remedied.

5. The directors’ inadvertent failure caused the proceedings. Following Adjei v Law for All [2011] EWHC 2672 (Ch), the directors were ordered to bear the costs of the Directions Application and the Retrospective Administration Order Application. Permission to appeal the costs orders was refused because there was no real prospect of success.

First-instance decision. The judgment records no prior appellate decision in this dispute.