James Borg-Olivier v Andrew Knowles & Ors

An administrator cannot be appointed under paragraph 14 of Schedule B1 to the Insolvency Act 1986 while the floating charge relied upon is unenforceable. A debt may be discharged by a third party where the payment is made as agent for, and on behalf of, the debtor with prior authority or subsequent ratification. Payment into the creditor’s nominated bank account is effective where the funds are received and retained, even if the creditor initially queries the payer’s identity. The company’s solvency does not invalidate an appointment otherwise supported by an enforceable floating charge.

The applicant, a director and 75 per cent shareholder of Impactt Properties Limited, challenged the purported out-of-court appointment of joint administrators by Goldcrest Finance Limited under paragraph 14 of Schedule B1 to the Insolvency Act 1986. He sought declarations that the appointment and administration were nullities, repayment of monies received by the administrators, and an indemnity order.

The challenge turned on whether the secured debt had been repaid before the appointment. Part of the repayment was made by Newsham Park Estates Limited on Impactt’s behalf. Goldcrest questioned the source of those funds but retained them until after the administrators were appointed. The central issue was whether the floating charge remained enforceable at the date of appointment.

1. Standing and nature of application. The application sought a declaration that the appointment was invalid because paragraph 16 of Schedule B1 prohibited appointment under paragraph 14 while the floating charge was unenforceable. It was not an application to remove administrators under paragraph 88. The applicant had standing as a director and substantial shareholder acting with the authority of the other director, consistently with the approach discussed in Minmar (929) Limited v Khalastchi.
2. Third-party payment. The court accepted the principle stated in Chitty on Contracts that a third party who pays as agent for and on account of the debtor, with prior authority or subsequent ratification, can discharge the debt. The £320,000 transfer was made by Newsham Park Estates Limited as Impactt’s agent and with Impactt’s authority. The remaining sums had also been paid, so the full amount demanded had been received into Goldcrest’s nominated bank account.
3. Effect on enforceability. Goldcrest’s investigation into the payer’s identity did not prevent payment from taking effect. The funds were not returned before the appointment and remained in Goldcrest’s possession. Accordingly, the floating charge was unenforceable when the administrators were purportedly appointed. Paratus AMC Limited v Fosuhene was of no assistance because it concerned whether accepting payments constituted a tenancy or created an estoppel, not whether a third party had discharged a debt.
4. Disposition. Paragraph 16 rendered the appointment ineffective. The court declared that the appointment was invalid and that Impactt had not been validly placed into administration.

First-instance decision on an originating application in the High Court. No prior appellate decision is stated in the judgment.