Sophie Rebecca Perhar v Louise Freestone & Ors (Re The Sustainable Bathroom Company Ltd)

A defective debenture may nevertheless support the appointment of administrators where the court can imply an omitted enforceability term. The term must be necessary to give the security document business efficacy, the omission must have been inadvertent, and the parties must have agreed the provision had it been identified when contracting.

A premature appointment caused by defective notice may be a procedural irregularity capable of cure. Insolvency proceedings are not invalidated by a formal defect or irregularity unless substantial injustice has been caused and cannot be remedied. The court must distinguish fundamental defects from curable procedural defects and assess the purpose and consequences of non-compliance.

Sophie Perhar, the sole shareholder and director of The Sustainable Bathroom Company Ltd, challenged Synergy in Trade Ltd’s appointment of administrators following a breakdown in the company’s financing arrangements. She sought declarations that the administration and appointments were nullities, together with relief under Schedule B1 to the Insolvency Act 1986.

The issues directed for determination were whether the floating charge was enforceable when the administrators were appointed and whether defects in the appointment notice and supporting documentation were fatal or capable of cure. The alleged defects included the absence of an express enforceability provision, premature action after demand, an incorrect article 1.2 undertaking statement, failure to include a paragraph 100(2) statement, and remote execution of a statutory declaration.

1. Enforceability of the floating charge. The facility and debenture formed part of a single contractual arrangement. The company had breached the trust and designated-account provisions, and Synergy had a debt due and payable. Although the debenture did not expressly state when the floating charge became enforceable, the omission made the debenture incomplete and commercially incoherent. The court therefore implied an enforceability term to give the security business efficacy. It was necessary to do so, the omission was inadvertent, and the parties would have agreed the term had the omission been identified at the time of contracting.
2. Demand and notice. Money repayable on demand had to be ready for payment when demanded. However, the debenture’s notice provisions did not expressly permit email. Applying the approach in United Trust Bank Ltd v Dohil, the court treated the permitted method as non-exclusive in the circumstances. The notice had been received, and there was no realistic prospect that the company could have paid even if the prescribed method had been used. The premature appointment was therefore not fatal.
3. Procedural defects in the appointment. The court adopted the framework in Re Zoom UK Distribution Limited (In Administration) and Re Skeggs Beef Ltd. The question was whether Parliament intended non-compliance to invalidate the appointment, assessed by examining the purpose of the requirement and the consequences of breach. Fundamental defects render an appointment a nullity; non-fundamental defects causing no substantial injustice do not invalidate it; and defects causing substantial injustice may be cured where an appropriate remedial order is available.
4. The incorrect article 1.2 undertaking statement was procedural and did not determine jurisdiction. The absence of a paragraph 100(2) statement was also procedural. Until the statement was filed, the joint administrators were presumed to act jointly, and no substantial injustice had resulted. The remote statutory declaration complied with the temporary practice direction and caused no injustice.
5. The application accordingly failed on both issues. The floating charge was enforceable at the date of appointment, and the defects in the appointment documentation were not fatal.