Validity of administration appointments – Law now settled?

In BXL Services, an English High Court decision of 10 July 2012, Judge Purle has stated

Blog by Gordon Hollerin.

that it is now “settled law” that a failure by directors to notify the Company of their intention to appoint administrators does not result in the appointment being invalid

BXL is the latest in a series of High Court decisions, some of them reaching contradictory conclusions, on whether a failure to comply with the requirement for notice of intention to appoint administrators to be given by the directors to the Company itself and to various other parties set out in the Rules invalidated an administration appointment

In BXL Services the directors of a charitable company limited by guarantee resolved to appoint administrators. There was no floating charge holder. So there was no party entitled to appoint an administrative receiver or administrator and upon whom a notice of intention to appoint administrators had to be given in terms of the Act. The Rules also prescribe that other parties, including the Company itself, are to be given notice. This didn’t happen, no doubt because the directors regarded it as unnecessary to notify their Company when they were making the appointment.

In some previous cases such as National Westminster Bank v Msaada Group and Minmar (929) Ltd v Khalatschi such an omission had been held to be fatal to the appointment. However in a decision issued in May 2012 – Re Ceart Risk Services Ltd – Judge Arnold had considered the previous decisions and nonetheless decided that failure to give notice to the FSA (in circumstances where notice was required to be given to it) had not invalidated the appointment

Judge Purle in BXL Services described the judge’s decision in Ceart Risk Services as a choice to adopt a purposive rather than literal approach and went on to say that “it is that choice which must now be taken to settle the law at first instance”

The case decides that in these circumstances a Court can declare the administration appointment valid not that notice on the Company is not required. The decision will be welcomed by most but it remains the case that even where there is no floating charge holder it is appropriate for notice of intention to appoint to be given to the Company and any other party (such as the FSA) on whom notice might be prescribed in the circumstances”

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