INSOLVENCY PRACTITIONERS can breathe a sigh of relief following the outcome of a recent High Court case, which found their appointment could not be rendered invalid simply because insufficient notice has been given to a company. Despite this ruling practitioners should, as a matter of good practice, still serve notice.
As part of the Insolvency Act, a person proposing to appoint an administrator to the business is required to give five business days' written notice. However, the act stops short of elaborating on what form or timing notice is required or, importantly, the consequences of failing to give that notice. Prior to the ruling, case law was unsuccessful in establishing whether a failure to give notice to the company would be sufficient to render the administrator's appointment invalid.
In order to clarify whether failing to give ‘notice of intention' to the company prior to their appointment was sufficient to render the appointment invalid, a test case was brought by law firm Shakespeares on behalf of PwC administrators of charity BXL Services. In his ruling, Justice Purle found it should not.
This decision brings to an end to two years of turmoil caused by a series of conflicting judgments.
Insolvency professionals have effectively been on tenterhooks waiting for this High Court judgment and will be pleased with the final outcome. In his ruling, Justice Purle confirmed the appointment of administrators cannot be challenged simply on the grounds of a failure to give notice to the company. If it had turned out differently, the practitioners could have faced a raft of claims from various parties involved in past and present administrations on the grounds their appointment was invalid.
In this case, board minutes had confirmed the directors of BXL Services gave their consent to appoint administrators. However, due to a lack of time, no formal notice was served on the company and, once appointed, the administrators asked Shakespeares to seek court declaration to confirm their appointment was valid.
Time is of the essence in these situations and it is important to act quickly. For that reason, it is good news that the judge has determined a failure to provide notice of intention to the company, or other parties, should not automatically invalidate the administrator's appointment.
While the recent ruling is significant for insolvency practitioners, there still remains an amount of conflicting case law around the appointment of administrators that may only finally be put to bed when a case of this type reaches the Court of Appeal.
Andrew Taylor is a partner and insolvency law expert at Shakespeares
Not sure practitioners can heave any sighs in view of the conflicting High Court decisions which continue to come out. Purle J. comes down in favour of validity here but Msaada (Dec 2011) and Virtualpurple (the same day) by Norris J and Warren J. came to opposite views. Appeals anyone... Meanwhile make sure you dot the i's and cross the t's
Posted by: Frances Coulson, Moon Beever, 02 Aug 2012 | 16:13
Frances, my reading of the judgement by Purle J. was that, now that the various conflicting court decisions have been considered fully by the Court in Re Ceart Risk Services, that effectively resolves the issue at first instance. I appreciate that, at some point, this issue is likely to find itself before the Court of Appeal but, until that time, the first instance courts are bound by this decision.
Posted by: Carl Mifflin, 15 Aug 2012 | 14:58
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.