Out-Law / Your Daily Need-To-Know

English High Court allows administrator appointment without director quorum

Out-Law Legal Update | 16 Sep 2020 | 11:13 am | 2 min. read

The High Court in England and Wales has granted an order appointing administrators over nine companies despite there only being a sole director when the companies' articles required a quorum of two directors.

The judge warned of the perils of late applications as the companies were criticised for holding the court to ransom by demanding a hearing late in the evening on the day the application was filed.

There was an urgent hearing to appoint joint administrators over a group of nine companies, including Nationwide Crash Repair Centres Ltd (NCRC) which employed 2,890 people and provided central support services for the other companies.

The application was made by the sole director and it was arguable that under the companies' articles of association a quorum of at least two directors was required to appoint an administrator. The sole director was therefore unable to seek the appointment of an administrator. The shareholder who controls the companies was asked but declined to make the appointments. The shareholder also declined to amend the articles or appoint an additional director.

The Honourable Mr Justice Fancourt said that there was no doubt that the statutory conditions for appointing an administrator had been met. The companies were clearly balance sheet insolvent, and on the evidence provided to the court the figures demonstrated that an administration would provide a better return for the body of creditors as a whole or better likelihood of the realisation of assets for distribution to creditors.

Mr Justice Fancourt concluded that he was entitled to exercise his discretion to appoint the administrators. While the articles concluded that two directors were required, Mr Justice Fancourt considered that each director of a company, including a single director, owed a duty to the company and its creditors to cease trading if insolvent and instigate the appropriate insolvency process. It therefore followed that the sole director must be entitled to apply to the court for such relief.

Mr Justice Fancourt said that the most important factor in making the order was the preservation of 2,350 jobs.

The judge did describe the conduct of the case as "wholly unacceptable" because of the late request for an urgent hearing.

Agreeing commercial terms and making appointments of administrators often happens very close to deadlines, as happened in this case. But the conduct of the parties in this case led to a strong rebuke from the judge.

At 7:52pm on 3 September the companies asked for an urgent hearing that evening but were told the hearing would happen the next morning at 10am. The companies then said that that they had been informed that the deal would fall through if not concluded before midnight on 3 September, so a telephone hearing was conducted that evening.

It emerged at that hearing, though, that the deadline had been known for some days and had not just come to light.

The judge said: "it was wholly unacceptable for clients and lawyers and other professionals acting for them to negotiate terms that have the effect of presenting the court with an artificial ultimatum and require important matters affecting the livelihoods of thousands of people to be decided under undue pressure of time".

He stressed that the court was not there to merely "rubber stamp" matters. Instead the court had the duty to allow time to conduct a fair hearing. This time was not to be abridged solely to accommodate the applicant's preferences.

The judge's comments emphasise that caution should be exercised when applying for a last minute application.

Daniella Thompson is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.