High Court: administrator appointment can be simultaneous with court notice

Out-Law Legal Update | 12 Nov 2018 | 10:47 am | 2 min. read

LEGAL UPDATE: The High Court in England has confirmed that the industry standard wording used in the notice of appointment does not invalidate the appointment of the administrators. The same practice had previously been called into question in a case involving NJM Clothing.

Judge Matthews ruled that in practical terms, it is possible for administrators to be appointed "at the same time" that the notice of appointment is filed at court. He found that the notice of appointment of administrators was not defective if the notice specifies the moment that the court endorses the notice as the point in time at which the appointment is made.

The same issue had been addressed earlier this year in the case NJM Clothing Ltd, Ross & Higgins v Fashion Design Solutions Ltd and Asis Couture [2018] EWHC 2388 (Ch), where Judge Klein had ruled that an administrators appointment had to take place before, even if momentarily, the filing of the notice of appointment. Judge Klein had concluded that if he assumed that a notice which did not specify the date and time of the appointment in numerical value was defective, that the defect would not invalidate the appointment under rule 12.64 of the Insolvency Rules.

Judge Matthews went a step further than Judge Klein and confirmed that it was not a defect to refer to the date and time of the court's endorsement as the date and time of appointment. The judge referred to the fact that there are a number of good reasons to make the point at which the appointment is to be made as close as possible to the point at which the court is notified of the appointment.

This decision will be welcomed by insolvency practitioners and their solicitors as it helps to clarify a point of uncertainty that has arisen following the introduction of the new Insolvency Rules.

The case before the judge followed the appointment of administrators over The Towcester Racecourse Company Ltd by its directors. Given the ruling in the NJM Clothing case, the administrators were concerned their appointment might have been defective as their notice of appointment stated that "the (administrators) appointment was made on the date and time endorsed by the court below".

Rules 3.24(1)(j) and 3.25(2)(k) of the new Insolvency Rules require a directors notice of appointment to contain the date and time of the administrators appointment. Given that under the Insolvency Act, an administrators' appointment will not become effective until the notice of appointment is filed at court, a practice had developed of referring to the date and time of the administrators' appointment as being the date and time endorsed by the court when the notice is filed at court.

This raised the question of whether it is a defect, or a potential defect, for the notice of appointment to not specifically state the date and time at which the appointment was made.

Judge Matthews did comment that the administration of Towcester Racecourse Company was wholly consensual and that he was clear what the result should be, unlike in the case of NJM Clothing, where there was a certain degree of animosity between the parties, meaning that case had to be properly and fully argued before the judge. It may not therefore, be the last case to consider the practical effects of rules 3.24(1)(j) and 3.25(2)(k) of the Insolvency Rules and the decision of NJM Clothing.

Sarah Jennings is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com