In the Matter of Virtualpurple Professional Services Ltd (2011)
Directors did not have to give their company notice of intention to appoint an administrator when the appointment would have immediate effect.
The applicants, being the administrators (L) of a company and its sole director (W), applied for a declaration that W's appointment of L as administrators had been valid. W had held a formal meeting as sole director which noted that the company had significant financial difficulties and had received advice that it was in the best interests of its creditors that it should enter into administration. The minute of the meeting reported that, because there were no qualified floating charge holders, W was able to appoint an administrator under the Insolvency Act 1986 Sch.B1 Pt 4 para.22. W resolved that the appropriate steps should be taken forthwith to file the prescribed form at court to appoint L as administrators. No prior notice of W's intention to take that step had been given to the company. The issues were (i) whether directors who were appointing administrators with immediate effect were obliged to give separate prior notice to the company of their intention to do so; (ii) if there was such an obligation, the effect of a failure to comply with it.
(1) Directors did not have to give the company notice of intention to appoint an administrator when the appointment would have immediate effect. Such a conclusion was consistent with the nature of the prescribed forms and with the statutory provisions. Schedule B1 para.26(2) stated that a person proposing to make an appointment under para.22 should give notice to "such other persons as may be prescribed" and such persons included the company; however, the references in Sch.B1 para.28and the relevant provisions of the Insolvency Rules 1986 to "paragraph 26" could only be sensibly read as a reference to para.26(1), which dealt with notice to qualifying chargeholders, Hill v Stokes Plc (2010) EWHC 3726 (Ch), (2011) BCC 473 applied and Minmar (929) Ltd v Khalatschi (2011) EWHC 1159 (Ch), (2011) BCC 485, in which the Chancellor had, in an obiter passage, reached the opposite conclusion, considered (see paras 18, 21-23 of judgment). (2) In any event, a failure to comply with an obligation to give prior notice to the company would not automatically invalidate the administrators' appointment. Among other things, that was unlikely to have been Parliament's intention. Further, it would be a rare situation where a company was unaware of what its directors were doing. If so, it seemed odd to treat a failure by the directors to notify the company (generally themselves) of something they were immediately about to do as automatically invalidating that very act. Where there was no evidence of any division between the directors and shareholders and no doubt about the authority of the directors to act on behalf of the company, and where it might fairly be taken that the acts of the directors were the acts of the company and the knowledge of the directors the knowledge of the company, the failure of directors to give notice of intention to appoint to the company would not invalidate the appointment of administrators by those directors (paras 24-27).