(1) Michael Stephen Elliot Solomons and Another v (1) Susanna Cheal (2) Matthew Huggins and Another

Hearing date: 26 September 2011

This is an application by the directors of Care Matters Partnership Ltd ("the company") for the appointment of Mr Solomons and Mr Defty as administrators of the company. In the case of Mr Solomons the appointment is sought with retrospective effect from the 12 October 2010 and in the case of Mr Defty with retrospective effect from 15 April 2011.

In G-Tech Construction Limited [2007] BPIR 1275 Hart J made an administration order to take effect on a date earlier than that of the order itself. He said (at paragraph [20]) that such a jurisdiction should be exercised "with extreme caution".

There has of late been a spate of such applications in the Applications List, the case being presented on one side only and with the application increasingly treated as a matter of routine (the skeleton argument being delivered only shortly before the hearing). The reason for that is the doubt thrown upon the validity of many appointments by the decision of the Chancellor in Re Minmar (929) Ltd [2011] EWHC 1159 (Ch). The application before me proceeds on the footing that that decision correctly states the law, and I have not been invited to consider the earlier decision of HHJ McCahill QC in Hill v Stokes plc [2010] EWHC 3726 (not cited to the Chancellor and apparently to the contrary effect).

Some unease has been expressed at the course matters are taking. In Re Derfshaw [2011] EWHC 1565 (Ch) Morgan J said that he could see scope for argument as to the correctness of G-Tech Construction Limited, but that the desirability of making retrospective orders was considerable, and that since the authority for making such orders existed he felt he ought to follow the lead of Hart J. In Re Frontsouth (Witham) Limited [ [2011] EWHC 1668 (Ch) Henderson J (in a reserved judgement) said that he shared Morgan J's misgivings, but like him regarded the jurisdiction as a useful one and was prepared to follow the practice.

When the present application came before me in the Vacation Applications Court I decided that, rather than add to the list of extempore judgments I would reflect upon the issues over the weekend. This case raises two points not specifically addressed in other cases.

Where there is a defect in the appointment of an administrator the judges at first instance are agreed that IR 7.55 cannot be used to waive the defect.

In G-Tech Construction Limited Hart J took the view that the only course open was to make a fresh administration order with retrospective effect. In Re Blights Builders Ltd [2008] 1 BCLC 245, unaware of the decision in G-Tech Construction Ltd, I took a different course, making a fresh administration order with prospective effect and validating the acts of the administrator who had been defectively appointed under paragraph 104 of Schedule B1 to the Insolvency Act 1986. Hart J had also been invited to take this course but had held

"It is certainly the case that that provision plainly may [assist] in assessing the validity of acts done by a person purporting to be at the administrator, but it does [not] seem to me to provide in itself a cure for the fact that … there has been no administration … if the requirements of paragraph 29 have not been complied with ".

For my own part (and with considerable diffidence in differing from Hart J) I adhere to my view that paragraph 104 may supply the answer in many cases. As Lord Simonds said (of similar provisions in s.143 of the Companies Act 1929 and Article 88 of the then-current Table A) in Morris v Kassen [1946] AC 459 and 471:—

"There is … a vital distinction between (a) an appointment in which there is a defect or, in other words a defective appointment, and (b) no appointment at all. In the first case it is implied that some act is done which purports to be an appointment but is by reason of some defect inadequate to the purpose: in the second case there is not a defect, there is no act at all ….. [T]he section and article alike deal with slips or irregularities in appointment, not with a total absence of appointment"

It may well be that paragraph 104 is of no assistance where there is no power to make an appointment (for example because there is no valid charge in respect of which the power under paragraph 14 of Schedule B1 could be exercised, or the persons purporting to appoint an administrator under paragraph 22 are not themselves directors). But it may well be that paragraph 104 is of assistance where there is a power to make an appointment but that power has been defectively exercised through some irregularity in procedure.

Mr Solomons and Mr Defty made (but did not pursue) an application for validation under paragraph 104. Thus the point was not argued before me: and I am conscious (a) that both Proudman J in Kaupthing Capital Partners [2010] EWHC 386 (Ch) and Henderson J in Frontsouth accepted Hart J's view on paragraph 104 without comment; and (b) that a wider debate ranges around section 232 Insolvency Act 1986. Having reflected on the matter I have decided that the only proper course for me to take in the circumstances is to accept (with the same misgivings voiced by Morgan J and Henderson J) that the jurisdiction identified in G-Tech Construction Ltd provides the only answer in the instant case, and to consider whether I may properly exercise it.

By paragraph 11 of Schedule B1 the court may make an administration order only if satisfied that the company is (or is likely to become) unable to pay its debts and that the administration order is reasonably likely to achieve the purpose of administration: I have supplied the emphasis. Mr Warents of Counsel (who appeared for the company) submitted that where an application is made for an administration order having retrospective effect those conditions are to be satisfied as at the date by reference to which the order is to take effect (not as at the date when the order is made). This is the first new point. He submitted that were this not so G-Tech Construction itself would appear to have been wrongly decided (because there the...