Abigal Boura v Lyhfl Ltd
| Jurisdiction | England & Wales |
| Judge | Mr David Halpern |
| Judgment Date | 19 October 2023 |
| Neutral Citation | [2023] EWHC 2585 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2023-005314 |
In the Matter of LYHFL Limited
And in the Matter of the Insolvency Act 1986
And in the Matter of the Insolvency Rules 2016
[2023] EWHC 2585 (Ch)
Mr David Halpern KC SITTING AS A HIGH COURT JUDGE
Case No: CR-2023-005314
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Geoffrey Zelin (instructed by HCR Hewitsons) for the Applicant
Mr James Knott (instructed by PDT Solicitors LLP) for Mr Leigh Harmer, a director of LYHFL Limited
Hearing date: 17 October 2023
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. This judgment was handed down remotely by circulation to the parties' representatives by email and release to the National Archives. The date and time for hand-down is deemed to be 10:30 am on 19 October 2023
Mr David Halpern KC SITTING AS A HIGH COURT JUDGE
Mr David Halpern KC:
This is an application by Ms Abigal Boura, a director of LYHFL Limited (the “ Company”), seeking the appointment of an administrator in respect of the Company. She seeks the application as “ the director of the company under paragraph 12(1)(b) of Schedule B1”. The Company is not represented, but the application is opposed by Mr Leigh Harmer, the other director of the Company. He does so on two principal grounds, firstly that one of two directors has no standing to apply for an administrator and secondly that the Company is able to pay its debts and it not likely to become unable. I heard argument on the first issue alone because, if Mr Harmer is correct, then that would dispose of the application.
For the reasons set out below, I have concluded that one of two directors has no standing to apply to court for the appointment of an administrator in circumstances where there is no majority of the board and no valid resolution of the board in favour of the application.
As this is a decision on a point of law, I am able to state the relevant facts very briefly. Ms Boura and Mr Harmer are the sole directors and shareholders of the Company. They were also in a personal relationship which ended acrimoniously in around November 2021. Perhaps unsurprisingly, the relationship as directors has also become acrimonious. Each side says that the other has acted in breach of their fiduciary duties as a director. Ms Boura says that the Company is or is likely to become unable to pay its debts. Mr Harmer denies this and says that Ms Boura is attempting to use the application to engineer a quasi pre-pack without board approval.
It is unnecessary for me to make any findings of fact on any of these issues. I merely note that, in a case such as this, if one director has standing to apply to court for an administration order and the other director opposes the application, I can see the potential for each side to use this as a further weapon in their dispute.
The following paragraphs of Schedule B1 to the Insolvency Act 1986 are relevant:
(1) Para.11:
“ The court may make an administration order in relation to a company only if satisfied –
(a) that the company is or is likely to become unable to pay its debts; and
(b) that the administration order is likely to achieve the purpose of administration.”
(2) Para.12(1):
“ An application to the court for an administration order in respect of a company … may be made only by –
(a) the company
(b) directors of the company”
There are three further categories of applicant listed in para.12(1).
(3) Para.22, dealing with appointments out of court, states:
“ (1) A company may appoint an administrator.
(2) The directors of a company may appoint an administrator.”
(4) Para.105:
“ A reference in this Schedule to something done by the directors of a company includes a reference to the same thing done by a majority of the directors of a company.”
Mr James Knott, who appeared for Mr Harmer, submitted that “ the directors” in para.12(1)(b) means all or a majority of the directors acting pursuant to a valid board resolution, and that the word “ only” means that the court has no power to hear the application unless it is made by a person or persons who fall within one of the categories in para.12(1).
Mr Geoffrey Zelin, who appeared for Ms Boura, invited me to follow the decisions of Marcus Smith J in Re Brickvest Ltd [2019] EWHC 3084 (Ch) (“ Brickvest”), which was itself followed by Fancourt J in Re Nationwide Accident Repair Services Ltd [2020] EWHC 2042 (Ch) (“ Nationwide”). In both cases the court appointed administrators on the application of the sole director.
Mr Zelin submitted as follows:
(1) Subparas (a) and (b) of para.12(1) make it clear that “ the directors” must mean something other than “ the company”. Building on this foundation, he submitted on the basis of the Interpretation Act 1978 that the plural includes the singular and hence that the phrase “ the directors” includes one of two directors. He accepted that, if this was the case, then logically it is not limited to cases of deadlock but must also include one of three or more directors.
(2) As for the word “ only”, he relied on Brickvest, where it was held that para.12(1) does not create a jurisdictional barrier, the only jurisdictional threshold being in para.11.
(3) Any defect arising from the application being made by one of two directors could be cured by r.12.64 of the Insolvency Rules 2016, which states:
“ No insolvency proceedings will be invalidated by any formal defect or any irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court.”
(4) He accepted that a narrow approach was needed in relation to appointments out of court, because these were not subject to the court's discretion to grant or refuse the order, but he submitted (again quoting Brickvest) that para.12 should be construed so as to enlarge, rather than constrain, the powers of the court in a case where it is satisfied that the criteria in para.11 are met.
Mr Knott met these detailed points as follows:
(1) His construction of para.12(1)(b) and para.105 was supported by the Insolvency Rules 2016:
(a) R.3.3(2)(b)(ii) requires the application to contain a statement as to whether it is being made by “ the directors of the company under paragraph 12(1)(b) of Schedule B1”.
(b) R.3.6(1)(b) states that, if the application is made by the directors, a witness statement must be made stating that it is made “ on behalf of the directors”. In the present case the witness statement
(2) If Mr Zelin was correct, then anybody could apply to court for the appointment of an administrator.
(3) He relied on Re Equiticorp International plc [1989] 1 WLR 1010, a decision of Millett J (“ Equiticorp”), Minmar (929) Ltd v Khalastchi [2011] BCC 485, a decision of Morritt V-C (“ Minmar”) and Re BW Estates Ltd (No 2) [2018] Ch 511, a decision of the Court of Appeal (“ BW Estates”). I will now look at these cases.
S.9 of the Insolvency Act 1986 as originally enacted (the predecessor to para.12) permitted “ the company, or the directors” to petition the court for the appointment of an administrator. In Equiticorp a resolution to petition the court was passed by the board, but two of the seven directors were not present at the meeting. Millett J explained that in Re Emmadart Ltd [1979] Ch 540 Brightman J had held, contrary to what was previously thought, that the board of directors of a company had no power to authorise the presentation of a winding-up petition. In order to bring the law into line with the previous practice, s.124 of the 1986 Act empowered “ the company, or the directors” (among others) to present a winding-up petition, and the same wording was used in s.9. (In my judgment this provides the historical explanation for the inclusion of “ the directors” as well as the company in para.12(1) and provides no support for Mr Zelin's submission that the wording must have been intended to include a single director where the board is deadlocked.)
Millett J concluded as follows:
“ I am perfectly prepared to read the words “the directors” in section 9 as meaning all the directors. Once a proper resolution of the board has been passed, however, it becomes the duty of all the directors, including those who took no part in the deliberations of the board and those who voted against the resolution, to implement it; and even in the absence of the specific authorisation to any and every director to take such steps as are necessary to implement it, which is contained in this particular resolution, that remains the legal position.
In my judgment, therefore, once a resolution of properly convened board of directors to present an application under section 9 for the making of an administration order has been passed, any director has authority to make the application on behalf of all of them. Accordingly, in my judgment, this is a properly presented application, made on behalf of the directors, and the court has jurisdiction to entertain it.”
Thus Equiticorp decided in relation to s.9 that the phrase “ the directors” does not require unanimity among the directors; nevertheless it is necessary to have a resolution passed by a majority at a properly constituted board meeting. Although para.12 is a new provision, it is modelled on s.9.
In Minmar the issue was whether an appointment out of court was valid in accordance with para.22 when there had not been a proper board meeting. At [43] Morritt V-C considered para.105 and noted that it applied to various paras in the Schedule, including...
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