Euromaster Ltd

JurisdictionEngland & Wales
JudgeMr Justice Norris
Judgment Date10 August 2012
Neutral Citation[2012] EWHC 2356 (Ch)
Docket NumberCase No: 3664 of 2012
CourtChancery Division
Date10 August 2012
In the matter of Euromaster Ltd

[2012] EWHC 2356 (Ch)

Before:

Mr Justice Norris

Case No: 3664 of 2012

IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION

Royal Courts of Justice

The Rolls Building

EC4A 1NL

Daniel Warents (instructed by Brachers LLP)

Hearing dates: Friday 3 August 2012

Mr Justice Norris
1

Euromaster Limited ("Euromaster") was a company which carried on business manufacturing and installing structural steel work for the lift industry and providing finished architectural products such as door covers and decorative surrounds. It experienced financial difficulties in early 2012. In April 2012 the directors of Euromaster consulted MHA Macintyre Hudson, Insolvency Practitioners, to advise on a possible rescue of the business. Their advice was to restructure the business through a "pre-pack administration" in accordance with SIP 16, by selling the profitable part of Euromaster's business to a new company.

2

On 2 May 2012 the directors resolved to appoint Mr Dante and Mr Davis as administrators. Lloyds TSB Bank Plc held a qualifying floating charge over the assets of Euromaster although at the date of the resolution to appoint Mr Dante and Mr Davis there was no indebtedness to the bank secured by that charge. Paragraph 26(1) of Schedule B1 to the Insolvency Act 1986 ("Schedule B1") says that directors minded to exercise the power to appoint administrators conferred on them by paragraph 22(2) of Schedule B1 must give at least 5 business days' written notice to the holder of any qualifying floating charge who may be entitled to appoint an administrator. Accordingly the directors of Euro Master gave notice to Lloyds TSB in Form 2.8B of their intention to appoint an administrator. By paragraph 27(1) of Schedule B1 a person who gives notice of intention to appoint under paragraph 26 must file with the court as soon as is reasonably practicable a copy of that notice. A copy of Form 2.8B was filed with the High Court at 12:39pm on 3 May 2012. By paragraph 28(2) of Schedule B1 it is provided that:—

"An appointment may not be made under paragraph 22 after the period of 10 business days beginning with the date on which the notice of intention to appoint is filed under paragraph 27(1)".

3

Lloyds TSB did not wish to exercise any power that they might have had to appoint an administrator, and on 17 May 2012 faxed a letter to Mr Dante and Mr Davis consenting to a sale of Euromaster's assets to a new company ("Newco").

4

The next day (at 12:30pm on 18 May 2012) notice of appointment in Form 2.9B was filed with the Court whereby the directors appointed Mr Dante and Mr Davis to be the administrators of Euromaster. That same day an Asset Sale Agreement was entered into by Euromaster, the administrators and Newco.

5

The Asset Sale Agreement provided for an immediate payment, for the payment of deferred consideration by 8 monthly instalments (supported by the personal guarantees of the directors of Newco) and the grant of a licence to Newco to occupy Euromaster's premises. Euromaster retained its book debts but appointed Newco as its agent to collect them in the return for a commission. The Asset Sale Agreement has been carried into effect, with all consideration due being paid, and with Newco collecting the book debts.

6

On 10 July 2012 it was noticed, during the course of a regulatory review, that the 18 May 2012 (on which date the directors filed at court their notice of appointment of Mr Dante and Mr Davis as administrators of Euromaster) was the 11 th business day after the filing of the notice of intention to appoint. This case therefore raises the question whether the appointment of Mr Dante and Mr Davis is a nullity (and if so, what is to be done for the future and what may be done in relation to the past)? Or whether their appointment was irregular (and, if so, whether that irregularity can be and ought to be cured, and with what consequences for past acts)?

7

This is a complex and technical area of the law containing conflicting decisions, all delivered under pressure of time and after hearing arguments on one side only. This case is no different. I intend to confine my answer to the questions posed to the particular circumstances of this case and to refer to wider issues only insofar as it is necessary so to do in order to resolve this case.

8

This case is not directly covered by the decision of any other judge. In Re: Cornercare Ltd [2010] EWHC 893 (Ch) HHJ Purle QC had to consider a somewhat similar situation to that before me. Directors gave notice of intention to appoint administrators, but there were funding difficulties in relation to a key proposal for the administration, so no notice of appointment was filed within 10 business days. The funding difficulties were then resolved. The question Judge Purle QC was called upon to answer was whether it would be possible immediately to start the process all over again. He said (at paragraph [10] of his judgment):—

"It seems to me that what is being referred to in paragraph 28(2) is the particular filed notice of intention to appoint and that the effect of that subparagraph is that no appointment may be made out of time pursuant to that notice. It does not however prevent a fresh notice of intention to appoint from being served and filed, resulting in a fresh 10 day appointment window".

9

I respectfully agree with Judge Purle QC's conclusion as to what may be done when it is discovered (before an appointment is made) that the 10-day window has closed. But he was clearly not directing his mind to what were the legal consequences if by mistake an appointment was in fact made outside the 10-day window: and I would not take his summary of the effect of paragraph 28(2) as a fully considered and entirely comprehensive statement of the entire legal effect that paragraph. So I must answer the exact questions before me on principle.

10

Paragraph 28(2) says the "an appointment may not be made" after the 10 day window. This might impose a limitation on the exercise of the power which the directors undoubtedly have under paragraph 22 of Schedule B1: or it might impose a procedural requirement.

11

It is a formula which appears elsewhere in the Schedule. Paragraph 14 of Schedule B1 confers upon the holder of a qualifying charge the power to appoint an administrator. Paragraph 16 says the "an administrator may not be appointed" under paragraph 14 whilst the floating charge on which the appointment relies is not enforceable (either because the instrument is invalid or is void for want of registration, or because no event of default has occurred). Paragraph 17 says that "an administrator may not be appointed" if there is a provisional liquidator or administrative receiver in office (because it is not possible to have concurrent regimes in place).

12

Paragraph 22 of Schedule B1 confers on the company and on its directors the power to appoint an administrator. Paragraph 25 says that "an administrator may not be appointed" if there is an extant winding-up petition or administration application or an administrative receiver is in office (because again it is not possible to have in place concurrent regimes). Paragraph 28(1) says that "an appointment may not be made" unless the notice requirements set out in paragraphs 26 and 27 have been complied with.

13

The question to be addressed is whether, if appointment is made in breach of the restriction in paragraph 28(2) the appointment (a) has no legal effect because it is a nullity or (b) has some conditional effect because it is defective or irregular and the irregularity may be regarded as curable. One cannot answer that question without at least having in mind consideration of whether the use of very much the same language in relation to the imposition of other restrictions means that the same answer must be given in every case, or whether a failure to observe the restriction might in one case lead to a nullity and in another lead to a merely defective appointment. In what follows I have that point in mind throughout.

14

The answer to the question is a matter of construction. In ascertaining the intention of the legislature Mr. Warents asked me first to look at some background material. In R (Westminster City Council) v National Asylum Service [2002] UKHL 38 Lord Steyn examined the role of the Explanatory Notes which accompany public bills in the process of enactment. He said (at paragraph [5]):—

"The starting point is that language in all legal texts conveys meaning according to the context in which it is used. It follows that the context must always be identified and considered before the process of construction or during it………….Insofar as the Explanatory Notes cast light on the objective setting or contextual scene of the statute and the mischief at which it is aimed such materials are therefore always admissible aids to construction. They may be admitted for whatever logical value they have".

15

The Explanatory Notes to the Enterprise Act 2002 explain (at paragraph 643) that the procedure has been amended to "streamline the process" in particular by "the introduction of non-court routes into administration" because it was recognized that the existing procedure "was to a degree cumbersome". Mr Warents, Counsel for the applicants, submitted that if this was the policy objective then it would be wrong to riddle the out-of-Court process with a myriad of technical traps which might catch out all but the most cautious of appointors. He drew my attention to Re MF Global [2012] EWHC 1091 (Ch) in which Mann J expressed the view (at paragraph 16 of his judgment) that if doubts over the true construction of the notice...

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