Francis Wessely and Joann Louise Leach (in their capacity as joint administrators of Zoom UK Distribution Ltd ((in Administration))) v Stephen Rubra

JurisdictionEngland & Wales
JudgeStuart Isaacs
Judgment Date31 March 2021
Neutral Citation[2021] EWHC 800 (Ch)
CourtChancery Division
Docket NumberClaim No: CR-2020-002382
Date31 March 2021

[2021] EWHC 800 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (ChD)

IN THE MATTER OF ZOOM UK DISTRIBUTION LIMITED (in administration)

AND IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

Stuart Isaacs QC (sitting as a Deputy Judge of the High Court)

Claim No: CR-2020-002382

Between:
Francis Wessely and Joann Louise Leach (in their capacity as joint administrators of Zoom UK Distribution Ltd (in administration))
Applicants
and
(1) Stephen Rubra
(2) Anthony Bekesi
(3) Zoom UK Distribution Ltd (in administration)
Respondentss/Appellan

Ms Rachael Earle (instructed by Kingsley Napley LLP) appeared on behalf of the Applicants.

Mr Philip Currie (instructed on a direct access basis) appeared on behalf of the 1 st and 2 nd Respondents.

Hearing date: 31 March 2021

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.

Stuart Isaacs QC:

Introduction

1

There are two applications before the court. The first is an application pursuant to paragraph 63 of Schedule B1 to the Insolvency Act 1986 (the “ IA”), made by a notice dated 25 February 2021 issued by the joint administrators (the “Administrators”) of Zoom UK Distribution Ltd (“Zoom”), for (i) a declaration that their appointment on 5 May 2020 was valid despite a defect in procedure relating to their appointment and (ii) relief that any of their acts since that date are valid (the “Directions Application”); and, in the alternative to the Directions Application, to the extent that the Administrators' appointment is invalid, an order that the directors of the company, the 1st and 2nd respondents (the “Directors”), indemnify them against any liability which arises solely by reason of the invalidity of the appointment (the “Indemnity Application”).

2

By the second application, made by a notice dated 16 March 2021 issued by the Directors, the court is asked, in the event that the Directions Application is refused, to make a retrospective administration order to take effect from 5 May 2020 and to appoint the proposed persons to be administrators with effect from that date (the “Retrospective Administration Order Application”).

3

Before dealing with the substantive issues which arise, I should record that, in advance of the hearing, I drew the parties' attention to the fact that Ms Earle, who appears on the Administrators' behalf, and I are members of the same chambers and asked whether that would be an obstacle to my hearing this case. Both parties, through their counsel, confirmed that there was no objection to my hearing it.

Factual background

4

On 3 March 2009, Zoom executed a debenture in favour of Lloyds TSB Bank plc (“Lloyds”) as security for a loan (the “Lloyds Debenture”). In consequence, Lloyds became a qualifying floating charge holder within the meaning of the IA. Under paragraph 14(1) of Schedule B1, the holder of a qualifying floating charge in respect of a company's property may appoint an administrator of the company. On 3 January 2010, Zoom executed another debenture in favour of Lloyds TSB Commercial Finance Limited as security for a loan (the “TSB Debenture”). In 2017, Zoom refinanced its borrowings, involving the provision of alternative invoice financing by Aldermore Bank plc (“Aldermore”), secured by way of another debenture (the “Aldermore Debenture”) and designed to satisfy and replace the TSB Debenture. As a result, the TSB Debenture was marked at Companies House as satisfied on 22 November 2017. Due to an error in the Aldermore documentation, the Lloyds Debenture was also marked at Companies House as satisfied. Zoom subsequently repaid its indebtedness to Aldermore and the Aldermore Debenture too was marked as satisfied.

5

The Administrators were appointed out of court by the Directors on 5 May 2020 pursuant to the Directors' power to do so under paragraph 22(2) of Schedule B1. Under paragraph 26(1)(b) of Schedule B1, the Directors were required to give at least five business days' written notice to Lloyds of their proposal to appoint an administrator. By paragraph 28(1) of Schedule B1, an appointment under paragraph 22 may not be made unless inter alia the notice period has expired or each person to whom the notice has been given has consented in writing to the making of the appointment. Unbeknown at the time to the Administrators, the Directors inadvertently failed to give the requisite written notice to Lloyds. The Administrators only became aware of the situation after having been informed by Lloyds on 25 August 2020 that the Lloyds Debenture remained outstanding. Zoom repaid the outstanding loan to Lloyds in about December 2020.

The Directions Application

6

The Directions Application is supported by the Directors. Lloyds does not oppose the continued appointment of the Administrators and it too consents to the relief sought by the Directions Application. I have therefore not had the benefit argument in opposition to the Directions Application, although the arguments against the position contended for by the Administrators appears from the earlier cases to which detailed consideration was given in the subsequent case-law.

7

Schedule B1 does not specify the consequences of a failure to comply with paragraph 26(1)(b). The issue before the court is whether the Directors' failure to give notice to Lloyds of their proposal to appoint the Administrators renders their appointment void or else only defective and capable of cure. The commentary to paragraph 26 in Sealy & Milman Annotated Guide to the Insolvency Legislation (23rd edition, 2020) states that “[t] he question whether the failure to comply with the notice requirements of para. 26 inevitably invalidates the appointment of the administrator has been much debated in recent cases at first instance, and remains the subject of controversy. Only a ruling of a higher court can resolve the current impasse.”

8

The Administrators submitted that although there are conflicting first instance decisions, none is binding on the court on the Directions Application and that the more recent High Court and Insolvency and Companies Court (“ICC”) decisions show a consistent approach, which should be followed in the present case, in favour of the Administrators' appointment being only defective and not void. The conflicting authorities on the consequences of a failure to comply with the requirements of Schedule B1 generally were reviewed at length in Re A.R,G. (Mansfield) Limited [202] BCC 641 by His Honour Judge David-White QC sitting as a judge of the High Court and considered by Arnold J in Re Ceart Risk Services Ltd [2013] Bus LR 116.

9

The only decision which is directly in point is that of ICC Judge Jones in Re Tokenhouse VB Ltd (formerly VAT Bridge 7 Ltd) [2021] BCC 107 (“ Tokenhouse”), which is not binding on this court. In that case, it was submitted on behalf of the applicant, a qualifying floating charge holder who had not been given the requisite notice under paragraph 26(1)(b), that the clear wording of the relevant provisions of Schedule B1 meant that the appointment of administrators could not have been made and cannot have had effect. The applicant submitted that the court was bound by higher authority to reach that conclusion, first because case-law, including Re Euromaster Ltd [2012] EWHC 2356 (Ch) establishes that the purpose of the notice of intention is to give a charge holder the opportunity to appoint its own administrator or administrative receiver, which a breach of paragraph 26(1(b) would prevent; and, second, because cases such as Re Skeggs Beef Ltd [2019] EWHC 2607 (Ch) establish that an appointment is a nullity if there is a fundamental defect which, applying the approach in cases such as Adjei v Law for All [2011] EWHC 2672 (Ch), a breach of paragraph 26(1)(b) would be. On the other hand, the respondents, the appointed administrators, submitted that the starting...

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5 firm's commentaries
  • Defective Administration Appointments; Heading Towards Consistency
    • United Kingdom
    • Mondaq UK
    • 25 May 2021
    ...of consistency of approach appears to be emerging - for the time being. In Wessely & Anor (Zoom UK Distribution Ltd) v Rubra & Ors [2021] EWHC 800 (Ch) the administrators had been appointed out of court by the company's directors on 5 May 2020 under para 22(2) Sch B1 Insolvency Act 1986. Un......
  • Insolvency Team ' Recent Insolvency Case Update
    • United Kingdom
    • Mondaq UK
    • 19 August 2021
    ...requirement, since the definition of 'financial effect' in the Act is wide. Wessely & Anor (Zoom UK Distribution Ltd) v Rubra & Ors [2021] EWHC 800 (Ch) The Joint Administrators ('JAs') of Zoom UK Distribution Ltd ('the Company') applied for: (i) a declaration that their appointment on 5 Ma......
  • Insolvency Insight - Issue 8 | February 2022
    • United Kingdom
    • Mondaq UK
    • 1 March 2022
    ...at a meeting of all creditors for the appointment of the liquidators was a defect capable of remedy (Re Zoom UK Distribution Ltd [2021] EWHC 800 (Ch) followed). Similarly, the defects in the calling of the meetings were "technical" only, and insufficient to invalidate what were otherwise va......
  • Insolvency Insight - Issue 8 | February 2022
    • United Kingdom
    • Mondaq UK
    • 1 March 2022
    ...at a meeting of all creditors for the appointment of the liquidators was a defect capable of remedy (Re Zoom UK Distribution Ltd [2021] EWHC 800 (Ch) followed). Similarly, the defects in the calling of the meetings were "technical" only, and insufficient to invalidate what were otherwise va......
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