Globespan Airways Ltd (formerly (in Administration) and now (in Liquidation)) between Cartwight and Another v Registrar of Companies

Lord Justice Longmore

I am afraid I am against you. It seems to me that this appeal in its present state unfortunately cannot be dealt with in a day. The first thing that is going to happen is there is going to be a substantial argument on whether new evidence should be submitted. Mr Smith has submitted that any such argument ought to fail and will fail, but the argument has to take place and that argument will have to be before the full court and that itself will take time.

Mr Smith submits that the question is a short point of principle, but the more the point of principle is urged the more the court will want to be sure that it has time to consider the point of principle with appropriate care and in appropriate detail. It does not seem to me that this case can go ahead on a one day estimate and I will therefore adjourn the case.

I was concerned in case there might be some prejudice to the respondent if I were to adjourn the case, but it does not seem to me there is any prejudice of any substance because the judge's order continues in the meantime until it is successfully appealed. Mr Smith says that everyone will be very busy next term dealing with the current state of this litigation in the Commercial Court. He puts forward the appalling prospect that there may be other appeals, not only from the judgment of Teare J which is currently awaited, argument having recently concluded, but of yet further appeals in relation to interlocutory applications in those actions. This court cannot be just available to the parties at any time they want for all the various appeals they might bring, and I think some degree of coordination really is required. This appeal should not be heard before Teare J gives his judgment in the current matters. I would then have some small confidence that extended further evidence will not be necessary because, to the extent that subsequent events need to be referred to, they will be referred to in his judgment.

But I do think that in the light of what is happening, this appeal would have to be listed for two days and will be listed as early as possible in the new term.

Order: Application granted

Hearing date : 23 July 2012

The primary issue on this appeal is:

• whether, as Briggs J held, an administrator of a company may convert the administration into a creditors' voluntary liquidation ("CVL") simply by giving notice (a "conversion notice") to the registrar of companies ("the registrar"), or

• whether, as the registrar contends, that conversion occurs only once the registrar has registered the conversion notice on the company's file at Companies House.

This "conversion trigger question", as it may be called, involves interpreting the provisions of paragraph 83 of schedule B1 to the Insolvency Act 1986 ("the IA 86"). The date on which that conversion in law occurs is referred to in this judgment as "the conversion date". I shall set out the material provisions of paragraph 83 in paragraphs 25 and 27 below.

I have reached a different answer to the conversion trigger question from the judge. In my judgment, for the reasons

given below, a conversion notice takes effect only on registration of that notice by the registrar, and not before.

There then arises a subsidiary question. That question is whether, if the term of office of an administrator would otherwise expire after filing the conversion notice but before the conversion date, it is in general automatically extended until that date. I would answer that question in the affirmative.

Before I give my reasons for these conclusions, I need to explain briefly the following matters:

• the essential differences between administration and CVL

• the significance of the conversion procedure, and

• the importance of publicity for important corporate events and the role of the registrar.

The essential differences between an administration and a CVL

An administration is a relatively informal method of dealing with the situation where a company is insolvent and wishes to prevent creditors from levying execution of its assets. An administration can give a company breathing space so that it can be reorganised or its business and assets realised in an orderly way. An administration usually commences with a court order setting out the purposes of the administration and appointing an administrator. The order for administration has the effect of imposing a bar on creditors' claims against the company.

There are detailed provisions dealing with the administrator's term of office. The appointment of the administrator ceases at the end of one year (paragraph 76(1) of schedule B1 to the IA 86). The court or the creditors can extend this period, though in the case of creditors they may only do so once for a period not exceeding six months (paragraphs 76(2) and 78 of schedule B1 to the IA 86). The period of the administrator's term of office comes to an end if the administrator dies, resigns, ceases to be qualified to be an administrator or is removed from office by the court (paragraphs 87 to 89 of schedule B1 to the IA 86).

An administrator may, but need not, undertake a distribution of the assets to creditors. He will usually instead cause the administration to be converted into a liquidation for this purpose.

A liquidation of a company is usually a terminal process. It almost always leads to the distribution of all of the company's assets and to its dissolution. The liquidator has to consider which claims can be proved in the liquidation. Liquidation may be voluntary or compulsory. A compulsory liquidation is one that results from an order for winding up by the court. Other forms of liquidation are known as voluntary liquidations. For a members' voluntary liquidation, a company must be solvent. If it is insolvent the liquidation will be a CVL.

The date on which liquidation commences is important. On the commencement of a winding up, the company ceases to be the beneficial owner of its assets, which are then held on ambulatory trust for creditors and, if there is a surplus, for contributories: Ayerst v C & K Construction [1976] AC 167. There is no change of ownership of a company's assets on the commencement of an administration.

There are other reasons why it is important to know on which date the commencement of a winding up occurs. Where there is a CVL and no administration, that date is the date of the passing of the resolution for winding up ( section 86 of the IA 86). That date is then used for various purposes. For example, it is the date for the ascertainment of debts or liabilities which may be proved in the winding up (Rule 13.12 of the Insolvency Rules, which are made under the IA 86). It is also the date ("the relevant date") used to calculate the antecedent period of four months for the purpose of establishing preferential claims in the winding up, such as the preferential claims of employees (section 387(3)(c) of the IA 86). The date of the commencement of the winding up is also used to mark the end of the specified period of time within which any transaction sought to be challenged in the liquidation as a transaction at an undervalue, or as a preference, must have occurred (section 240(3)(e) of the IA 86).

The significance of converting an administration into a CVL under paragraph 83

Conversion by notice under paragraph 83 provides a means of moving a company from administration into CVL. It is a streamlined process because it is unnecessary to hold the meetings of shareholders and creditors that are normally required for a CVL.

Where the conversion procedure is used, amendments to the IA 86 and the Insolvency Rules ("retrospective date provisions") enable the earlier date of the start of the administration to be used instead of the date of the commencement of the liquidation for the purposes of certain provisions, such as those referred to in paragraph 11 above. Those provisions also help to reduce any injustice to creditors as a result of their having been unable to enforce their rights during the administration.

The facts of this case illustrate the practical importance of the retrospective date provisions for liquidators and creditors. Globespan...