Peter Lloyd Bootes and Others v Ceart Risk Services Ltd
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE ARNOLD,MR JUSTICE ARNOLD |
| Judgment Date | 03 May 2012 |
| Neutral Citation | [2012] EWHC 1178 (Ch) |
| Docket Number | Case No: 3261 of 2012 |
| Court | Chancery Division |
| Date | 03 May 2012 |
[2012] EWHC 1178 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Rolls Building
Fetter Lane, London, EC4A 1NL
The Hon Mr Justice Arnold
Case No: 3261 of 2012
In the Matter of Ceart Risk Services Limited and in the Matter of the Insolvency Act 1986
Owen Curry (instructed by Key2Law LLP) for the Applicants
The Respondent did not appear and was not represented
Hearing date: 25 April 2012
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.
Introduction
This is an application by Peter Bootes, the sole owner and director of Ceart Risk Services Ltd ("the Company"), and by Jeremy Frost and Stephen Wadstead ("the Administrators") for a declaration that the Administrators were validly appointed as administrators of the Company under paragraph 22 of Schedule B1 to the Insolvency Act 1986 ("Schedule B1") notwithstanding a failure to obtain the prior consent of the Financial Services Authority ("the FSA") to the appointment, or for alternative relief. The FSA was served with the application, but has not appeared to resist it. While that is understandable, it is regrettable from the Court's point of view, since I have not had the benefit of adversarial argument.
The facts
As at 19 January 2012 the Company was authorised by the FSA to carry on non-investment insurance intermediation for retail and commercial customers.
On 19 January 2012 the Company resolved at a general meeting that it should be placed into administration and that the Administrators should be appointed as joint administrators. There was no qualifying floating charge holder, and therefore no consent to the appointment of the Administrators was required from such a person. On the same day the Company filed a notice of appointment of the Administrators pursuant to paragraph 22 of Schedule B1 on Form 2.10B at Croydon County Court together with supporting documents. No consent from the FSA was sought, obtained or filed on 19 January 2012.
On 2 February 2012 the FSA wrote to the Administrators drawing attention to section 362A of the Financial Services and Markets Act 2000 (" FSMA 2000") and inviting the Administrators to write to the FSA as a matter of urgency to provide certain information and to seek the FSA's consent to their appointment as administrators of the Company.
On 6 February 2012 the Administrators sent two letters to the FSA providing the information which it had requested and seeking the FSA's consent to their appointment.
On 8 February 2012 the FSA wrote to the Administrators giving its consent to their appointment as administrators of the Company.
On 9 February 2012 the Administrators entered into an agreement with HFIS plc to sell the assets of the Company to HFIS Plc for £65,000. This sum has since been duly paid and is being held by the Administrators for distribution to the Company's creditors.
I was informed by counsel for the Applicants that the FSA's letter of consent was subsequently filed at Croydon County Court, although the evidence before me does not establish when this was done.
Section 362A of FSMA 2000
Section 362A provides as follows:
" Administrator appointed by company or directors
(1) This section applies in relation to a company of a kind described in section 362(1)(a) to (c).
(2) An administrator of the company may not be appointed under paragraph 22 of Schedule B1 to the 1986 Act or paragraph 23 of Schedule B1 to the 1989 Order without the consent of the Authority.
(3) Consent under subsection (2)—
(a) must be in writing, and
(b) must be filed with the court along with the notice of intention to appoint under paragraph 27 of Schedule B1 to the 1986 Act or paragraph 28 of Schedule B1 to the 1989 Order.
(4) In a case where no notice of intention to appoint is required—
(a) subsection (3)(b) shall not apply, but
(b) consent under subsection (2) must accompany the notice of appointment filed under paragraph 29 of Schedule B1 to the 1986 Act or paragraph 30 of Schedule B1 to the 1989 Order."
Were the Administrators validly appointed with effect from 19 January 2012 or 8 February 2012?
The Applicants do not dispute that section 362A applies in relation to the Company. Nor do they dispute that the Company purported to appoint the Administrators under paragraph 22 of Schedule B1 without at that time having the consent of the FSA. The Applicants' first contention is that the Administrators were nevertheless validly appointed with effect from 19 January 2012, alternatively 8 February 2012, once the FSA gave its consent.
This contention raises a question of construction of section 362A(2). When this says that an administrator "may not be appointed … without the consent of the Authority" does that mean that a purported appointment prior to such consent being obtained is incurably invalid or is it merely defective such that the defect can be cured by subsequent consent? If the latter is the case, a further question arises: does the appointment take effect from (a) the date of the purported appointment or (b) the date when the FSA's consent is obtained or (c) the date when the consent is filed with the court in accordance with section 362A(3)(b) or (4)(b)?
I was informed by counsel for the Applicants that there is no authority on this point, but he relied by way of analogy upon the decisions of HHJ McCahill QC sitting as a Judge of the High Court in Hill v Stokes plc [2010] EWHC 3726 (Ch), [2011] BCC 473 and of Norris J in Re Virtualpurple Professional Services Ltd [2011] EWHC 3847 (Ch), [2012] BCC 254.
The issue in those cases was whether directors had validly appointed administrators in circumstances where they had failed to give a copy of a notice of intention to appoint to one of the categories of person prescribed in rule 2.20(2) of the Insolvency Rules 1986 (in Hill v Stokes, to landlords who were distraining (rule 2.20(2)(a)) and in Virtualpurple, to the company (rule 2.20(2)(d)) as required by paragraph 26(2) of Schedule B1. This depends on whether paragraph 28 of Schedule B1, which provides that an appointment "may not be made under paragraph 22 unless the person who makes the appointment has complied with any requirement of paragraphs 26 and 27", should be interpreted as meaning "any requirement of paragraphs 26(1) and 27". That is a question upon which there has been an unfortunate difference of judicial opinion. HHJ McCahill QC in Hill v Stokes and Norris J in Virtualpurple answered it in the affirmative, whereas Sir Andrew Morritt C in Minmar (929) Ltd v Khalatschi [2011] EWHC 1159 (Ch), [2011] BCC 485 (to whom Hill v Stokes was not cited) and Warren J in National Westminster Bank plc v Msaada Group [2011] EWHC 3423 (Ch), [2012] BCC 226 (a judgment handed down on the same day as Virtualpurple) decided it in the negative. In Re MG Global Overseas Finance Ltd [2012] EWHC 1091 (Ch) Mann J indicated a preference for the former pair of decisions over the latter, but did not have to decide which was correct.
Even if the Chancellor in Minmar and Warren J in Msaada were correct on that point, as to which I express no view, HHJ McCahill QC in Hill v Stokes at [61]-[68] and [70] and Norris J in Virtualpurple at [24]-[26] also held, as an alternative ground for their respective decisions, that the failure to give a copy of the notice of intention to appoint to the required person did not mean that the appointment was incurably invalid, but rather constituted a curable defect. As Norris J pointed out in Virtualpurple at [24], this issue was not addressed by the Chancellor in Minmar. It was briefly addressed by Warren J in Msaada at [42]-[43], but it appears that Warren J did not have cited to him the decision of the House of Lords which Norris J applied in Virtualpurple by reference to Norris J's own earlier judgment in In re Bezier Acquisitions Ltd [2011] EWHC 3299 (Ch), [2012] Bus LR 636 (which was handed down after the argument in Msaada, albeit prior to the judgment in the latter case).
As Norris J pointed out in Bezier at [19], the most authoritative approach to issues of this kind is to be found in the speech of Lord Steyn (with whom Lord Carswell and Lord Brown of Eaton-under-Heywood agreed) in R v Soneji [2005] UKHL 49, [2006] 1 AC 340. Lord Steyn outlined the problem, and an earlier approach to it which had been adopted by the courts, at [14]:
"A recurrent theme in the drafting of statutes is that Parliament casts its commands in imperative form without expressly spelling out the consequences of a failure to comply. It has been the source of a great deal of litigation. In the course of the last 130 years a distinction evolved between mandatory and directory requirements. The view was taken that where the requirement is mandatory, a failure to comply with it invalidates the act in question. Where it is merely directory, a failure to comply does not invalidate what follows. There were refinements. For example, a distinction was made between two types of directory requirements, namely (1) requirements of a purely regulatory character where a failure to comply would never invalidate the act, and (2) requirements where a failure to comply would not invalidate an act provided that there was substantial compliance. …"
As Lord Steyn explained in [15], however, the speech of Lord Hailsham of St Marylebone LC in London & Clydeside Estates Ltd v Aberdeen District Council [1980] 1 WLR 182 at 189–190 led to "the adoption of a more flexible approach of focusing intensely on the consequences of non-compliance,...
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