Procedural Defects in Electronic Filing of a Notice of Appointment of Administrators, and Expiration of a Notice of Intention to Appoint Administrators

Procedural Defects in Electronic Filing of a Notice of Appointment of Administrators, and Expiration of a Notice of Intention to Appoint Administrators

All Insolvency

Remedies for procedural defects

In Re Statebourne Cryogenic Limited [2020] EWHC 231 (Ch) the High Court considered whether the identification of the specific regional Business and Property Court to which an NOA was to be allocated was a requirement of either the Insolvency Act 1986 or the Insolvency (England and Wales) Rules 2016 and whether, if incorrect identification was an error, such an error should be waived.

PD 51O allows the court to remedy an error of procedure made while using CE-file in accordance with CPR 3.10(b). CPR 3.10(b) provides that where there has been an error of procedure such as a failure to comply with a rule or practice direction, the court may make an order to remedy the error.

In the context of the appointment of administrators, the appropriate remedy may (instead or in addition to the use of CPR 3.10(b)) be a declaration or order under:

Paragraph 104 of Schedule B1 to the Insolvency Act 1986 (Schedule B1), which declares acts of an administrator valid despite defects in his or her appointment.

Rule 12.64 of the IR 2016, which allows the court to remedy a formal defect or irregularity unless substantial injustice has been caused by the defect or irregularity and the injustice cannot be remedied by an order of the court.

CE-file

On 29 January 2020, the Chancellor of the High Court issued a guidance note “clarifying the procedure to be used in the Business & Property Courts regarding the appointment of an administrator when an application is made electronically outside court hours” (January Guidance Note). Under the January Guidance Note, the use of CE-file outside usual court working hours to file a NOA will lead to the matter being referred to a judge.

The duration of a notice of intention to appoint administrators by company or directors

The court also considered when an NOI filed on behalf of the directors of a company expired, and the consequences of filing such a notice late.

An appointment of administrators may not be made by the company or its directors “after the period of ten business days beginning with the date on which the notice of intention to appoint is filed…” (paragraph 28(2), Schedule B1).

In JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd [2017] EWCA Civ 267 (JCAM) the Court of Appeal determined that an NOI filed by the company or its directors during the course (the time was not stated in the judgment) of a Friday expired at the end of the second following Friday. (There were no intervening bank holidays during this period.)

The reasoning in JCAM was followed in Woodside and another v Keyworker Homes (North West) Ltd [2019] EWHC 3499 (Ch) (Keyworker).

Facts

Solicitors for the directors of a company filed an NOI using CE-file on Friday 17 January 2020. They intended to file (and apparently followed the process to do so) in the Business and Property Court (B&PC) in Newcastle but the NOI was processed (for reasons unexplained) by court staff into the London B&PC.

The solicitors filed (using CE-file) an NOA on Friday 31 January 2020, in usual court hours, again selecting the Newcastle B&PC as the relevant court. The NOA was rejected by the court staff as having been incorrectly filed in a court other than where the NOI had been filed. Accordingly, the solicitors filed a second NOA, out of court opening hours but on the same day (Friday 31 January), without stating a specific B&PC.

In accordance with the January Guidance Note, the matter was referred to a High Court Judge.

Decision

The High Court (Zacaroli J) held that neither Schedule B1 nor the IR 2016 require the name of the relevant court to be shown on the NOI or NOA. As such, the court found that if (though it did not rule on this) there was an error in the first NOA, that was a mere defect in procedure. It made an order under CPR 3.10(b) waiving any defect.

The court also held that the first NOA had been filed out of time. The court considered that, for a NOI filed on Friday 17 January 2020, the NOA should have been filed at the latest by the end of Thursday 30 January 2020.

The court considered that Keyworker (in which the court had sanctioned a more expansive interpretation of when the ten-day period finished) was wrong: it also considered that the court in JCAM had not rendered any decision on the interpretation of paragraph 28(2) of Schedule B1.

Nevertheless, the defect had not caused substantial injustice. The court was content to rectify the defect, and order that no actions of the administrators were invalidated by the defect, by orders under rule 12.64 of the IR 2016 and paragraph 104 of Schedule B1.

Comment

Although the context in which this issue came before the court was because of the filing of an NOA (the second NOA, in this case) out of court hours, the January Guidance Note was not in fact relevant. The court found that the first NOA, filed earlier and within usual court hours, was either valid or, if defective, capable of remedy by court order.

However, the court’s interpretation of the period within which an NOA must be filed under paragraph 28 of Schedule B1 is troubling for the uncertainty it creates: it decided that for a director or company NOI filed on a Friday (here, 17 January 2020), an NOA had to be filed (in the case of no intervening public holidays) no later than on the second following Thursday (here, 30 January 2020).

Although the Court of Appeal in JCAM did not discuss the meaning of paragraph 28(2) of Schedule B1, it ruled without comment that under paragraph 28(2) of Schedule B1 an NOI filed on a Friday expired at the end of the second following Friday (see paragraph 16 of the judgment, and note there were no intervening public holidays during this period).

The court did not (in keeping with the decisions in JCAM and Keyworker) make any determination as to whether the NOA had to be filed by a specific time on the tenth business day. It is perhaps surprising that this issue has not been the subject of more judicial consideration. This is because, in the context of the duration of an administration as a whole, and paragraph 76(1) of Schedule B1 (which uses similar wording to paragraph 28(2) of Schedule B1), the High Court has held that an administration ends, on its final day, at the same time of day as that at which it originally entered administration (In the matter of Property Professionals+ Ltd [2013] EWHC 1903 (Ch)).