Court validates "bogus" appointment of administrators

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In Endersby and Coote v Astrosoccer 4 U Ltd (7 December 2017), the High Court considered whether to make a retrospective administration order over a company that had been subject to an outstanding winding-up petition at the time when administrators were purportedly appointed.

 

The Principle

It is trite law that once a winding up petition has been presented against a company, it is then not possible to appoint administrators through the out-of-court route until the petition has been disposed of (paragraph 25(a) of Schedule B1 to the Insolvency Act 1986). If the directors or company seek to place the company into administration to avoid compulsory liquidation, they should instead make an application to Court for an administration order.

The Facts

Astrosoccer 4 U Ltd (the “Company”) had purported to enter administration via an out-of-court appointment by the Company’s directors.

The directors had filed a notice of intention to appoint administrators (NOI) with the intention of avoiding the enforcement of an adjudicator’s award against it. During an application by the creditor to enforce the adjudicator’s decision, the Technology and Construction Court deemed the NOI “entirely bogus” and granted the creditor’s application. Notwithstanding the TCC’s decision, the directors subsequently filed a notice of appointment of administrators. It later transpired that a winding up petition had been presented against the Company a number of hours before the NOI was filed.

Accordingly, the administrators of the Company applied to Court for a retrospective administration order to remedy the defect with their purported appointment due to the outstanding winding up petition.

The Decision

The Court confirmed that the administrators’ appointment had been invalid due to the operation of paragraph 25(a) of Schedule B1 and made the retrospective administration order sought. The Court appeared to be influenced by the apparent impartiality of the administrators and did not want to undermine the work already undertaken since they purportedly took office.

Commentary

The case is an interesting decision for a number of reasons. Of course, it confirms the settled principle that an out-of-court appointment of administrators cannot be validly made where there is a pre-existing winding up petition. It also neatly limits the effect of a previous case (Re Business Dream Ltd (In Liquidation) [2011] EWHC 2860 (Ch)), which found that a NOI was valid and the interim moratorium took effect notwithstanding that there was an outstanding winding up petition. However, it is otherwise a somewhat curious judgment in light of the comments previously made by the TCC regarding the NOI.

Tim Carter, partner comments: “The Court is often asked to exercise its discretion retrospectively to validate the appointment of administrators in circumstances such as this where it later transpires that there is or may be a defect with their appointment. However, it is perhaps surprising that the Court elected to do so here given the disparaging comments and negative finding by the TCC regarding the validity of the NOI. Ultimately it appears that the Court was satisfied that an administration was a more appropriate route for the Company and beneficial for its creditors, and was clearly persuaded by a desire not to jeopardise the work already carried out by the administrators.”

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Tim Carter, Lucy Walker

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