Reform to Administration Appointments – but is it helpful?

The Deregulation Act 2015 received Royal Assent on 26 March 2015. The Act dealt with a number of diverse and unconnected issues. However at Part 2 Schedule 6 there is a significant reform to the appointment of administrators using the notice procedure by the company or its directors. This provision has yet to be enacted but practitioners need to be aware that it is on the horizon.

Under paragraph 22 of Schedule B1 of the Insolvency Act 1986 when a company or a director wishes to make an out of court appointment they must give notice to qualified floating charge holders (QFCH) and those persons who are prescribed. In future if there is no QFCH, such that no notice to it must be given, then no notice need be given to those persons who are prescribed.

The significance of this new provision is to remove one of the procedures for the out of court appointment of an administrator and thereby reduce the risk of a defective appointment arising. There have been a number of contradictory cases regarding the need for such notice and the effect upon the validity of an administrators appointment, most notably the Minmar decision, where the failure to give notice invalidated an appointment.

The identification and service on prescribed persons remains an issue. In Minmar the service itself upon the prescribed person, the company, was defective. Most appointments require service upon a QFCH therefore service upon prescribed persons arises in the majority of cases. The new provision therefore has very limited practical impact. Caselaw has however established that notice to prescribed persons would not necessarily invalidate an appointment where there was a QFCH, notice may be given retrospectively.

Unfortunately the new provision fails to clarify the period of notice to be given to prescribed persons. Therefore there remains an uncertainty as to whether an early appointment can be made with the consent of the QFCH but without the prescribed persons consent.

The Small Business Enterprise and Employment Act 2015 by amending para 76 of Schedule B1 to extend the administrators terms in office to one year is no assistance as such an extension is invalid if the appointment was invalid in the first instance. Therefore any retrospective attempt to regularise an invalid appointment must still be undertaken within a year of the initial defective appointment.

The answer may be to amend the new Insolvency Rules 2015 before their introduction in 2016. However the amendment must be fit for purpose and would necessitate a repeal of the Deregulation Act provision. The contradictory and piecemeal reform of the appointment of administrators through caselaw and this new provision is a significant worry in an area where certainty of appointment must be considered paramount. The simplest answer seems to me to be to completely do away with the requirement of notice to prescribed persons. The moratorium prevents them from acting once a notice is filed and they cannot influence the appointment in any way, so why give them notice at all – particularly as it causes such un-necessary uncertainty.

If you wish to discuss this case, or any other matter, please call Gary Player on 01403 711869.

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