A Court of Appeal judgment held that a company must have a settled intention to appoint an administrator when filing a notice of intent (NOI) under paragraph 26 of Schedule B1 to the Insolvency Act 1986 (“Schedule B1”) . The court also confirmed that an NOI cannot be filed in the absence of a qualifying floating charge holder (QFCH) on which to serve the notice.
Davis Haulage Limited (Davis) was the tenant of a property let by JCAM Commercial Real Estate Property XV Limited (JCAM). In January 2016, Davis was in rent arrears in excess of £250,000. Davis filed four successive NOIs between January and March 2016 and, in addition, filed a proposal for a CVA. JCAM sought an order to have the last NOI filed by Davis vacated and removed from the court file on the grounds that it constituted an abuse of process.
At what point can a company give a NOI?
The key issue before the court was whether the person filing a NOI must unconditionally propose or intend to appoint an administrator or whether that person may do so as one of many alternatives. It was held that a company must have a settled intention to appoint an administrator when filing a NOI – filing consecutive NOIs where there is only a conditional intention to appoint an administrator will constitute an abuse of process and will not be permitted by the courts.
One possible effect of the decision is an inadvertent ‘hamstringing' of company directors, who may feel that they are left without any breathing space or alternatives leading up to a possible administration.
This decision is also likely to be unwelcome news for medium and larger companies who may have previously tried to obtain a moratorium by using the NOI mechanism, thereby circumventing the lack of statutory moratorium available to them on submission of a CVA proposal. Interestingly, this issue was briefly mentioned in the judgment, which referred to the current consultation on fresh proposals for a wider moratorium for companies in financial difficulties.
Can companies file a NOI without a QFCH?
Aside from the key issue of determining when a company should use a NOI, the judgment also confirmed that a company cannot use a NOI where there is no QFCH (or a person entitled to appoint an administrative receiver).
While the wording of paragraphs 26-27 of Schedule B1 and the wording of the historical NOI form would suggest that notice has to be given to a QFCH, we understand that some practitioners have been filing NOIs even in the absence of any QFCH. The new Insolvency Rules, which came into force in April of this year, went no further to clarify this apparent contradiction. Lord Justice David Richards' comments therefore come as a useful clarification on whether a company can file a NOI without a QFCH.
What does this mean for practitioners?
The judgment highlighted that it may be common practice among some insolvency and restructuring professionals to run a parallel process and try to obtain a moratorium using a NOI (without having a settled intention to appoint) while a company proposes a CVA. In light of this, some may consider the Court of Appeal’s ruling a hindrance to the flexibility of the insolvency and administration process. However, we believe that the court’s decision comes as a welcome clarification and provides further useful guidance on the administration appointment mechanics under paragraph 26 of Schedule B1. Perhaps this case supports the need for a new moratorium to help business rescue as proposed in the recent consultation.
While we understand that circumstance sometimes dictates the administration appointment process, the filing of multiple consecutive NOIs and/or filing NOIs when there is no QFCH may actually be a warning sign that a company is not adequately prepared for administration. Recent administration appointments and pre-packs that our Corporate Restructuring and Insolvency team have been involved with have never required multiple NOIs and our insolvency practitioner clients always work hard to avoid this practice. Careful pre-appointment advice and contingency planning is always required in order to effectively manage our clients through the administration appointment process and beyond.
JCAM Commercial Real Estate Property XV Limited v Davis Haulage Limited  EWCA Civ 267