The Facts

Davis Haulage Ltd (DH) ran a business from a warehouse in Crewe and was in substantial rent arrears. The Landlord (JCAM) had notified DH of its intention to take possession of the premises if payment in full was not forthcoming. As a result, the director of DH filed four subsequent notices to appoint Administrators to the holder of a qualifying floating charge and filed copies of these notices at court. Meanwhile DH prepared and proposed a Company Voluntary Arrangement ("CVA") and explored alternative rescue. DH had the benefit of a continuing interim moratorium as a result of filing the successive notices of intention to appoint an Administrator, and JCAM was unable to bring possession proceedings.

At the time of filing the fourth notice, DH only intended to appoint an Administrator if the CVA was not approved by creditors. JCAM sought an order that the fourth notice be removed from the court file on the grounds that it was an abuse of process, as DH did not intend to appoint an Administrator at this point and it was merely a second option upon failure of the CVA.

The High Court found that it was not necessary to have settled intention to appoint an Administrator at the time of giving the notice of intention to appoint. Permission to appeal was granted and JCAM appealed the decision.

The Decision

The appeal was allowed.

The Court of Appeal found that the statutory pre-requisite of a settled intention to appoint an Administrator was not satisfied and that the notice was invalidly given. The Court stated that a conditional proposal to appoint an Administrator did not entitle a company or its directors to give notice of intention to appoint an Administrator.

Our Comment

A company filing a Notice of Intention to appoint an Administrator must have a settled intention to appoint an administrator and cannot use successive notices as a way to obtain a moratorium whilst the company explores other insolvency or rescue options. This is a useful authority that should serve to put an end to a practice that has become increasingly common - particularly in the construction sector - of exploiting one of the loopholes in the Insolvency Rules. Indeed Ashfords recently advised the successful Applicant in the Technology and Construction Court decision in South Coast Construction Limited vs Iverson Road Limited.