Ever since the introduction of the ‘out of court’ procedure to appointment an administrator, there has been a practice of filing successive Notices of Intention to Appoint an Administrator. This practice has been the topic of much discussion and its legality was recently addressed by the Court of Appeal in the case of JCAM Commercial Real Estate Property XV Limited –v- Davis Haulage Limited [2017] EWCA Civ 267.

Introduction

Since September 2003, it is possible for a company or its directors to appoint an administrator by simply filing the appropriate forms at court. Making a formal application for an administration order is only necessary, if the company is subject to winding-up proceedings. In addition to the company and its directors, holders of a “qualifying floating charge” (“QFC”), that is to say debenture holders, are able to appoint administrators via the out of court route.

The legislation provides that where there is a QFC, the directors must give at least 5 business days’ notice of their intention to appoint an administrator to the QFC holder, so as to enable the QFC holder, for example, the Bank, to appoint an administrator of their choice. Notice is provided by filing a Notice of Intention to Appoint an Administrator (“NOI”) at court and serving the sealed NOI on the QFC holder.

Interim moratorium

The NOI creates an interim moratorium, during which period the company is protected from legal proceedings (including the issue of winding up proceedings and enforcement proceedings); steps being taken to enforce security over its assets or to repossess goods supplied under hire-purchase; and landlords forfeiting their lease or levying distress for unpaid rent.

The interim moratorium is made permanent if an administrator is appointed, but otherwise automatically discharged after 10 business days. In practice, in order to create breathing space for a company whilst various rescue options were being considered, including re-financing or a Company Voluntary Arrangement (“CVA”), it was not uncommon for successive NOI’s to be filed at court, thus creating a “long lasting” interim moratorium.

The question that was put before the Court of Appeal was whether, when filing a NOI, the company or its directors must have a settled intention to appoint an administrator or whether it is sufficient that administration is one of the options under consideration.

The facts

The insolvent company, Davis Haulage Ltd, had filed 4 successive NOI, with the fourth NOI filed after the Company had proposed a CVA. It was explained at trial, that an administrator would have been appointed, if the CVA proposal had not been accepted. The company’s landlord sought to remove the fourth NOI from the court file; on the basis that to file a NOI without a settled intention to appoint an administrator constitutes an abuse of process.

The Court of Appeal decision

The Court of Appeal held that when filing a NOI, a company or its directors must have a settled intention to appoint an administrator. The court decided that the purpose of the interim moratorium is directly linked to the purpose of the NOI, namely to give notice to the QFC holder. As such the purpose of the moratorium is limited to protecting a company and its assets whilst the QFC holder decides its position. There is statutory scheme set out in the insolvency legislation for ‘eligible companies’ (as defined by the insolvency legislation) to obtain a moratorium whilst proposing a CVA. The Court of Appeal held that an extension of this statutory scheme cannot be achieved by the use of a NOI, but is a policy matter to be addressed by Parliament.

Conclusion

The Court of Appeal did not comment on the use of consecutive NOIs per se, but the court made it clear that a NOI can only be filed if there is a QFC holder; and there is a settled intention for the company to enter into administration. Whilst one can still envisage more than one NOI being filed in a scenario where the proposed administrator is trying to put a pre-pack together, even then the question of “settled intention” can potentially be brought into question.

This decision stresses that it is imperative that companies in financial difficulties seek professional advice and assistance early on. Rescue plans take time to implement, so companies should not wait until creditors are taking action, or their landlord seeks to forfeit the lease. By that time, rescue may no longer be achievable, particularly in the absence of a moratorium offering protection against creditor action. In our experience, creditors are generally amenable to discuss repayment plans, provided that a restructure of outstanding payments is offered before a debt escalates and the repayment plan on offer is realistic and achievable.