Can a company file a notice of intention to appoint an administrator (NOI) if administration is just one of a number of potential options being explored for rescuing the company?

In JCAM Commercial Real Estate Property XV Limited v Davis Haulage Limited [2017] EWCA Civ 267 ( judgment available here) the respondent, Davis Haulage Limited (the Company), was a tenant of the applicant, JCAM Commercial Real Estate Property XV Limited (JCAM). After the Company fell behind on rent, JCAM brought possession proceedings. Six days before those proceedings were issued (and unknown to JCAM) the Company’s director filed an NOI at court and served it on the Company’s qualifying floating charge holder (QFCH) as required by paragraph 26 of Schedule B1 to the Insolvency Act 1986.

An interim moratorium of 10 business days on alternative insolvency proceedings and other legal processes arose under paragraph 44 of Schedule B1 once the NOI was filed, effectively blocking the continuation of possession proceedings.

The interim moratorium expired and the Company’s director subsequently filed a further two NOIs, triggering additional interim moratoriums. No administrator was appointed.

A fourth NOI (in the same terms as the preceding three) was filed after the Company’s director had filed proposals for a creditors’ voluntary agreement (CVA) with the court.

JCAM brought proceedings to have the fourth NOI removed from the court file on the grounds that it constituted an abuse of process. JCAM argued that a company must have a fixed or settled intention to appoint an administrator when filing an NOI, and it was evident that in relation to the Company the director was instead primarily concerned with getting the CVA proposal approved by creditors.

First instance decision

At first instance, the judge held that it was not necessary for a company or its directors to have, at the point of filing a copy of the notice, a settled intention to appoint an administrator. The judge focused particular attention on the use of the word “proposes” in paragraph 26(1), finding that the word need not be read as “intends”. The judge saw nothing to prevent a director proposing both a CVA and an administration. JCAM appealed.

Court of Appeal decision

The Court of Appeal overturned the High Court’s decision, finding that a person must unconditionally propose or intend to appoint an administrator in order to file an NOI. As a result, the fourth NOI was vacated and removed from the court file as a breach of process, since the appointment of an administrator was contingent on the CVA proposal failing to gain creditor approval.

David Richards LJ, giving the leading judgment, held as follows:

• the terms “proposes” and “intends” are synonymous in the context of paragraph 26 (ie the term “proposes” does not import some lower threshold)

• there is no significant difference between the terms in ordinary language

• NOIs may only be filed if there is a QFCH (or a person entitled to appoint an administrative receiver). The purpose of the interim moratorium is to protect the company and its assets while that person decides whether to appoint an administrator and, if he decides not to do so, to provide the same protection pending an appointment by the person giving notice

• paragraph 26(1) obliges a company or its directors to give notice if it or they propose to appoint an administrator, which is easily explicable if the obligation is triggered by a settled intention to appoint, but is less so if the appointment is only a possibility

• the circumstances in which a company may obtain the benefit of a moratorium in aid of a proposed CVA are limited to small companies (as defined by s 382 Companies Act 2006). It should not be possible to circumvent this rule by filing an NOI.

Key points for practitioners

This Court of Appeal decision gives rise to three key points:

• a company or its directors must have a fixed or settled intention to appoint an administrator in order to file an NOI

• contrary to common practice and previous judicial authority (eg Re Virtualpurple Professional Services Ltd [2011] EWHC 3487 (Ch)), JCAM confirms that appointers cannot file an NOI where there is no QFCH

• so long as there is a genuine settled intention to appoint an administrator when filing an NOI, successive NOIs may be filed (subject to the court’s oversight of abuses of process). However, the tactical use of NOIs to fend off creditors while other methods of rescuing a company are explored will no longer be tolerated by the court.