His Honour Judge Purle QC in Re Cornercare Limited [2010] EWHC 393 (CH) has clarified English law on the filing of successive notices of intention to appoint administrators. He has held that there is nothing in the relevant provisions of the Insolvency Act 1986 ("IA 1986") to prevent the filing of successive notices of intention to appoint administrators, where the original notice of intention to appoint an administrator had not been acted upon for good reason. Judge Purle gave as an example the situation where the appointment of an administrator was deferred on account of attempts being made by a white knight to rescue company concerned.

The ruling is important as the filing of a notice of intention to appoint an administrator means that a company gains the protection, for the period for which the notice of intention to appoint is effective, of a moratorium against creditor action. This can in turn facilitate the uninterrupted conduct of any negotiations for the rescue of the company as a going concern.

Judge Purle said that in his view the court had sufficient discretion to provide appropriate relief on a case by case basis where there was evidence of companies and other stakeholders abusing the process by filing successive notices of intention to appoint administrators.

Under the IA 1986 a company can enter administration either through a court order or through the appointment of an administrator out-of-court. The company, its directors and the holder of a qualifying floating charge can each appoint an administrator using the out-of-court procedure. A company or its directors intending to use the out-of-court procedure must give at least five business days' written notice of intention to appoint an administrator to any holder of a qualifying floating charge and file a copy with the court as soon as reasonably practicable.

When the copy notice is filed with the court by the company or its directors, an interim moratorium arises which prevents most forms of proceedings or enforcement against the company, including forfeiture and distraint by a landlord, being started or continued without the permission of the court. That moratorium expires on the earlier of the appointment of the administrator and ten business days after the filing of the notice of intention to appoint. An administrator may not be appointed pursuant to that notice after the ten business day period has expired.

The directors of Cornercare Limited had given and filed notice of intention to appoint an administrator in February this year, but then failed to appoint an administrator within 10 business days of filing as they had not secured funding to purchase the new premises for the business. They sought a declaration from the court clarifying, in particular:

  • whether an appointment of administrators by the directors could be made out of time pursuant to the notice already given and filed, and
  • whether it was possible to give and file a fresh notice of intention to appoint an administrator, thereby creating another interim moratorium of 10 business days within which to appoint administrators.

The judge held that the effect of the relevant provisions of the IA 1986 was to prevent administrators being appointed on the back of the original notice of intention to appoint where the 10 business day period had expired; it did not prevent the company or the directors from giving and filing a fresh notice (or notices) of the intention to appoint administrators and appointing administrators within the further period of 10 business days commenced by the filing of these additional notices of intention to appoint administrators.

However, he warned against misuse of the ability to file repeated notices of intention to appoint and considered that the court had adequate power to treat such repeated filings as an abuse of process Judge Purle ruled that the court could restrain the filing of further notices unless these were followed by an actual appointment. Judge Purle also held that the court could invalidate any abusive notice of intention to appoint or make a blanket order overriding the moratorium. In such circumstances, Judge Purle ruled that the court would have the power to give a disgruntled creditor permission to bring proceedings and take enforcement action against the company.

Comment

This decision will come as a relief to companies and directors who have found themselves legitimately unable to appoint an administrator following the filing of a notice of intention to appoint – the concern that the ability to appoint may have been lost altogether by failing to meet the deadline has been dispelled.

Those companies and directors who file a notice of intention to appoint an administrator but do not do so within 10 business days, and those insolvency practitioners appointed pursuant to a subsequent notice of intention to appoint, should document the reasons why no administrator was appointed under the original notice in order to head off any challenge to the later notice or appointment. Anyone filing notices of intention for purely tactical purposes should not be surprised to see their actions challenged at court.

The decision is of equal importance to landlords and other creditors, some of whom have reported tenant and debtor companies or their directors repeatedly giving and filing notices of intention to appoint apparently in order to achieve an indefinite "rolling moratorium" and avoid creditor enforcement action. The decision provides both comfort to those seeking to make legitimate use of notices of intention to appoint administrators and a warning that the Court will not tolerate any abuse of this procedure by a company or its directors.