The issues concerning validity of appointment, which arose following the decision in Minmar Limited v Khalastchi have been considered in a number of recent cases, most recently BXL Services Limited [2012] EWHC 1877 (Ch).

Following the decisions in Re Virtualpurple Professional Services Ltd [2012] BCC 254, Re Ceart Risk Services Ltd [2012] EWHC 1178 (Ch) and BXL, where directors appoint an Administrator over a company, failure to serve Notice of Intention to Appoint an Administrator on the company, will not automatically invalidate the appointment.

Contradictory Cases

The law surrounding out of court administration appointments by directors has previously been subject to much confusion. Recent judgments are contradictory and until now the law has fallen short in providing guidance to those that rely on it.

In Minmar, the Court held that the failure to serve a Notice of Intention to Appoint an Administrator on the company rendered the appointment invalid, even though there was no qualifying floating charge-holder that needed to be served. The fact that the appointment was made without the unanimous decision of the directors was an additional factor that attributed to the appointment being invalid.

Similar issues arose earlier this year, in two cases that were decided on the same day, but with conflicting results. In National Westmister Bank plc v Msada Group [2012] failure to serve Notice of Intention to Appoint an Administrator on the supervisors of a voluntary arrangement was held to invalidate the appointment of the administrator. However, in Re Virtualpurple Professional Services Ltd [2012] BCC 254 it was held that serving Notice of Intention to Appoint an Administrator on the company was not necessary and, even if it were necessary, the failure to give notice did not invalidate the appointment. In Virtualpurple, the Court therefore declared the appointment of administrators to be valid.

Recent Decisions

These cases were considered further in Re Ceart Risk Services Ltd [2012] EWHC 1178 (Ch), which concerned the validity of appointment where the consent of the FSA had not been obtained. The conflict between Virtualpurple and Masada was considered, with the decision in Virtualpurple being preferred.

Accordingly, when similar issues arose again in BXL, the Court followed the decisions in Virtualpurple and Ceart. His Honour Judge Purle QC, in deciding BXL, considered and agreed with the decision in Virtualpurple, namely that failure to serve Notice of Intention to Appoint an Administrator on the company will not automatically invalidate the appointment, even if such notice is required, as the Court can validate the appointment.

However, whilst these decisions are welcome evidence that failure to serve a Notice of Intention to Appoint an Administrator on a company will not necessarily be fatal to the appointment of administrators by directors, the way in which the decisions were worded leaves open the question of whether or not a notice is required to be served. Indeed it would appear that, if the company is not served, an application to Court approving the appointment may be necessary. Accordingly, directors making out-of-court administration appointments should continue to serve Notice of Intention to Appoint an Administrator on the company, to avoid any possibility that the appointment could be invalid.