Arucana Ltd, Re

On 30 June 2009 at about 10:50 am the directors of the Company filed at court a notice in the form 2.8B of their intention to appoint an administrator. The notice stated that it was being given to Royal Bank of Scotland Plc, the holder of a floating charge entitling it to make its own appointment of an administrator. The notice was given pursuant to para 26(1) of Schedule B1 to the Insolvency Act 1986, which requires that at least five business days written notice be given to the holder of such a floating charge. The purpose is so that the person notified may, if it chooses, make its own appointment pursuant to paragraph 14 of that Schedule. If the floating charge holder does not make its own appointment, at the end of the notice period (or earlier if the floating charge holder expressly consents in writing) the directors may proceed to make their appointment pursuant to paragraph 22. Unless and until an appointment is made and takes effect under one of these provisions, the company is not in administration.

The notice of intention to appoint does however bring into operation an interim moratorium pursuant to paragraph 44 (2) of Schedule B1. During the period of the interim moratorium, by paragraph 44 (5) "the provisions of paragraphs 42 and 43 shall apply (ignoring any reference to the consent of the administrator)". Paragraphs 42 and 43 are headed respectively "moratorium on insolvency proceedings" and "moratorium on other legal process".

At 14:04 p.m. on the same day, the Petitioning Creditor filed at court a petition to wind up the Company. The first question is whether the presentation of the petition is prohibited by the terms of the interim moratorium. If the petition can be presented, the second question is whether, once it has been, the directors are prevented by paragraph 25 (a) from proceeding to appoint an administrator until the petition has been disposed of.

The Petitioning Creditor objects that paragraphs 42 and 43 are expressed to apply "to a company in administration" but the company is not yet in administration. I do not accept this point; paragraph 44 expressly applies the provisions of the two earlier paragraphs during a period (i.e. the interim moratorium period) in which the company is by definition not in administration and is clearly intended to extend the period in which those paragraphs would otherwise have effect in accordance with their own terms.

The presentation of a winding up petition is not prohibited by paragraph 42, which prevents the passing of a resolution for winding up of the company, and the making of an order by the court for compulsory winding up, unless it is made on one of the special types of petition referred to in paragraph 42 (4).

The issue is therefore whether the presentation of the petition is prohibited by paragraph 43 (6) which provides that "no legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against a company or property of the company except… with the permission of the court."

In my view, a winding up petition is within the ordinary meaning of the terms "legal process" and "legal proceedings", since it is a procedure by which a creditor has resort to the process of the court to obtain the remedy he seeks. There is no obvious policy reason why winding up proceedings should be excluded from the general prohibition on legal process in paragraph 43, unless it is by implication from the fact that specific and more limited prohibitions are set out in paragraph 42, headed with a reference to "insolvency proceedings" while the heading to paragraph 43 refers to "other legal process", possibly implying that it refers to process other than insolvency proceedings. But it is trite law that in construing a statute the headings to the clauses are of little if any weight and regard must principally be had to the terms of the operative provisions themselves.

An indication that the expression "legal process" is intended to include the presentation of a petition is given by paragraph 44 (7) which provides that "this paragraph does not prevent or require the permission of the court for- (a) the presentation of a petition for the winding up of the company under a provision mentioned in paragraph 42 (4)." This provision would be unnecessary if the moratorium did not prevent the presentation of any petition, and clearly suggests an intention to distinguish between the special types of petition which may be presented (and upon which an order for winding up may be made) and other types of petition which, by implication, may not be presented.

Prior to 2003 the moratorium provisions were contained in sections 10 and 11 of the Act. S 10(1) provided that while an administration petition was pending no resolution may be passed and no order made for winding up, and "… (c) no other proceedings and no execution or other legal process can be commenced or continued…" but the presentation of a petition was expressly permitted by s 10(2). This also implies that, but for such an express permission, it would have been caught by the prohibitory words. Any conflict between the two concurrent procedures would be resolved by the court, which had conduct of both, and would ultimately decide which petition to allow and dismiss the other.

In Re a Company No 001992 of 1988 it was held that advertisement of a winding up petition was an act prohibited by s 10(1)(c) on the basis that it constituted "continuing" proceedings, which necessarily implies that the petition itself constituted "proceedings" which, but for the express exclusion, could not therefore have been commenced in the moratorium period. I see no reason to construe the present language "legal process... including legal proceedings" in any different manner.

All these indications seem to me to show that far from there being any reason to hold that the ordinary meaning of the prohibitory words should be restricted to exclude a winding up petition, there is every reason to think that they were intended to include such petitions.

I conclude that the presentation of a winding up petition constitutes the "institution" of legal process which is prohibited during the interim moratorium period without the consent of the court. What then is the effect of the petition which has in fact been issued by the court?

It was held by the Employment Appeal Tribunal in Carr v British International Helicopters Ltd [1993] BCC 855 that an application to an employment tribunal made without the required permission was not a nullity and could properly be adjourned while application was made for the necessary permission. The basis of this decision was that the purposes of the insolvency legislation could be achieved without requiring that the tribunal application be a nullity, and there were good reasons, such as the prevention of expiry of limitation periods, to permit an application to be made and permission sought afterwards.

It seems to me that if this is the effect of the prohibition for one type of proceedings, the effect must be the same for other types of proceedings. The legislature cannot be inferred to have intended different effects without providing some criteria or mechanism for determining which effects apply in which cases. If contrary to that one were to look at the particular case of a winding up petition there are potentially good reasons why a winding up petition should be treated in the same way as not being a nullity; if in due course permission is given and a winding up order made, the date of presentation will fix the commencement of the winding up under s129(2).

On that basis, the petition was properly issued by the court, but applying the decision in Re a Company No 001992 of 1988 I direct that it be stayed (save for the purposes of applying for permission to continue it) until either (a) such permission is given or (b) the expiry of the interim moratorium without an administrator having been appointed.

The result is that the petition has been issued and not disposed of and has the effect of preventing the appointment of administrators from proceeding, by virtue of paragraph 25(a). The conflict will have to be resolved by the court, either on the application of the Petitioning Creditor for permission to issue and continue the petition, or on the application of the directors for the dismissal of the petition in order that they can make their appointment.

Having decided this matter without a hearing, and in view of its potential wider importance, I will consider it afresh at a hearing if requested by either party within 14 days, if appropriate in conjunction with any other application they may make.