Gould & Anor v Itmo Advent Computer Training Ltd & Anor

This is an application by the joint administrators of two companies, Advent Computer Training Ltd. and Access 2 Careers Ltd., who have recently been appointed. The businesses of those two companies consisted of the provision of educational services to students who are, as a result of the termination of those services following the administration, now creditors, having claims which may vary in amount according to the loss occasioned by the breach of contract on the part of the companies in question in ceasing to provide the services for which payment in advance has been made.

The matter is complicated by the fact that there is a real hope that the business can be sold and the services resumed. In those circumstances, much of the value of the companies is comprised within the database of students which they each maintain. As, however, those students are all creditors, ordinarily their names and addresses should be provided in the statement of affairs. There is power in the court to exclude those details from the statement of affairs. In the absence of a full statement of affairs, the details should be provided in the statement of proposals to be given to all the creditors.

I am asked to give certain directions relating to the sending of notices of appointment to the student creditors, as I shall call them for short. I am asked also to give directions in relation to the sending of the administrators’ proposals and in relation to further reports required under the Insolvency Rules.

The relevant paragraphs of Schedule B1 of the Insolvency Act 1986 are paragraph 46, which relates to the sending of notices of appointment, and paragraph 49, which relates to the sending of statements of proposals. Rule 2.47 of the Insolvency Rules 1986 deals with the sending of progress reports. Rule 2.30 deals with the power of the court to order limited disclosure in respect of the statement of affairs. Rule 2.33(2)(h) is also relevant because that requires details of creditors to be given in the administrators’ proposals when there is no full statement of affairs. The contemplation in this case is that the statement of affairs will not be ready when the proposals are sent out so that under Rule 2.33(2)(h) the names, addresses and debts of the creditors, including details of any security held, ought then to be provided.

I am asked first to rule upon whether or not an electronic form of communication can be used to give notice of the administrators’ appointments.

Paragraph 46(3) of Schedule B1 requires the joint administrators to “send a notice of his appointment to each creditor of whose name and address he is aware.” Paragraph 46(7) empowers the court to disapply this requirement. As Mr. Ashworth QC has pointed out, paragraph 46(3) does not refer to “service” but to sending a notice of appointment. Moreover, that paragraph does not stipulate a means of sending the notice, nor does the paragraph say that the address to which reference is made is a postal address or some other address, though one would ordinarily expect it to be a postal address.

What is proposed in this case is that the notice should be sent to the e-mail addresses of the student creditors. That is, it is said, just as much an address as a postal address. Moreover, the appropriateness of that course is said to be confirmed by the fact that under the terms of the contracts between the companies and the students in question the students were contractually obliged to provide e-mail addresses to which all the course materials were to be and have, in the vast majority of cases, in fact been sent.

In this connection I was referred to the decision of Mann J in Re Sporting Options plc [2005] BCC 88. In that case, which concerned a company involved in the taking of sporting bets, the evidence was that attempts at e-mail communication had been kicked back by firewalls and for other reasons that the administrators could not identify. There was, therefore, as Mann J explained, uncertainty about whether e-mails would get through. Mann J also noted that it could not be assumed that all persons who had placed bets would have retained the same e-mail address or that they would access their e-mails with the same regularity as the post office delivers post. In those circumstances, Mann J did not consider it to be proper to allow service of the documents in question by e-mail, though he did authorise a form of communication which consisted merely of a short indication of the website at which the proposals could be found, thereby saving some though not all of the costs that the administrators hoped to save.

In the present case, it is estimated that a sum in excess of £50,000 will be saved - and that is a minimum sum as there are 14,000 student creditors of the two companies - if service by e-mail is allowed as an appropriate means of communication.

Founding itself upon the Sporting Options decision, the twelfth edition of Sealy and Milman’s ‘Annotated Guide to the Insolvency Legislation 2009/2010’ states that the notice of appointment may not be sent by e-mail. Mr. Ashworth QC has challenged the accuracy of that statement, pointing out that Mann J did not say that, as a matter of principle, notice of appointment could not be sent by e-mail. His decision, Mr. Ashworth QC argues, was based upon the facts of that particular case, the evidence indicating that that form of service would not, in fact, work. Moreover, at the end of his short but illuminating judgment Mann J stated expressly that he was not going into an analysis of quite how it was that the Act and the Rules would permit service by e-mail. I agree with Mr Ashworth QC that Mann J was not laying down a general rule excluding the sending of notices by e-mail in an appropriate case. He held on the particular facts that the sending of notices by e-mail was not an appropriate form of communication. That is hardly surprising, as the evidence was that sending could not, in a significant number of cases, to the knowledge of the administrators be effective. In such cases, it might be said that the notices could hardly be regarded as sent at all.

Mr. Ashworth QC contends that the words in paragraph 46(3) of Schedule B1 are quite general and that all that needs to be done is that a notice of appointment be sent and that it is as much sent by e-mail as it would be by post. Given that there is not the same (or, on the present evidence, any) uncertainty in this case as there was, on the evidence, in the Sporting Options case, I agree with Mr. Ashworth QC.

So far as the Rules are concerned, they do not unambiguously resolve the matter. Rule 12.4(1) provides that:

“All notices required or authorised by or under the Act or the Rules to be given must be in writing unless it is otherwise provided or the court allows the notice to be given in some other way.”

An e-mail is clearly in writing, albeit communicated electronically. What is communicated is the written word. It seems to me, therefore, that an e-mail would be in writing.

Rule 12.4(2) provides that:

“Where in any proceedings a notice is required to be sent or given by the Official Receiver or by the responsible insolvency practitioner, the sending or giving of it may be proved by means of a certificate … (b) in the case of the insolvency practitioner, by him, or his solicitor, or a partner or an employee of either of them, that the notice was duly posted.”

That is permissive as to a particular method of proof, as the word “may” confirms. The rule, no doubt, presupposes that ordinarily notices will be posted, which I am prepared to assume means putting into the post in the ordinary sense in which that expression is used but, as the provision is merely permissive, I do not consider that that is exhaustive as to the range of methods of sending that may be adopted.

Moreover, Rule 12.11 provides that CPR Part 6, subject to two other Rules (which I do not think shed any light on the matter) applies as regards any matter relating to the service of documents and the giving of notice in “insolvency proceedings”. It is quite clear that, although the present administrations were out of court appointments, they are regarded as “proceedings” for the purpose of the Rules. They are so referred to in a number of places; see, for example, Rule 2.33(2) which requires the statement of the administrators’ proposals to include details of the court where the proceedings are. Every appointment of an administrator is filed at court and allocated a court reference number. Rule 12.17(1) also in terms regards all company administrations under Part II of the Insolvency Act 1986 as “proceedings” It also seems to me that they cannot be anything other than “insolvency” proceedings. The prescribed forms for use in “insolvency proceedings” (see Rule 12.7 and Schedule 4) include prescribed forms for making out of court appointments.

Returning to Rule 12.11, as this relates not just to the service of documents but to the giving of notice, which is what I am presently concerned with, under Schedule B1 paragraph 46(3)(b), it seems to me that CPR Part 6 technically applies. CPR Part 6 itself contemplates the service of documents by e-mail, at all events where the recipient has indicated a willingness so to be served. As in this case the contracting students have nominated an e-mail address to which communications are to be sent, I would have thought that was enough to bring the relevant provisions of Part 6 into play.

Whether or not that is right, it seems to me that it is an analogy from which I can take comfort and it would be an anomaly if service of formal documents in insolvency proceedings could be served by e-mail but not the sending of the primary notices which are necessary to bring those insolvency proceedings to the attention of those affected.

I note also that under Insolvency Rule 12.10 there are provisions for what is necessary for service to be properly effected by post. It is clear that those provisions do not fit e-mail delivery but there is nothing prescriptive about 12.10. It merely says how postal service is to be effected and is silent as to when other forms of sending or service are sufficient.

In case I was not persuaded that sending by e-mail is permitted under Schedule B1 paragraph 46(3), I was asked to disapply the section under paragraph 46(7)(a), in return for e-mail delivery. It is not necessary for me to do so, given the view that I take as to the proper construction of paragraph 46(3), though I would have done so had I taken a different view on the construction issue because it seems to me that the saving of time and money - and the two go together - would be significant in this case and that the risk of the notices not coming to the attention of the student creditors would be minimal. Alternatively, I would have power (were it necessary) to authorise service by an alternative method under CPR 6.27.

I should mention in this connection that the two examples given by Mann J in addition to the specific evidence that he considered of communications being kicked back, namely, that e-mail addresses change and people may not regularly access their e-mails, are not significant in the circumstances of this case, given the obligation to maintain an e-mail correspondent address. Moreover, the same observations apply in relation to postal addresses. People change those and do not always open their post. Mann J’s decision was a December 2004 decision and, whilst e-mails were even then commonly in use, they are even more commonly in use today, over five years on, and I regard it, in the circumstances of this case, as inherently unlikely that e-mail delivery would not be effective.

Accordingly, my ruling is that paragraph 46(3) of Schedule B1, subparagraph (b), is complied with by sending a notice of appointment by e-mail. If, of course, there is a significant incidence of e-mails being kicked back, as was already known to be the case in Sporting Options, the administrators may then be advised to seek further directions, but that has not been a problem hitherto and I am not going to proceed on the basis that it will be a problem hereafter. If it is, it can be dealt with appropriately, if necessary upon very short notice, given the fact that there will be a meeting to consider the proposals of the administrators to which I now also turn.

The relevant paragraph in that connection is paragraph 49 of Schedule B1. That requires the administrator under 49(1) to make a statement setting out proposals for achieving the purpose of administration. 49(4) provides that the administrator shall send a copy of the statement of his proposals to, amongst others, under subparagraph (b) “every creditor of the company of whose claim and address he is aware”. That, again, suggests, at first sight, that the means of communication will be by post, though it does not expressly say so. For the reasons that I have given in relation to paragraph 46, e-mail sending is, in my judgment, sufficient, though there is the added wrinkle here that the word “notice” is not used so that I cannot pray in aid Insolvency Rule 12.11 as to the “giving of notice”. Nonetheless, it seems to me that the administrators can properly be said to “send” the proposals if they are sent by e-mail to a known e-mail address. There inevitably is a known e-mail address in the case of the student creditors, because they have provided their e-mail addresses as part of their contractual package. I shall also make the same order in respect of further notices that are required as presently provided in paragraph 4 of the draft order. So far as progress reports are concerned, the requirement under Insolvency Rule 2.47(4) is to “send” a copy to (amongst others) the creditors. No particular form of sending is prescribed, and there is not even here (as elsewhere) any reference to an address.

The e-mails to the students so far as the proposals are concerned will attach a copy of the administrators’ proposals and will also give the website link for anyone who wishes to access them remotely. That will deal with a possible problem if it turns out that the attachment is too large to be downloaded by some systems. The e-mail will also notify students that the proposals are available by inspection by appointment. One way or another that should be more than sufficient. Similar provisions are suggested, which I approve, in relation to any further reports to be sent to the student creditors. The due date of service will be the day of the sending of the e-mail if sent before 4.30 p.m. or the following day if sent after 4.30 p.m.

A separate issue arises in relation to the obligations of the administrators under Rule 2.33 of the Insolvency Rules 1986. Rule 2.33 is the Rule which sets out the prescribed details referred to in paragraph 49 of Schedule B1 relating to the statement of administrators’ proposals. Rule 2.33(2)(f) provides that the statement shall include:

“if a statement of the company’s affairs has been submitted, a copy or summary of it with the administrator’s comments, if any.”

Rule 2.33(2)(g) then refers back to Rule 2.30. Rule 2.30 (which concerns limited disclosure) provides, in (1), that where the administrator thinks that it would prejudice the conduct of the administration for the whole or part of the statement of the company’s affairs to be disclosed, he may apply to the court for an order of limited disclosure in respect of the statement or any specified part of it. In that case, the court may under Rule 2.30(2) order that the statement or, as the case may be, the specified part shall not be filed with the registrar of companies. Any creditor then has the right to apply under rule 2.30(4) for disclosure of the undisclosed statement or part on notice to the administrator, and the court may then under rule 2.30(6) make an order for disclosure, subject to conditions as to confidentiality and the like.

Going back to Rule 2.33(2)(g), it is provided that the proposals shall include, if an order limiting the disclosure of the statement of affairs under Rule 2.30 has been made, a statement of that fact. Various details also have to be given.

Paragraphs (h) and (j) of Rule 2.33(2) are also important for present purposes. Paragraph (h) requires the statement of proposals to include, if a full statement of affairs is not provided, the names, addresses and debts of the creditors, including details of any security held. Paragraph (j) also requires the inclusion, if no statement of affairs has been submitted, of details of the financial position of the company, a list of the company’s creditors, including their names, addresses and details of their debts, including any security held, and an explanation as to why there is no statement of affairs.

As I mentioned earlier, it is thought that in this particular case the value of the companies are substantially within the student lists which, unusually, are effectively the customer lists of the companies in question. I say “unusually” because customers are not usually creditors. They are usually debtors if they are anything at all. But here, because payments have been made in advance, the student creditors have, as I have said, actual or prospective claims for breach of contract which, hopefully, may be mitigated if not eliminated in the event of the sale of the business and the resumption of services. Much of that commercial value, it is feared, will be lost if details of the student creditors are given in the statement of affairs or in the statement of administrators’ proposals.

It is thought that there is a likelihood, or, at least, a real risk that the statement of affairs will not be completed by the time the administrators’ proposals are sent out. Under paragraph 49 of Schedule B1 they have to be sent out within eight weeks of the date of the administrators’ appointment. Under paragraph 49(8) that period may be varied in accordance with paragraph 107, which in turn provides for the period to be varied, on the application of the administrators, by the court.

Mr. Ashworth QC points out the surprising anomaly that, whereas Insolvency Rule 2.30(2) permits the court to order that a specified part of the statement of affairs shall not be filed with the registrar of companies, which, in turn, has the knock-on effect that the specified part will not be disclosed to the creditors in the statement of administrators’ proposals, there is no express provision in Insolvency Rule 2.33 for the statement of the administrators’ proposals themselves to withhold disclosure of sensitive matters in the event that there is no statement of affairs and, even if there is, the requirement to specify the names, addresses and debts of the creditors appears to be absolute, even if the undisclosed matter in the statement of affairs is that very information.

Mr. Ashworth QC invites me to construe Rule 2.33 so as to embrace within it the power of the court to withhold disclosure of the prescribed matters so far as they relate to the names and addresses and debts of the student creditors, given their commercial sensitivity. I have some reservations as to whether I can construe the Rules in that way but I need not resolve that matter finally because it became clear in the course of argument that what is sought is a deferment of the obligation to disclose the student creditor details until such time as the efforts to sell the business have been fully exploited.

In those circumstances, attention during the course of argument focused upon varying the period, in accordance with paragraphs 49(8) and 107 of Schedule B1, within which that part of the prescribed matters relating to details of the student creditors should be disclosed. I was invited ultimately to extend that period until 30^th April 2010. In other words, the statement of the administrators’ proposals would go out but the obligation to include within the statement the matters referred to in Rule 2.33(2)(h) and (j) of the Insolvency Rules 1986 (so far as they relate to student creditors) need not be complied with until 30^th April 2010. There will be permission to apply both in relation to that date and to renew the application insofar as it relates to withholding disclosure completely at any time. As I have said, I have not ruled finally on Mr Ashworth QC’s submissions in that regard.

I am satisfied that the power in paragraphs 49(8) and 107 of Schedule B1 to vary the period can properly be construed as empowering the court to vary the period in relation to some only of the prescribed matters. The effect of paragraphs 49(2)(a) and 49(5) is that the administrators’ proposals must deal with “such matters as may be prescribed” within 8 weeks at most. The effect of the order I propose to make is that as regards details of the student creditors (which are included within the prescribed matters) but not as regards other prescribed matters, the period shall be extended. It is right to do so as the creditors will still be able to approve (or reject) the actual proposals, and essential confidentiality as to the customer lists will be preserved in the meantime.

The costs of the application will, as sought, be paid as an expense of the administration.