Cornercare Ltd, Re

This is an application by the directors of Cornercare Limited. By the application the following relief is sought: firstly a ruling, said to be a direction, but which I think would take the form of a declaration, that the applicant is at liberty to appoint an administrator out of court. The reason why that direction is sought I shall come to. Alternatively an administration order is sought in relation to the company.

Two administrators are sought to be appointed: Mr. Nigel Price and Mr. William John Kelly, both being of high repute. Each of them has made a statement in form 2.2B confirming his opinion that the purpose of administration is reasonably likely to be achieved.

On the 5^th February of this year a copy of a notice of intention to appoint administrators was filed at court. That was intended as the precursor for an appointment of administrators by the company’s directors. However, the appointment was not made within ten business days. The reason for that has been explained as funding difficulties for the purchase of premises to which the business was to be moved.

I am satisfied, having read Mr. Moss’s witness statement, that that is a genuine reason. Those funding difficulties have now been resolved. However, as the directors had not made an appointment within ten business days of the 5^th February a question mark arises over whether it remains within the power of the directors to appoint administrators.

Paragraph 22(2) of Schedule B1 of the Insolvency Act 1986 contains the necessary power and the procedure is laid down in paragraphs 26 to 29 inclusive of Schedule B1, and in rules 2.20 to 2.26 of the Insolvency Rules 1986. Under paragraph 26(1), at least five business days’ written notice must first be given to those entitled to appoint an administrative receiver and any holder of a qualifying floating charge entitled to appoint an administrator. Certain other prescribed persons, who must also be given notice, are set out in Insolvency Rule 2.20(2), as required by paragraph 26(2) of Schedule B1. None of them is of any relevance in the present case, apart from the company itself.

In an appropriate case, no notice under paragraph 26(1) is necessary (if there is no-one who is or may be entitled to appoint an administrative receiver and no qualifying floating charge holder). In that case, the company may proceed to an immediate appointment, though any prescribed person under 26(2) which, in the case of a directors’ appointment, includes the company itself, will still have to be given notice, but there is no requirement that the notice should be of 5 days’ duration, as in 26(1).

Under paragraph 27(1) of Schedule B1 a copy of the notice given under paragraph 26 and any accompanying document has to be filed with the court as soon as is reasonably practicable. This produces an interim moratorium under paragraph 44(4) of Schedule B1.

The question arises in this case as to the effect of paragraph 28(2) of Schedule B1, which provides as follows: “An appointment may not be made under paragraph 22 after the period of ten business days beginning with the date on which the notice of intention to appoint is filed under paragraph 27(1).”

In this case a notice of intention to appoint was filed under paragraph 27(1) but no appointment was made pursuant to that notice within ten days.

It seems to me that what is being referred to in paragraph 28(2) is the particular filed notice of intention to appoint and that the effect of that sub-paragraph is that no appointment may be made out of time pursuant to that notice. It does not however prevent a fresh notice of intention to appoint from being served and filed, resulting in a fresh 10 day appointment window.

The contrary argument is that this would give rise to potential abuse because an unscrupulous individual or group of individuals could engineer a continuing moratorium by filing repeated notices of intention to appoint, each giving rise to an interim moratorium under paragraph 44 of Schedule B1. If that did happen I have no doubt that the court would have adequate power to treat that as an abuse and act accordingly. The court could restrain the lodgement of further notices of intention to appoint unless followed by an actual appointment. It could even, in an extreme case, vacate and remove from the file under its inherent jurisdiction any abusive notice of intention to appoint, coupling that with a blanket order for permission under paragraph 43 during the unexpired period of the illicit moratorium.

It does not in those circumstances seem to me to be necessary or desirable to construe paragraph 28 as precluding the company or its directors from making an out of court appointment in the future following a fresh notice of intention to appoint. That construction would lead to the result that where a notice of intention to appoint was not acted upon for a good reason, for example because a white knight came to the rescue, if ten years down the line under a different board of directors the company got into difficulties again and the directors, blissfully unaware of the previous proposed appointment, went ahead with an appointment of their own that would be invalid. It might be said that no mischief is done because the directors could always apply to court, but that would presuppose that they knew about or, which amounts to the same thing, had not forgotten about the previous notice of intended appointment. It might also take longer, which could be critical in the context of a potential rescue.

I should also mention that paragraph 23(2) of Schedule B1 bars for a limited period successive appointments under paragraph 22, but that is not the same as barring for ever a second notice of intention to appoint, which is what the suggested construction I am now considering would entail.

Accordingly it seems to me that to construe paragraph 28 in the way suggested would not be appropriate. In those circumstances it seems to me that it is open to the directors to serve and file another notice of intention to appoint. However, given the time that has already elapsed, I am told today, though this was not the position when Mr. Eyre put in his skeleton argument yesterday, that an administration order is preferable so that matters can be dealt with immediately. The proposed administrators, one of whom is in court, are apparently as keen as mustard and raring to go. In those circumstances there is no reason why I should not make an administration order if I am satisfied that the conditions set out in paragraph 11 of Schedule B1 are satisfied.

It is clear from the evidence that the company is or is likely to become unable to pay its debts and that there is likely to be a better result for creditors as a whole in administration than in liquidation. This is as a result of the intended strategy in the administration which would involve a pre-packaged sale of the company’s goodwill. The court deals with some care with pre-packs, but in this case the SIP16 material is annexed to the report of the proposed administrators and, as there could have been an out of court appointment, and will be next week if I do nothing, it seems churlish of me to cavil at what seems in the particular circumstances to be an entirely proper transaction. As in many cases, a significant element in the better recovery is the avoidance of employee termination costs and the recovery of something for goodwill.

In those circumstances I accede to Mr. Eyre’s application and make an immediate administration order. I merely add that there is nothing in Schedule B1 which precludes me from making an appointment simply because an out of court procedure is available. The conditions in paragraph 11 of Schedule B1 are met and it is right that I should exercise my discretion by making an administration order now, and not make the directors hold off for another 5 days, as paragraph 28(1) of Schedule B1 requires the period of notice specified in paragraph 26(1) to expire before an appointment under paragraph 22 can be made.