Baker & Anor v London Bar Company Ltd

I have before me two applications concerning the London Bar Company Ltd. and a purported appointment of joint administrators out of court, which was made in the course of yesterday. The appointment was purportedly made pursuant to paragraph 22(2) of Schedule B1 to the Insolvency Act 1986, which provides that “The directors of a company may appointment an administrator”.

By way of brief background, I think all I need to say is that the business of the company consists in the operation of a bar in Maida Vale known as Idle Wild and the company has four directors, Mr. Beak, Mr. Binfield, Mr. Debenham and Mr. Fletcher.

Yesterday’s purported appointment was presaged by a board meeting which at least ostensibly, took place on 17th June. In evidence there is a minute of the meeting which took place on that date at 12:30pm, attended by Mr. Beak, who was the Chairman, Mr. Debenham present by phone and Mr. Binfield present by phone. The three directors constituted a quorum.

The purpose of the meeting was to review the financial position of the company and to consider whether it was appropriate to appoint administrators. The Chairman reported that Mr. Jason Daniel Baker and Nicholas Hugh O’Reilly of FRP Advisory, licensed insolvency practitioners, had agreed in principle to act as the administrators of the company if the board resolved to place it into administration.

The matter was then discussed, the directors present declared their interests in the matter, and resolutions were purportedly passed to the effect that the company either was or was likely to become unable to pay its debts, that the appointment of administrators would be likely to achieve the purpose mentioned in paragraph 3 of Schedule B1 to the 1986 Act, and that the appointment of administrators would be in the best interests of the company’s creditors as a whole. It was further resolved that Mr. Baker and Mr. O’Reilly should be appointed as the joint administrators.

Pursuant to that decision, on 21st June a formal notice of appointment was lodged in Form 2.9B pursuant to rule 2.23 of the Insolvency Rules 1986, giving notice of the appointment of Messrs. Baker and O’Reilly as the administrators.

Everything was apparently in order, except that it has subsequently come to light that notice of the meeting of the board on the 17th was not given, or certainly not effectively given to the remaining director Mr. Fletcher, who knew nothing about it. It appears that he only found out about it on a later occasion when he saw that another public house belonging to the company was closed and, upon making enquiries, he heard that an administration order, about which he knew nothing, had been made.

The relevant articles of the company are in the familiar Table A form, and they do not contain any provision which enables a board meeting to take place in the absence of proper notice to a director present in this country. Even though he was only one of four directors, had he been given notice he would have been able to attend, and it is possible that he would have taken a different view and might have been able to persuade the board to act differently. It does therefore appear as a matter of basic company law, that the board meeting on that date was invalid and ineffective to make the decision to place the company into administration.

I have raised with counsel the question whether that defect may nevertheless be capable of cure by virtue of paragraph 105 of Schedule B1, which provides that:

“A reference in this Schedule to something done by the directors of a company includes a reference to the same thing done by a majority of the directors of a company”.

It is the view of professors Seally & Millman, in their Annotated Guide to the Insolvency Legislation, 2011 edition, that this provision is a “novel and welcome” one which effectively enables a majority of directors to act for the purposes of the Schedule, including for the purposes of paragraph 22(2), even if there has not been a properly convened board meeting therefore. If that is correct, it would appear that what happened in this case would nevertheless have been effective to appoint the administrators, because a clear majority of the directors, namely three out of four, were present on the 17th and decided to take that step.

However, counsel appearing before me this afternoon, Mr. Noble, has very helpfully drawn my attention to a recent decision of the Chancellor in the case of Minmar (929) Limited and another v Freddie Khalastchi and another [2011] EWHC 159 (Ch), where this very question was considered by the Chancellor, albeit in a slightly different context. After reviewing the matter in paragraphs 43 and following, he came to the conclusion that the view expressed by the editors of Seally & Millman was mistaken, and that paragraph 105 should not be interpreted as overriding the provisions which normally apply to the proper constitution and conduct of directors’ meetings. That is a recent decision squarely on the point and, for what it is worth, having read what the Chancellor says, I respectfully agree with the approach which he there adopted.

It therefore follows that reliance cannot be placed upon paragraph 105 to cure the defect in the present case, and it also follows that the appointment of the administrators out of court was in fact invalid, although that was not appreciated yesterday.

The first application before me seeks a declaration to that effect, although due to an unfortunate typographical error it appears to ask for the exact opposite, namely a declaration that the appointment was valid. In any event, for the reasons which I have explained, I am satisfied that the appointment yesterday was invalid. It follows that there is no subsisting administration and the two administrators are not in fact validly in office.

The matter is urgent because terms have been reached for sale of the Idle Wild public house before the June quarter day, which is tomorrow. To put matters right, there is also before me a fresh administration application brought by a secured creditor of the company, Lloyds TSB Bank PLC, which is the holder of a qualifying floating charge, pursuant to paragraph 35 of Schedule B1. I have been taken through the evidence in support of that application, which appears to me to be in order, and there are no obstacles so far as I can see to appointing the same two gentlemen to act as joint administrators on this separate application, which is duly made and does not suffer from the same defect as yesterday’s purported appointment, or indeed from any other defect. It is plainly desirable that the administration should commence at the earliest opportunity, and that there should be the opportunity to realise the asset in question by means of a sale before the June rent becomes due.

In that context, I understand that if a valid agreement for the sale is entered into today the landlord would in fact hold off until 1st July, so it does appear that if I make the order sought this afternoon it should then be possible for the sale to proceed.

I am satisfied it is appropriate to put the company into administration and it is appropriate to make the order requested and I will therefore do so.