Armstrong Brands Ltd, Re

I made an order at the conclusion of the hearing on 29 June declaring that the appointment of administrators of Armstrong Brands Ltd (“the Company”) by J.B. Armstrong & Co. Ltd (“JB”) as the holder of a qualifying floating charge pursuant to paragraph 14 of Schedule B1 to the Insolvency Act 1986 (“Schedule B1”) was valid.

I also declared that all acts carried out by the administrators including the extension of the administration pursuant to paragraph 76(2)(b) of Schedule B1 were valid.

In case the appointment of the administrators should be found to have been invalid, an indemnity was sought as alternative relief from JB as the appointor pursuant to paragraph 21(2) of Schedule B1. As I found that the appointment was valid, the indemnity claim did not arise.

I said I would give my reasons later. These are my reasons. For completeness, I record that I extended the administration again on 30 September 2015 to 12 October 2016, as a further period was required for realisations, to ascertain the likely outcome for creditors, and to consider a distribution either within the administration or following a winding-up.

Both extensions depended upon the validity of the existing appointments. If there was no valid appointment in the first place, there was nothing to extend, unless I could waive any defect in the appointment.

The critical question was therefore as to the validity of the original appointment. That in turn depended on the validity of the qualifying floating charge under which the appointment was made. If that charge was invalid, there was no qualifying floating charge holder having power to appoint administrators. In those circumstances, it was not suggested that I could waive the defect in the appointment.

The original appointment was made on 17 April 2014, purportedly by JB as a qualifying floating charge holder. The original administrators were Philip Michael Lyon (subsequently replaced by Sajid Sattar under a block transfer order on Mr Lyon’s retirement) and Roderick John Weston.

It is not in doubt that the Company was substantially indebted to JB on 17 April 2014 and that the charge, if valid, enabled JB to appoint administrators.

Keiron Armstrong (“Mr Armstrong”) was at all material times the sole shareholder of the Company. Mr Armstrong was also a director of the Company between 29 April 2008 and 6 June 2008 and again from 2 September 2011 onwards. Mr Armstrong was also a director of JB and one of its shareholders at all material times.

On 10 June 2008, the Company’s secretary, Julie Tattersall (“Ms Tattersall”) signed a letter on the Company’s headed notepaper purporting to authorise Mr Armstrong to sign documents on the Company’s behalf. As is now known, that letter of authority was authorised by the board of the Company on 4 June 2008 when Mr Armstrong was still a director. The minutes of that meeting also recorded that Mr Andrew Bojko (“Mr Bojko”) would become the new director upon termination of Mr Armstrong’s appointment.

The Company entered into a loan agreement with JB dated 15 September 2008 (“the loan agreement”) under which JB agreed to lend to the Company £750,000 in the form of cash and stock. The Company also purported to grant a debenture to JB (“the debenture”) as security for the payment or discharge of the “Secured Liabilities”. These were defined in summary as (1) all monies due under the loan agreement (2) all other monies due (in fact, nothing fell into this latter category). The copy of the debenture I have seen is undated. However, the certificate of registration filed at Companies House records that it is dated 15 September 2008. One would expect it to be contemporaneous with the loan agreement, so it is no surprise that the two bear the same date.

The loan agreement and debenture were both expressed to be executed as Deeds by the Company “acting by two directors or a director and the company secretary” and were signed on behalf of the Company by Mr Armstrong (as “director”) and Ms Tattersall (as “director/company secretary”).

The debenture, if valid, was a qualifying floating charge. The sole issue therefore is whether the charge was validly executed by the Company.

Section 44 of the Companies Act 2006, which applied after 6 April 2008, reads as follows:-

“44 Execution of documents

(1)

Under the law of England and Wales or Northern Ireland a document is executed by a company—

(a)

by the affixing of its common seal, or

(b)

by signature in accordance with the following provisions.

(2)

A document is validly executed by a company if it is signed on behalf of the company—

(a)

by two authorised signatories, or

(b)

by a director of the company in the presence of a witness who attests the signature.

(3)

The following are ‘authorised signatories’ for the purposes of subsection (2)—

(a)

every director of the company, and

(b)

in the case of a private company with a secretary or a public company, the secretary (or any joint secretary) of the company.

(4)

A document signed in accordance with subsection (2) and expressed, in whatever words, to be executed by the company has the same effect as if executed under the common seal of the company.

(5)

In favour of a purchaser a document is deemed to have been duly executed by a company if it purports to be signed in accordance with subsection (2).

A ‘purchaser’ means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property.

(6)

Where a document is to be signed by a person on behalf of more than one company, it is not duly signed by that person for the purposes of this section unless he signs it separately in each capacity.

(7)

References in this section to a document being (or purporting to be) signed by a director or secretary are to be read, in a case where that office is held by a firm, as references to its being (or purporting to be) signed by an individual authorised by the firm to sign on its behalf.

(8)

This section applies to a document that is (or purports to be) executed by a company in the name of or on behalf of another person whether or not that person is also a company.”

As Mr Armstrong was not a director in September 2008, the terms of section 44 were not complied with, if the debenture was signed in September 2008. Nor, for that matter, was the loan agreement, though that did not itself create a charge or embody any agreement to create a charge.

Mr Passfield for the administrators argued that the fact that the debenture was purportedly executed as a deed was irrelevant as a floating charge may be created by an “instrument”: paragraph 14(2) of Schedule B1. That may be so, but the instrument still needs to be duly executed, and section 44 applies to any instrument creating a charge.

The letter of authority given to Mr Armstrong by Ms Tattersall on 10 June 2008 was also said by Mr Passfield to suffice to confer on Mr Armstrong the necessary authority in this case, independently of section 44. This is difficult to square with the decision of the Court of Appeal in Hilmi & Associates Ltd v Pembridge Villas Freehold Ltd [2010] 1 WLR 2750, in particular at [32]. That was a decision on section 44’s predecessor, which Mr Passfield said no longer applied to the different wording of section 44. I agree that there are differences in the wording, but I am not persuaded that the differences are significant for present purposes.

The loan agreement and charge both purported to have been signed in accordance with the requirements of subsection (2) of section 44. Mr Passfield therefore contended, citing Lovett v Carson Country Homes Ltd [2011] BCC 789, especially at [79]-[80], that JB, which lent substantial sums under the loan agreement in reliance on the debenture, was a purchaser within the meaning of sub-section (5), and that the documents including the debenture were accordingly deemed to have been duly executed.

The obstacle in the way of this argument was that Mr Armstrong, whilst not a director of the Company in September 2008, was a director of JB. As his knowledge was attributable to JB, it follows that JB knew that the documents including the debenture, if signed in September 2008, were not duly executed, because Mr Armstrong knew that he was not a director of the Company at that date.

Despite those difficulties, Mr Passfield had another point which in my judgment established the validity of the charge and therefore of the ensuing appointments. This point arose as a result of further documents furnished by JB during the course of this application. I required the administrators’ solicitors formally to introduce those documents into evidence before the Order I made on 29 June 2015 was entered, which they duly did.

Those documents indicated that the debenture and loan agreement, though dated 15 September 2008, were in fact signed on behalf of the Company in early June 2008, when Mr Armstrong was still a director of the Company, but were dated later, when the loan agreement was authorised, and the ensuing loan made, by JB.

The evidence is as follows:

The Company’s board minutes are evidence of the proceedings at the meeting under section 249 of the Companies Act 2006. Taking those minutes with the corroborative evidence of the inference to be drawn from the later ordinary resolution of JB by the alteration of the June date, I am persuaded on a balance of probabilities that the loan agreement and debenture were both signed, though not then dated, when Mr Armstrong was still a director of the Company.

In those circumstances, section 44 of the Companies Act 1986 was complied with. What the section required was that the documents be “signed” by two authorised signatories. In the present case, that meant one director and one company secretary. Both the loan agreement and the debenture were signed by a person who was at the time he signed a director, as well as by the company secretary. That was enough. It does not matter that the transaction completed later, when the director signatory was no longer a director. Execution and delivery, though presumed unless a contrary intention is proved to be simultaneous under section 46(2) of the Companies Act 2006, need not be. In the present case, I am satisfied that the contrary intention is proved. JB was not ready to proceed, and the loan and debenture were not authorised by JB, until 15 September 2008. It would make no sense for the Company to deliver the loan agreement and debenture (except possibly as escrows) unless and until the loan, or at least a commitment to make the loan, was forthcoming. That did not occur until 15 September 2008, as JB’s resolution of that date, the date of the loan agreement, and of the debenture as filed, all confirm.

The later delivery of the loan agreement and debenture as a deed did not require any form of execution but merely required board authority. The minutes of 1 September 2008 were sufficient for that purpose in my judgment as the debenture was “accepted” by the board, thereby implicitly authorising its delivery, as well as the loan agreement, as the debenture secured sums due under that agreement.

If, as an alternative, the Company is to be taken as delivering the loan agreement and debenture in June 2008, they must have been subject to the escrow condition of acceptance by JB of the loan agreement and debenture, which occurred on 15 September 2008.

On either hypothesis, the deeds were properly executed as Mr Armstrong was in fact a director when he signed in that capacity.

It accordingly follows that JB as the holder of a properly executed and authorised qualifying floating charge had power to appoint administrators on 17 April 2014, and that the appointments, and all ensuing acts, were valid.

There is another point. Sajid Sattar’s appointment in place of Philip Michael Lyon was effected as part of a block transfer Order made on 8 December 2014 (“the December Order”) by HHJ Cooke.

Paragraph 2 of the December Order provided:

“In relation to the cases listed in Part A of the Schedule:-

a.

Philip Michael Lyon be removed as Joint Office Holder of each of the listed appointments; and

b.

Sajid Sattar be appointed in his place together with the remaining Office Holder”

The Company was listed in Part A of the Schedule, which was headed “Sajid Sattar to replace Philip Michael Lyon”. In that Schedule also, Roderick John Weston was named as the Joint Appointee in the case of the Company.

That Order was necessarily made on the basis (which was assumed, as the present possible defect in the administrators’ appointment had not then been noticed) that there was a valid appointment of the existing two appointees, one of whom was being replaced by Sajid Sattar, who was to act thenceforth jointly with Roderick John Weston.

The removal and new appointments were to be advertised within 28 days of the date of the December Order. Any creditor who objected to the transfer of any of the insolvency appointments as provided by the December Order had 28 days from that advertisement to apply to court to set aside or vary the December Order. A copy of the Order was also to be attached to the next statutory report, as in fact occurred in this case. Had the existing appointment been invalid, that would have been an unanswerable objection to the December Order as it applied to the Company. The Court cannot appoint someone to replace an office holder if he does not hold the office in question. No creditor has in fact objected.

The December Order appears to establish as a matter of record the applicants’ status as administrators as at 8 December 2014, and the validity of the original appointment. I do not think it would be right for me now to look behind Judge Cooke’s Order, especially when creditors have had the opportunity of challenging the Order but have not availed themselves of that opportunity. As, however, I have reached the conclusion that the original appointment was for other reasons of substance valid when made, it is unnecessary to rely upon this alternative ground for my decision.