Matthew Robert Haw & Anor v QM Systems Limited (in administration)

By an application dated 22.07.2024 (“the Application”) Matthew Robert Haw and Diana Frangou (“the Applicants”) seek an order under paragraph 63 of Schedule B1 to the Insolvency Act 1986 (“IA”) and r.12.64 of the Insolvency (England and Wales) Rules 2016 (“IR”) confirming the validity of their appointment as joint administrators of QM Systems Limited (In Administration) (“the Company”) on 15.07.2024 at 15:12 notwithstanding:

On 05 July 2024, due to cash flow challenges and accumulated rent arrears, the Company’s directors entered into discussions with RSM Restructuring Advisory LLP (“RSM”).

On 11 July 2024, RSM was formally engaged to assist the Company in entering administration.

At 10:37 on 12 July 2024, a Notice of Intention to appoint the Applicants was filed at court (“the NOI”). The NOI served pursuant to paragraph 26 of Schedule B1 IA and r.3.23 IA included a signed written consent from NWB to the appointment of the Applicants.

At 15:12 on 15 July 2024, a Notice of Appointment of administrators (“the NOA”) was filed at court together with consents to act executed by the Applicants. The NOA was sealed by the court on that day.

The NOA is erroneously headed:

It is erroneous because it was in fact the directors of the Company who made the appointment, such that the heading of the NOA should have read:

In the witness statement in support of the Application, Ms Frangou (the First Applicant) stated that the electronic filing process for filing the NOA did not permit the solicitors for the Applicants (DAC Beacroft LLP) to file three copies of the NOA or a separate consent by NWB. Accordingly, neither three copies of the NOA were filed nor was a separate consent by NWB filed.

By paragraph 63 of Schedule B1 to the IA:

That provision can form the basis of an application seeking an order confirming the validity of an administrator’s appointment which is implicit in the decision of Marcus Smith J in, Eason & Anor v Skeggs Beef Ltd [2019] EWHC 2607 (Ch).

By r.12.64 IR:

By r.3.24 (1) IR, (insofar as relevant):

By r.3.26 (1) IR, (insofar as relevant):

I bear in mind and respectfully endorse the over-arching consideration set out by Norris J in Re Euromaster Ltd [2012] BCC 754 at [26]:

Cases concerning defective out-of-court administration appointments can be divided into 3 categories: Eason & Anor v Skeggs Beef Ltd [2019] EWHC 2607 (Ch) at [21]:

It is important to note that the new rules do not require the use of a statutory “Form”, but instead prescribe the contents of the notice (see e.g. Sealy & Milman, Annotated Guide to the Insolvency Legislation 2024 @744 (the notes to paragraph 26 of Schedule B1 to the IA (in relation to notices of intention to appoint))).

In Gregory v A.R.G. (Mansfield) Ltd [2020] EWHC 1133 (Ch), in the context of out of court appointments, the court endorsed what is known as the Soneji (Footnote: ¹) approach, namely, when considering the effect of a breach of the rules, the court should determine whether as a matter of statutory construction Parliament intended that a breach of the provisions would result in the appointment being a nullity or irregular but valid. HHJ Davis-White QC (sitting as a Judge of the High Court) at [91] reviewed the authorities and suggested that a court should approach this task by asking 5 questions:

In Euromaster, Norris J (at [27]) also observed that there is a distinction to be drawn between provisions which define the circumstances in which a power to appoint arises and those which prescribe procedural requirements which should be fulfilled before an appointment is properly made. Failure to meet the former will render the appointment a nullity, whereas if the matter is more of a minor procedural matter, the appointment is irregular, but valid.

In Adjei v Law for All [2011] EWHC 2672 (Ch), another decision of Norris J, he held (at [8]) that a failure to properly (i.e. completely) fill out a notice of intention to appoint an administrator was a defect which was capable of remedy under the predecessor of r.12.64 IR, namely, r.7.55 of the Insolvency Rules 1986.

Similarly, in Re Kaupthing Capital Partners II Master LP Inc, Pillar Securitisation SARL v Spicer [2010] EWHC 836 (Ch) at [49 & 52] the court held that errors in filling out a notice of appointment were not matters which by themselves invalidated the appointment. Further, the court indicated that errors in a heading were trivial and also incapable of invalidating an appointment:

Having considered the authorities and taking this error in context, I have concluded that the erroneous heading is no more than a procedural defect which I am content to order does not have the effect of invalidating the Applicants’ appointment, pursuant to r.12.64 IR for the following reasons.

The error has no connection with the defined circumstances in which a power to appoint arises, but relates to the prescribed procedural requirements which should be fulfilled before an appointment is properly made (see Euromaster, supra).

The substance of the form is correct and no-one reading it could be misled by the wrong heading. Indeed, Paragraph 1 commences with the words “The directors of the Company (the appointer) have appointed the following named persons …” and then refers throughout to “the appointer”.

The structure of r.3.24 is such that the heading is dealt with separately from the substance of the prescribed content, implying that it is the substantive material in sub-paragraphs (a) to (j) which are important because they inform the reader that the steps required for the substantive appointment have been complied with. (Indeed arguably, though perhaps facetiously, the literal requirement is simply to have one or other of the two headings in the notice).

In former times, the two different headings to the notices of appointment (reflecting the two methods of appointment) may have been in different statutory forms and the use of the wrong one might have been more problematic (see Skeggs Beef (as set out above) and Kaupthing [51-56]). However, the change in the rules has removed such draconian consequences for what might be regarded as an arbitrary failure if, in the event, the substance of the information has been provided. The approach I have adopted reflects that relaxation in procedure.

As set out above, the court has already on two occasions held that mere errors in filling out a form are not sufficient by themselves to invalidate an appointment. In Adjei such errors were considered capable of cure under the predecessor of r.12.64 IR (and, had the only error been the contradiction in the form in Kaupthing, I read Proudman J’s remarks at [49] as reflecting the same view). There is no reason in this case why that logic should not be followed. Indeed, I note that Proudfoot J in Kaupthing clearly regarded errors in a heading as being less serious, and clearly not a matter which he regarded as fundamental: “I was concerned to see whether it was merely the heading to the Form which was wrong”.

That that is the right position can be tested in this way. It is not obvious what the statutory purpose behind the opening words of r.3.24 IR is. Under r.3.27 IR and paragraph 46 of Schedule B1 to the IA, an administrator is required to send a document entitled ‘Notice of administrator’s appointment’ to Companies House which is form AMO1. That document contains a field to confirm who appointed the administrator. It does not appear that a notice of appointment within the meaning of r.3.24 IR is required to be filed at Companies House or that it is usual practice to do so. It seems highly unlikely therefore that the statutory purpose of the heading provisions in r.3.24 IR is to provide any interested party with information about who made the appointment.

The purpose behind the heading provisions is, I find, for the plain and obvious reason to enable a reader to identify the relevant document: in this case the notice of appointment, no matter who made it. In my judgment it is plain that it cannot have been intended that a breach of that specific provision would render an appointment a nullity. R.3.24 IR starts from the position that a person/entity has the power to make the appointment and is merely a record of that appointment which in order to be valid, must comply with the rules. R.3.24 IR therefore fits much more comfortably within the category of a procedural requirement which should be fulfilled to render the appointment properly completed. That, as per Euromaster, points to an appointment which is irregular, but valid and capable of cure.

Standing back, that is consistent with a real-world view of the heading requirements in r.3.24 IR – they are prescriptive procedural requirements, the breach of which one would, applying common sense, regard as trivial and incapable of nullifying an appointment. It would be remarkable if such a trivial matter would have such an effect. Such a position is consistent with the prevailing theme that there should not be a multiplicity of circumstances in which appointments can be invalid.

Even if the statutory purpose behind r.3.24 IR was to provide interested parties with information about the identity of the appointor, it is plain that no prejudice in this case is capable of being caused or indeed has been caused. After the heading, the NOA is internally consistent that the directors appointed the Applicants. Any reasonable reader of the NOA would simply and correctly deduce that the heading was merely an error and that the directors made the appointment. Even if there were any doubts, the form AMO1 appearing in Companies House records would dispel any such doubts.

Having concluded what the purpose of the statutory requirement is; that its breach was procedural, I finally conclude that its remedy would not cause any injustice, and therefore I am prepared to make the appropriate order under r.12.64 IR.

The single notice of appointment was filed electronically via CE-File at 15:12 on 15 July 2024, i.e. within normal court hours.

There is no doubt that NWB had in fact consented to the appointment of the administrators: its written consent is endorsed on the NOI.

The reasons for the inability to file the notice of appointment in triplicate and/or NWB’s written consent are unclear to me. I accept the Applicant’s word that she was told by her solicitors that they were unable to file these documents for present purposes, but I cannot at present understand why that should have been. In particular, the written consent of the QFCH, being a stand-alone document, should have been fileable in the normal way. I intend to order that a detailed explanation of the steps taken and the recorded reasons for these inabilities is provided to the court. This is not for potentially ‘disciplinary’ reasons, but out of genuine concern that others wishing to electronically file such documents might be being prevented from doing so in the future. I will then make the necessary enquiries and, if necessary, raise the issue at an appropriate level of HMCTS administration.

Returning to the substantive application, I consider that the failure to file three copies of the NOA and the failure to exhibit the QFCH consent are no more than procedural defects which do not have the effect of invalidating the Applicants appointment, and am willing to cure them pursuant to r.12.64 IR. This is for the following reasons.

Standing back, it is plain that such matters are procedural defects as opposed to matters which, in this case, concern the circumstances in which the power to appoint arises. Fundamentally, the QFCH gave its consent and it is inconceivable that any prejudice has or will be caused either by the error or its cure.

I pose myself the question, what is the statutory purpose behind the requirement for filing a NOA in triplicate and the requirement to exhibit the consent of the written consent of all those persons to whom notice was given in accordance with paragraph 26(1) of Schedule B1 to the IA which is what r.3.26 IR requires? The answer can be gleaned from rr.3.26(3) and (4) IR which require the court to seal each copy, endorsing the date and time of filing and then deliver two of them to the appointer who, in turn, must deliver one of those two to the administrator themselves. It seems to me that these provisions are in place to provide the appointer and the administrator with proof, for those that might be interested, that the requisite procedural steps have been taken following the appointment of the administrator and that the court is so satisfied. The court retains one copy on file for obvious reasons in respect of matters that may arise in the course of the administration. No other third party is directly involved.

Accordingly, in my judgment, this aspect of the rules is very much in the category of administration. Each of the parties to be served knows full-well that the appointment has been made and the relevant consents have been obtained. If they were challenged by an interested third party, they ought to be able to provide the relevant information or, given that the documents are CE-Filed, simply download the sealed copy of the document(s) they require and print it/them out. There can be no conceivable prejudice to anyone other than the appointer and the administrator, and even that would not be prejudice, but instead would amount to a very minor inconvenience. Similarly, curing the defect could cause no injustice.

Because consent was given by the QFCH it would be remarkable that the failure to exhibit the same would cause the appointment to be invalid. As Mr Chambay put it, one can think of no better example of form defeating substance.

For all the reasons given, I grant the Application in the terms of the updated draft Order provided by Mr Chambay.

Costs were not sought by the Applicants which, as Norris J said in Euromaster, is the appropriate course. Mistakes were made, the costs of which should not be visited on the creditors in any distribution.