Defects in Administration Appointments and Extensions – Assume the worst and remedy on that basis?(UK)
There is something to be said for “assume the worst” when it comes to defects in administration appointments and extensions. The court has taken this approach in a few cases where, rather than trying to work out the intricacies and effect of a defect on an appointment or extension, it has assumed the worst (i.e invalidity) and made a retrospective order to remedy the position.
There is much to be said for this approach, which stems from the Bradford Bulls case – saving time and cost in working out whether a defect has caused an invalid appointment or extension, and proceeding on the assumption it does.
In the case of Quantuma Advisory Limited and others v Colin Mear Ltd and another [2025] EWHC 3580 (Ch) the court was asked to not only confirm the validity of the original appointment but also to make a “Bradford Bulls Order” in light of potential defects with the administration extensions.
The applications in this case concerned two companies that had been placed into administration by their directors – Colin Mear Ltd and Colin Mear Engineering Ltd. Both companies had a qualifying floating charge holder (QFCH) which at the date of appointment of administrators was in liquidation and Irish liquidators had been appointed.
Defects in the appointment of administrators
The judgment is a little light in giving an explanation as to why certain steps were (or were not) taken during the appointment process, but there were two “defects” that the court was asked to consider. Firstly, the effect of failing to serve the QFCH with a notice of intention to appoint (NOIA), and secondly the effect of late service of the NOIA on the company.
The reason why the QFCH was not served and/or the steps taken to try to serve the NOIA (if any) is not clear, but the judgment expresses doubt that the QFCH was in fact served.
In addressing this issue Judge Klein followed Tokenhouse taking the view that a defect in service on the QFCH was a defect that was capable of engaging rule 12.64. Therefore, since there was no injustice to the QFCH (the liquidators of the QFCH indicating they did not object to the orders sought) Judge Klein was prepared to remedy the defect.
In terms of late service on the company, Judge Klein said that this was patently a defect that did not give rise to any injustice because this was an out of court appointments by the directors so in effect the company itself. Noting that “clearly the companies by their directors had full notice of what was going on”. This defect was also remedied.
Comment
Although decisions such as this give confidence that the Court will try to assist where issues have been identified, there is a danger in placing too much weight on them when considering similar circumstances.
The jury is still out on the effect of failure to give notice to a QFCH. In this case the fact that the QFCH was fully supportive of the application clearly assisted, but there is also no guarantee that the court will look at this “defect” as purely procedural in another case. There are other cases which say such a failure is fundamental, others which look at the purpose of giving notice and therefore reason to take a cautious approach until there is clear authority on the point. There are not many restrictions in Schedule B1 on the power to appoint – but giving notice to a qualifying floating charge holders in one of them.
Where there has been a failure to serve a QFCH it is perhaps safest to assume the “worst” – that the defect is fundamental – and hope for the best, that a court would treat it as procedural only.
Notably the QFCH in this case was also Irish – which may have been a reason why service on the QFCH was in doubt – although the rules on service outside of jurisdiction are more straightforward when serving a party in Scotland or Northern Ireland, the judgment does not elaborate on why there was doubt. However, this is a helpful reminder that if the NOIA has to be served outside of the jurisdiction the appointor may need permission from the Court for that.
On an out of court appointment there are clearly challenges with this – not least because there is only 10 business days between filing an NOIA and the last day for filing an NOA. Will permission to serve outside of jurisdiction be obtained, service made, the correct notice period given, all before the expire of 10 business days? Perhaps an in-court appointment might be better in such circumstances.
The approach taken in respect of late service on the company seems sensible particularly when there are other cases that have determined that complete failure to serve a prescribed person was not fatal. Often the board and shareholders are the same so it is difficult for anyone to say that “the company” did not know about the appointment. The purpose in giving notice is really for information purposes only – there is nothing the recipient can do without the court’s permission – unlike a qualifying floating charge holder. But the position may be different if the shareholders are different to the board and they are unaware of the intention to put the company into administration.
Defects in the Extensions
Consent for extensions of the administrations was not sought in either case from the QFCH and in respect of the administration of Colin Mear Engineering Ltd, the consent of the RPS as preferential creditor was also not obtained
The administrators accepted that the extensions were a nullity and asked the Court to assume the extensions were invalid and sought a retrospective order on a “Bradford Bulls” basis.
Judge Klein noted that he had to consider whether “both at the time of the application for a retrospective administration order and on the date to which the administration is sought to be backdated, on the balance of probabilities, the company in question was insolvent and that there is sufficient basis for saying that the purposes of administration are achievable.” He was satisfied that both companies were insolvent and the purpose of administration was achievable and that a retrospective order was justified. As such remedying this defect also by making a retrospective order and going on to further extend the administrations.
Comments
There is nothing unusual about the approach of the Judge to the defects in the extension process, but the case is a reminder to think carefully at the point of extension which creditors need to consent – failure to get the required consent will result in an invalid extension.
Since the date of this decision Dear IP 168 has been published which allows insolvency practitioners a bit more flexibility to decide whether a creditor is a creditor for a particular insolvency provision – but it is identifying the creditors in the first instance that can be tricky and easily overlooked on an extension. For example, a lien creditor is required to consent to an extension, but it is not always immediately apparent that there are such creditors.