Compulsory winding-up order - Liquidator - Appointment

Re Business Dream Ltd: ChD (Judge Behrens sitting as a judge of the High Court): 8 November 2011

BD Ltd (the company) traded as a furniture seller from five leasehold premises in Yorkshire. There were substantial liabilities under the lease and on any view the company was insolvent. In addition to monies due under the lease, substantial sums were due to the Revenue and Customs Commissioners (the Revenue) and to another company, E Ltd.

In due course, one of the directors of the company formed a new company (NewCo). On 11 October 2011, the Revenue presented a winding-up petition alleging a debt of £475,392. On 26 October 2011, at a directors’ meeting attended by the two directors, JC and NC, it was resolved that the directors should file a notice, pursuant to paragraph 22(2) of schedule B1 to the Insolvency Act 1986 (the act), of an intention to appoint the applicant as administrator of the company and for the applicant to be appointed as administrator of the company. At approximately 11.35am on 26 October 2011, a notice of intention to appoint an administrator in form 2.8B was duly filed in the Leeds District Registry.

The notice stated (wrongly), in paragraph 4, that no petition for winding up had been presented. It also stated that the notice would be served on E Ltd. Sometime after the meeting on 26 October, the company changed its mind and on 28 October 2011 at an extraordinary general meeting of the company, the members passed a resolution for a creditors’ voluntary liquidation of the company and the appointment of the applicant as the liquidator of the company. On the same day, pursuant to section 98 of the act, a notice convening a meeting of creditors on 4 November 2011 was sent to creditors. The applicant received an offer from NewCo of £80,000 for the stock and £5,000 for the fixtures and fittings. In his view, the ongoing liabilities made it essential to dispose of the assets as quickly as possible. The applicant, purporting to act as liquidator, applied to court for the sanction of the sale of various assets of the company to NewCo pursuant to section 166 of the act.

The main issue was whether the applicant had been validly appointed as a liquidator. The application would be dismissed.

The administration procedure was governed by schedule B1 to the act. Paragraph 22 of schedule B1 authorised the company or the directors to appoint an administrator out of court, however, under paragraph 25 an administrator could not be appointed if a petition for the winding-up of the company had been presented and had not been disposed of. The procedure for an out of court appointment was governed by paragraph 26(1)(a) of schedule B1 to the act, which stated that ‘a person who proposes to make an appointment under paragraph 22 shall give at least five business days’ written notice to (b) any person who is or may be entitled to appoint an administrator of the company under paragraph 14’ and paragraph 27(1) of schedule B1 to the act, which stated that ‘a person who gave notice of intention to appoint under paragraph 26 shall file with the court a copy of (a) the notice and (b) any document accompanying it’.

Paragraph 28 of schedule B1 to the act made compliance with paragraphs 26 and 27 imperative and also provided a strict timetable for the appointment of an administrator. Any appointment had to be made between five and 10 business days after the giving of notice under paragraph 26. Paragraphs 42 and 43 provided for a moratorium for a company in administration, the prohibitions included in paragraph 42(2) that no resolution might be passed for the winding-up of the company. However, under paragraph 44 the provisions of paragraph 42 were also applied for the 10-day period referred to in paragraph 28 where a notice was filed with the court under paragraph 27.

In the instant case, on 26 October 2011, the directors of the company had passed a resolution for the appointment of the applicant as administrator. On the same day, the relevant notice under paragraph 26 was given to E Ltd, and the notice was duly filed in court under paragraph 27. The effect of filing the notice was that the interim moratorium under paragraph 44(4) came into effect and lasted until the 10-day period in paragraph 28(2) had expired. During that period no resolution could be passed for the winding-up of the company. The members had purported to pass such a resolution on 28 October 2011, which was well within the 10-day period. On that analysis, therefore, the resolution of 28 October 2011 had been invalid and the appointment of the applicant as the liquidator had been void (see [22]-[24] of the judgment).

The interim moratorium had taken effect and the resolutions of the members on 28 October 2011 had been invalid. It followed that there had been no jurisdiction to sanction the disposal of assets under section 166 of the act (see [28] of the judgment).

Claire Jackson (instructed by Clarion) for the applicant.