The Court of Appeal, in JCAM Commercial Real Estate Property XV Limited v Davis Haulage  EWCA Civ 267, has recently had to look at what intention a Director who files a ‘Notice of Intention to Appoint an Administrator” has to have when filing it at Court. The wording of the Notice seems to be clear – an intention to appoint an Administrator.
It is important to consider the implications of filing such a Notice. Once filed there is an automatic moratorium against any enforcement action. In the context of it being filed by a tenant who is not paying rent the landlord cannot forfeit the lease, issue proceedings to recover unpaid rent or exercise CRAR (distress as it was once known).
The inability to take the above action whether against a non-paying tenant or creditor is not only frustrating but up to now it was not clear whether the Director filing the Notice really had to have the intention to appoint an Administrator. The filing of the Notice is not something ever done lightly as it will have far reaching consequences, suppliers are unlikely to want to trade with the company and credit facilities will be affected.
In April 2017 the Court of Appeal confirmed that a Notice filed without a settled and unconditional intention to appoint Administrators was an abuse of the court’s process, and liable to be struck out.
In the case before the Court the tenant company had accrued significant arrears in the rent. The landlord commenced forfeiture without knowing that the Director of the tenant company had filed a Notice of Intention to Appoint (“NOI”). As a result of the NOI the forfeiture could not continue as the filing of a NOI created a 10 business day moratorium. Three further NOIs were filed thereby creating a longer moratorium.
The tenant prior to filing the fourth NOI proposed a Company Voluntary Arrangement (“CVA”) to its creditors. The tenant company sought to justify its actions by reasoning that if the CVA was not approved by its creditors, then it would have to consider selling the business through a “pre-pack” administration.
An application was made by the landlord to have the fourth NOI struck off on the basis that the tenant company did not have a fixed or settled intention to appoint Administrators. The Court’s decision turned on the wording in paragraph 26(1) of Schedule B1, whereby anyone who “proposes” to appoint an Administrator is required to give notice of intention to certain parties.
The Court of first instance found that a person may propose to do something without having the settled intention of doing so. However the Court of Appeal disagreed. It found that if “propose” did not mean “intend” in this context then it would not be called a “notice of intention”. The Court was content that when the first three NOIs were filed, the appointment of an Administrator was, at most, one of a range of possibilities. By the time of the fourth NOI, the position was that an Administrator would be appointed only if the CVA was rejected.
A further important point from the case as that a NOI is only to be filed if a copy is to be served on a QFCH (or a person entitled to appoint an administrative receiver). If there is no person able to appoint an Administrator or administrative receiver (as defined in paragraph 26(1) of Schedule B1) to whom a copy of the NOI will be given, no interim moratorium can be created by the filing of the same. The Company or its directors simply appoints an Administrator as and when they are ready to do so in the absence of a QFCH.
The practice, of filing NOIs without serving them in order to create a moratorium, is therefore now confirmed as being invalid as is any NOI filed with only a conditional intention to appoint Administrators.
Mayo Wynne Baxter have specialists who can give advice on all matters arising from insolvency of individuals or companies, should you wish to discuss any issues arising from the above please contact Darren Stone, Head of Insolvency at Mayo Wynne Baxter.