CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
In the Matter of Business Dream Limited
And
In the Matter of the Insolvency Act 1986
Oxford Row Leeds LS1 3BG |
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B e f o r e :
sitting as a Judge of the High Court in Leeds
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CHRISTOPHER BROOKSBANK (Liquidator of Business Dream Limited) |
Applicant |
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Hearing dates: 1st, 2nd November 2011
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Crown Copyright ©
Judge Behrens:
1. The stock comprises various display beds, dining room furnishings lounge furnishings. The cost value is £689,249. After deducting r.o.t the net stock of free title cost £460,707.
2. The items have been on site for some time and shows signs of wear and tear. In his opinion the display stocks have a market value of between 15% and 20% of cost which would equate to between £69,000 and £92,000.
3. The fixtures and fittings and intellectual property in the shops are worth £5,000.
1. That the Directors file a notice pursuant to paragraph 22(2) of Schedule B1 of the 1986 Act of an intention to appoint Mr Brooksbank as Administrator of the Company.
2. That Mr Brooksbank be appointed as Administrator of the Company.
22 (1) A company may appoint an administrator.
(2) The directors of a company may appoint an administrator.
25 An administrator of a company may not be appointed under paragraph 22 if--
(a) a petition for the winding up of the company has been presented and is not yet disposed of, ……
26 (1) 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 14.27 (1) A person who gives notice of intention to appoint under paragraph 26 shall file with the court as soon as is reasonably practicable a copy of--
(a) the notice, and(b) any document accompanying it.
28 (1) An appointment may not be made under paragraph 22 unless the person who makes the appointment has complied with any requirement of paragraphs 26 and 27 and--
(a) the period of notice specified in paragraph 26(1) has expired, or(b) each person to whom notice has been given under paragraph 26(1) has consented in writing to the making of the appointment.(2) An appointment may not be made under paragraph 22 after the period of ten business days beginning with the date on which the notice of intention to appoint is filed under paragraph 27(1).
42 (2) No resolution may be passed for the winding up of the company.
44 (4) This paragraph also applies from the time when a copy of notice of intention to appoint an administrator is filed with the court under paragraph 27(1) until--
(a) the appointment of the administrator takes effect, or(b) the period specified in paragraph 28(2) expires without an administrator having been appointed.(5) The provisions of paragraphs 42 and 43 shall apply (ignoring any reference to the consent of the administrator).
1. I accept that the filing of a notice to appoint under paragraph 27 is capable of amounting to an abuse of the process of the court. Examples of such abuse would be where there was no genuine intention to appoint an administrator and the notice was filed simply to obtain the advantage of the moratorium. Another example could be where a company serves repeated notices and makes no appointment within any of the 10 day periods. In such circumstances I have no doubt that a Court would have an inherent power to strike out the notice so as to bring an end to the interim moratorium.
2. I cannot, however, accept that the circumstances of this case are within a measurable distance of amounting to such an abuse. At the time of the resolution on 26th October 2011 the directors had no knowledge of the winding up petition and there is no reason to believe that they did not genuinely intend to appoint Mr Brooksbank as administrator. The Company complied with the necessary formalities and I cannot begin to categorise the filing of the notice under paragraph 27 as an abuse of process.
3. There is in fact no necessary inconsistency between the provisions. Paragraph 25 prevents an out of court appointment (other than by a floating charge holder) where there is a pending winding up petition. It does not prevent a Company from filing a notice to appoint under paragraph 27. Indeed there are a number of provisions in the Act that contemplate that there may be no appointment despite the filing of the paragraph 27 notice. One example is where a prior floating charge holder notified under paragraph 26(1) has not consented.
4. Of course, if the Company knows about the winding up petition when it files the paragraph 27 notice this might be evidence that the Company did not genuinely intend to appoint as it would not be able to do so. In those circumstances the notice might be vulnerable to an application to strike out. However, where, as in this case, there is no abuse I can see no reason why the interim moratorium should not take effect.
5. Even if, contrary to my view, there is an abuse of process in filing a paragraph 27 notice where a winding up petition has been presented unbeknown to the Company and if, as a matter of discretion the court decides to strike out the notice I have difficulty in seeing that the strike out would have retrospective effect. In this case, of course, the resolution for voluntary liquidation took place on 28th October 2011 during the period of the moratorium. I cannot see how it can be retrospectively validated.
6. Equally, in my view, it is difficult to see that filing of a paragraph 27 notice is a "nullity" if a winding up petition has been presented. There is nothing in the Act which prevents it from being filed. It is a formal step. The notice must be in the prescribed form and be accompanied by a statutory declaration. It affects creditors who are prevented from enforcing securities or distraining (under paragraph 43). Furthermore if (with the court's permission) the winding up petition is withdrawn within the 10 day period there is no reason why an appointment should not take place.
The powers conferred on the liquidator by section 165 shall not be exercised, except with the sanction of the court, during the period before the holding of the creditors' meeting under section 98 in Chapter IV.
This section should be read in conjunction with ss.98 and 114, above. Taken together, they should ensure (as is undoubtedly intended) that the practice which had become notorious under the name of "centrebinding" is totally stamped out. The abuse takes its name from the case of Re Centrebind Ltd [1967] 1 W.L.R. 377, where the members of an insolvent company resolved to go into voluntary liquidation and appointed their own liquidator who, before any creditors' meeting had been held, took immediate steps to restrain the Inland Revenue from proceeding with a distress on the company's assets. Plowman J. held that the liquidator had power to act until the creditors' meeting had been held.
Although the acts of the company and its liquidator in the Centrebind case itself were done entirely in good faith, it was not long before the practice developed of calling only a shareholders' meeting in the first instance to pass a winding-up resolution and, although the company was known to be insolvent, deliberately putting off for some time, or perhaps indefinitely, the holding of the creditors' meeting. This, of course, involved a technical breach of the Companies Act (CA 1985 s.588(2)), which required the latter meeting to be held on the same day as the members' meeting or the very next day and, indeed, was a criminal offence. However, it meant that the controllers of a company, with the aid of an unscrupulous liquidator nominated by them, could effectively sell the assets off at a knock-down price to a purchaser closely connected with themselves (e.g. a new company controlled by them), and the creditors were powerless to prevent it.
The introduction by IA 1985 of a mandatory requirement that liquidators shall be of professional standing is probably in itself sufficient to ensure that "centrebinding" will no longer be part of insolvency practice; but the legislature has made doubly sure of this by provisions such as the present.
Note 1 Although I was told that Elavon was the only creditor interested in the proceeds of sale this is not necessarily so. If the floating charge created by the debenture came into effect after September 15th 2003 there would be a prescribed part of 50% of the first £10,000 recovered and 20% of the remaining fund. This prescribed part would, unless the provisions are disapplied, be available for the unsecured creditors. [Back]