England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Royal Courts of Justice The Rolls Building 7 Rolls Building Fetter Lane London EC4A 1NL
		10th July 2012

JUDGE PURLE QC:

1. This case concerns the validity of the appointment of joint administrators of a charitable company limited by guarantee made by the directors out of Court.
2. As a result of Government cuts and a large inherited pension deficit, the company became insolvent and, following advice, the directors resolved to appoint the Joint Administrators on 23^rd January 2012. The directors had power to make such an appointment under paragraph 22 of Schedule B1 of the Insolvency Act 1986 as amended ("Schedule B1").
3. Schedule B1 materially provides as follows:-

"26(1) A person who proposes to make an appointment under paragraph 22 shall give at least five business days' written notice to -

(a) any person who is or may be entitled to appoint an administrative receiver of the company, and

(b) any person who is or may be entitled to appoint an administrator of the company under paragraph 14.

(2) A person who proposes to make an appointment under paragraph 22 shall also give such notice as may be prescribed to such other persons as may be prescribed."

Amongst such other persons is the company itself.

4. There was in this case no person entitled to appoint either an administrative receiver, or an administrator under paragraph 14, upon whom a notice of intention to appoint had to be served. There was nothing underhand in the appointment. The Board resolution of 23^rd January 2012 confirmed the consent of the directors (on behalf of the company) to both short notice and the appointment itself. However, no formal notice in a prescribed form was given to the company.
5. On one construction of Schedule B1 and the Insolvency Rules 1986, the failure to give notice in a prescribed form to the company was a fatal omission, invalidating the appointment. On an alternative construction, it was not an omission at all, as no notice of any kind to the company was required. On a third construction, even if notice in a prescribed form (or any notice) was required, the omission to give it was not fatal to the appointment. There are conflicting first instance decisions on these and similar points.
6. At the time of the hearing before me, the most recent decisions were Re Virtualpurple Professional Services Ltd [2012] BCC 254 (Norris J) and National Westminster Bank plc v Msaada Group [2012] BCC 226 (Warren J). These 2 cases were decided on the same day, in different ways. Norris J held that prior notice to the company was unnecessary, and (even if necessary) the failure to give notice did not invalidate the appointment. Warren J held (in the case of an insolvent partnership) that failure to serve prior notice on the supervisors of a voluntary arrangement invalidated the appointment. As those 2 cases were decided on the same day, that necessarily meant that neither of them considered the other. They were also decided without considering my own decision in Re Assured Logistics Solutions Ltd [2011] EWHC 3029 (Ch), which had not then been transcribed. I decided in that case that, even if notice to the company was required in the case of directors' appointments, the failure to give notice did not invalidate the appointments. Each of these 3 decisions in turn considered the earlier conflict between Hill v Stokes plc [2011] BCC 473 and Minmar (929) Ltd v Khalatschi [2011] BCC 485, the latter of which was decided without consideration of the former, as Hill v Stokes had not then been reported.
7. This conflict of judicial opinion is unfortunate, to say the least. Understandably on that state of the authorities, Mr Morgan addressed me on the proper approach of a first instance Judge to conflicting first instance decisions. He referred me to the decision of Nourse J in Colchester Estates (Cardiff) v Carlton Industries plc [1984] 2 All ER 601. It is clear that I should ordinarily follow any later first instance authority which has fully considered the previous authorities, even if that later authority is in conflict with one or more of those earlier authorities, leaving it to the Court of Appeal to reverse the later ruling, if appropriate to do so. This approach was reiterated by Lewison J in Re Cromptons Leisure Machines Ltd [2007] BCC 214.
8. At the date of the hearing before me, I could not take that course, as there was no authority giving definitive consideration to all the previous conflicting authorities.
9. Mr Morgan invited me to adopt the approach I had adopted in Assured Logistics and hold that, even if Schedule B1, properly construed, required notice in a prescribed form (or any notice) to be given to the company of an intended appointment, the failure to give such notice did not invalidate the subsequent appointment.
10. Since the hearing before me, the conflict between Virtualpurple and Msaada has been resolved at first instance by Arnold J in Re Ceart Risk Services Ltd [2012] EWHC 1178 (Ch), who preferred the reasoning of Norris J in the former case over that of Warren J in the latter. Though the actual decision also concerned related provisions of the Financial Services and Markets Act 2000 ("FSMA"), the essential reasoning of Arnold J is of general application to the construction of Schedule B1.
11. The case before Arnold J raised the effect of a failure to obtain the prior consent of the Financial Services Authority ("FSA"). He held, adopting a purposive rather than literal construction of the provisions of Schedule B1, as well as of the related FSMA provisions, that the failure to obtain prior consent did not invalidate the appointment, relying principally on the reasoning of Norris J in Virtualpurple, noting that Warren J, in Msaada, had not been referred to House of Lords authority considered by Norris J by reference to his own earlier judgment in In re Bezier Acquisitions Ltd [2012] Bus LR 636. Subject to one point, therefore, it seems to me that I should regard the law as now settled at first instance: the failure to give notice of an intended appointment to one of the parties prescribed under paragraph 26(2) of Schedule B1 does not invalidate the appointment, even assuming that such notice is required. That was the actual decision of Norris J, as most recently approved after consideration of other conflicting authorities by Arnold J.
12. The one point to which this conclusion is subject is the decision of Judge Hodge QC in Re M.T.B. Motors Ltd [2010] EWHC 3751 (Ch). This also, like the case before Arnold J, concerned the failure to obtain the prior consent of the FSA in a case to which the FSMA applied. Judge Hodge QC decided that the appointment was a nullity, adopting the reasoning of Hart J in G-Tech Construction Ltd [2007] BPIR 1275, which favoured a more literal approach. He went on, however, to make a retrospective administration order.
13. Arnold J in Ceart Risk was not referred to Judge Hodge QC's earlier decision. He was told (erroneously) that there was no previous decision on the point. However, he did consider the reasoning which appealed to Judge Hodge QC, and referred expressly to G-Tech though in a different context later in his decision. Judge Hodge QC, by contrast, did not have the benefit of Norris J's reasoning in Virtualpurple, nor does he appear to have been referred to the other authorities on the proper approach to statutory construction relied upon by Norris J both in that case and Bezier. Arnold J preferred the purposive rather than the literal approach, as had Norris J before him. Reference to Judge Hodge QC's decision the other way would not have absolved him of the need to make that choice, given the state of the authorities by the time the matter came before him. He made a clear choice in favour of the purposive approach, and it is that choice which must now be taken to settle the law at first instance. The result happens, coincidentally, to square with my own decision in Assured Logistics. I also favour the approach of Norris J, but, even if I did not, it would be my duty to follow Virtualpurple, in the light of Arnold J's considered approval of that decision, unless and until reversed by the Court of Appeal.
14. I decided at the conclusion of the hearing to make a declaration that the appointment was valid for reasons which I would reduce into writing. These are the written reasons confirming that decision. I have not, as things have turned out, needed to develop the arguments in detail in the light of Arnold J's preference in Ceart Risk for the approach of Norris J. Not only would my reasoning add nothing of significance, it would be wrong of me to seek to add anything in the light of the proper approach to precedent laid down by Nourse J in Colchester Estates, and reiterated by Lewison J in Crompton Leisure Machines. As I have commented, the law must now be taken to be settled at first instance, and I should follow Norris J and Arnold J without elaboration.