England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY

IN THE MATTER OF GLOBESPAN AIRWAYS LIMITED
(FORMERLY IN ADMINISTRATION AND NOW IN LIQUIDATION)

IN THE MATTER OF THE INSOLVENCY ACT 1986

		24/02/2012

Mr Justice Briggs:

Introduction

1. This application by the former administrators of Globespan Airways Limited raises an interesting question as to the interpretation and application of paragraph 83 of Schedule B1 to the Insolvency Act 1986, headed "Moving from administration to creditors' voluntary liquidation".
2. Paragraph 83 provides a simple method whereby, by the sending to, and registration by, the Registrar of Companies of a notice in the prescribed form, a company may be moved from administration to a creditors' voluntary liquidation, so that the second of those insolvency processes immediately follows the first, without any gap between the two. Where such a gapless move is achieved, important consequences flow in respect of the conduct of the subsequent liquidation:

i) There is achieved a continuity in control of the company's affairs by officeholders whereas, during any gap between administration and liquidation, control would revert to any officers of the company who had not by then resigned.

ii) The relevant time (as defined) for the purposes of the provisions as to transactions at an undervalue and preferences (sections 238 and 239 of the Act) is, in relation to the liquidation, computed backwards from the date of the commencement of the administration rather than the liquidation: see section 240 (3) (d).

iii) The relevant date (as defined) for the determination of the existence and amount of a preferential debt is, in respect of the subsequent liquidation, to be the date when the company ended administration: see section 387 (3) (ba).

iv) The cut off date for the identification of provable debts for the purposes of the liquidation is to be the date upon which the company entered administration, but only if the liquidation was immediately preceded by an administration: see Rule 13.12 of the Insolvency Rules 1986, as amended by the Insolvency (Amendment) Rules 2010.

v) The relevant date for the calculation of interest is identified in the same way, but subject to the same condition that the liquidation was immediately preceded by an administration: see (following amendment in 2010) Rule 4.93 (A1).

3. With the possible exception of that identified in sub-paragraph (iii) above, none of those consequences follow if there is a gap between the conclusion of the administration and the commencement of the voluntary liquidation. The question thrown up by the unusual facts which underlie the present application is whether, in circumstances where a notice under paragraph 83 of Schedule B1 is both sent to and received by the Registrar before the termination of the relevant administration, but the administrative steps to bring about that registration occur only after the end of the administration, a gap thereby arises between administration and liquidation, with the unfortunate dis-application of the important provisions to which I have referred.

Paragraph 83

4. For present purposes the relevant provisions of paragraph 83 are as follows:

"(1) This paragraph applies in England and Wales where the administrator of a company thinks –

(a) that the total amount which each secured creditor of the company is likely to receive has been paid to him or set aside for him and,

(b) that a distribution will be made to unsecured creditors of the company (if there are any).

(3) The administrator may send to the registrar of companies a notice that this paragraph applies.

(4) On receipt of a notice under sub-paragraph (3) the registrar shall register it.

(5) If an administrator sends a notice under sub-paragraph (3) he shall as soon as reasonably practicable-

(a) file a copy of the notice with the court, and

(b) send a copy of the notice to each creditor of whose claim and address he is aware.

(6) On the registration of a notice under sub-paragraph (3) -

(a) the appointment of an administrator in respect of the company shall cease to have effect, and

(b) the company shall be wound up as if a resolution for voluntary winding up under section 84 were passed on the day on which the notice is registered.

5. In Re E Squared Ltd [2006] EWHC 532 (Ch), the facts were that administrators were appointed from 31 January 2005. On 27 January 2006 they sent a paragraph 83 notice to the Registrar, and it was received and date-stamped at the registry on 28 January, but not registered until 1 February, after the administrators' appointment had ceased to have effect. The issue for decision in that case was whether the notice was effective to bring about a creditors' voluntary liquidation of the company. David Richards J concluded that a paragraph 83 notice was effective to bring about a creditors' voluntary liquidation provided only that the administrators were still in office when they sent the notice. It mattered not that it was either received or acted upon by the Registrar after the administrators' period of office had come to an end.
6. David Richards J was not asked to, and did not, decide the question whether, in such circumstances, there was a gap between the end of the administration and the commencement of the liquidation. He mentioned, but without expressing any view about, the possibility that in such circumstances the effect of paragraph 83 might be to extend the administrators' period of office to a point coincident with the onset of the liquidation, in circumstances where it would otherwise have ended. He acknowledged, at paragraph 4, that paragraph 83 (6) envisaged that the company would pass from administration to liquidation without any hiatus and that there did not appear to be any acknowledgment within paragraph 83 as a whole that there might be a delay between the Registrar's receipt of a qualifying notice, and his registration of it. At paragraphs 6 and 13 he noted that there was nothing in paragraph 83 to suggest that, as a precaution against the adverse consequences of such a delay, administrators should be expected to send paragraph 83 notices significantly earlier than the end of their period of office (which, unless extended by court order made before the end of the period, is one year).
7. In the present case I have been asked to decide the 'gap problem' left unresolved by David Richards J in Re E Squared Limited. I have had the considerable benefit of hearing adversarial argument on the question between Mr Adam Goodison for the applicants and Ms Laura D'Cruz for the Registrar. Before addressing their helpful submissions, it is necessary to set out the (I hope) rather unusual but undisputed facts.

The Facts

8. Globespan Airways Ltd was placed in administration by court order with effect (after a further order varying the appointment date) from 17 December 2009. It was therefore due to end on 16 December 2010, no order for an extension having been sought or made.
9. On 13 December 2010 the joint administrators, John Bruce Cartwright, Graham Douglas Frost and Ian Christopher Oakley-Smith signed a notice in the form prescribed for by paragraph 83 (Form 2.34B) giving notice that paragraph 83(1) was to apply and that it was proposed that Mr Cartwright and Mr Oakley-Smith should be the liquidators of the company. That notice (which I shall call "the First Notice") was then hand-delivered to the Registrar on 14 December, and stamped as having been received on that date.
10. The guidance notes printed in the margin of Form 2.34B required the administrators to provide their names and addresses in section (a) and the names and addresses of the liquidators to be inserted in section (e). Each of the three administrators provided their full names and addresses in (a) but only the names of the two of them to be proposed liquidators in section (e); it being thought no doubt unnecessary to repeat their addresses.
11. On 16 December 2010 the Registrar rejected the First Notice by letter on the grounds that the notice was incomplete, since it lacked the liquidators' addresses in section (e). This letter of rejection reached the administrators only on 29 December, some 13 days after the end of their period of office.
12. On 6 January 2011 the administrators prepared and signed a fresh notice in Form 2.34B ("the Second Notice"). It differed from the first only in its date and in repeating the addresses of the then proposed liquidators in section (e). The Second Notice was received by the Registrar on 8 January.
13. On 13 January the Registrar wrote rejecting the Second Notice on the ground (which is now accepted to have been erroneous) that he had no record of the company ever having been in administration. The letter of rejection was received by the former administrators on 17 January and, on the same day, they sent an apparently identical further notice ("the Third Notice") to the Registrar, again dated 6 January, which was received by the Registrar on 19 January.
14. Finally, the Registrar registered the Third Notice on 4 February 2011. The searchable records at Companies House purport to show that the voluntary liquidation began on that day and also that the administration ended on that day, namely 4 February.

Due Delivery of the First Notice

15. The first issue thrown up by those facts is whether, as the Registrar has maintained, the omission of a repetition of the proposed liquidators' addresses in section (e) of the First Notice means that it was not duly delivered at all. With the parties' consent I dealt with this as a preliminary issue during the hearing and resolved it against the Registrar, for reasons which I said would follow in this judgment.
16. Section 1072 of the Companies Act 2006 provides that:

"(1) A document delivered to the registrar is not properly delivered unless all the following requirements are met –

(a) the requirements of the provision under which the document is to be delivered to the registrar as regards -

(i) the contents of the document,

(ii) form, authentication and manner of delivery;

(b) ……

(2) A document that is not properly delivered is treated for the purposes of the provision requiring or authorising it to be delivered as not having been delivered, subject to the provisions of section 1073 (power to accept documents not meeting requirements for proper delivery)."

Section 1073 provides that:

"(1) The registrar may accept (and register) a document that does not comply with the requirements of proper delivery."

17. The "provisions" referred to in section 1072(1)(a) relevant to a notice under paragraph 83 (in force as at December 2010 in relation to this administration) are to be found in Rules 5 and 14 of the Insolvency (Amendment) Rules 2003 and in the Schedule thereto at paragraph 2.117, which prescribes Form 2.34B for this purpose. I have already referred to the marginal notes on Form 2.34B which require the administrators' and proposed liquidators' addresses to be specified, in sections (a) and (e).
18. In my judgment the requirement in Form 2.34B that the proposed liquidators' addresses should be contained in the document (being a "requirement… as regards…the content of the document") under section 1072 was met by the identification of the addresses of Mr Cartwright and Mr Oakley-Smith in section (a), without it being necessary mechanistically to repeat those addresses in section (e). The question in my view is whether the notice had the prescribed contents namely, in the present context, the addresses of the proposed liquidators. The question is not whether the notice set out the addresses of the proposed liquidators on the precise part of the single page document identified in the marginal notes. Since any person of reasonable intelligence reading the First Notice as a whole would without difficulty understand that Mr Cartwright and Mr Oakley-Smith had the addresses clearly identified in section (a), without needing to be repeated in section (e), I consider it clear that the requirements as to the content of the notice were met. The only uncertainties canvassed by Ms D'Cruz as flowing from the non-repetition of those addresses in section (e) were that either a different Mr Cartwright or Oakley-Smith from those signing the document as administrators might have been intended as liquidators, or that as liquidators they might practice from a different address from that used while administrators. Those possibilities seem to me, with respect, to be fanciful.
19. It might be asked why, even if the First Notice was technically deficient in that respect, the Registrar did not exercise his discretion nonetheless to accept it as duly delivered under section 1073(1). Ms D'Cruz told me, to my surprise, that the policy of the Registrar was to reject incomplete forms without considering whether their perceived omissions could be ignored as a matter of discretion. Since I have concluded that the First Notice was duly delivered, the question whether there exists any remedy for the routine non-exercise of such discretion as a matter of policy need not be decided.
20. The result of my conclusion that the First Notice was validly delivered is as follows:

i) The only notice under paragraph 83 (namely the First Notice) sent by the administrators before the termination of their period of office on 16 December 2010 was rejected by the Registrar and has never been registered.

ii) The Registrar has purported to register, on 4 February 2011, the Second or Third Notice (it matters not which). But those notices were not identical to the First Notice, and both were sent after the expiry of the Administrators' period of office, so as to have been invalid pursuant to David Richards J's analysis in Re E Squared.

iii) If there is nothing which the court or the Registrar can now do to put the matter right, there will at the very least have been a gap between 16 December 2010 and 4 February 2011 between the end of the administration and the commencement of the creditors' voluntary liquidation of the company, with all the adverse and unintended consequences set out at the beginning of this judgment.

iv) Although not averted to by counsel for either party, there is the additional difficulty that, since the only paragraph 83 notice actually registered was itself invalid due to having been sent after the termination of the administrators' period of office, the company may never have been validly placed in creditors' voluntary liquidation at all.

v) In the light of my decision that that First Notice was duly delivered, none of these unfortunate consequences flow from anything done, or omitted to have been done, by the former administrators.

Interpretation of Paragraph 83

21. The next question, arising from the facts I have described, and my conclusion that the First Notice was properly delivered, is what the Registrar ought to have done upon receiving it on 14 December 2010. Paragraph 83(3) requires the Registrar to register the notice "on receipt". Elsewhere in paragraph 83, and (for example in the related provisions about extension of the administrator's term of office under paragraph 78(5)) the draftsman imposes obligations to be complied with "as soon as is reasonably practicable". It is, at least at first sight, a fair inference that registration of a paragraph 83 notice under paragraph 83(4) is to be done immediately, or at least with immediate effect.
22. Ms D'Cruz told me upon instructions (in response to my enquiry) that, in practice, it would take on average about three working days from receipt of a paragraph 83 notice before the Registrar's staff had carried out the steps necessary to register it, so as to be visible upon a search. She submitted that the consequential voluntary winding up, which is expressed in paragraph 83(6)(b) to take place as if a resolution for voluntary winding up under section 84 were passed on the day on which the notice is registered, occurs only after that period of administrative delay.
23. If the Registrar had taken the typical three working days to register the First Notice, registration in that sense would have occurred only on 17 December, a day after the expiry of the administrators' period of office. One further day's delay would have caused registration to occur only on the following Monday 20 December. In cases where a notice is duly delivered just before a public holiday period such as Christmas or Easter, more than a week may expire between delivery and the date of registration in the sense contended for by the Registrar. On any view, the adoption of the Registrar's interpretation of the obligation imposed upon him by paragraph 83(4) would, even if he had not rejected the First Notice, have created a gap between the expiry of the administrators' term of office and the commencement of the liquidation. The practical consequence of the average period of delay in registration of which I was informed is that gaps of this kind are unlikely to be isolated occurrences.
24. I was offered by counsel three alternative interpretations of paragraph 83. The first, which was Mr Goodison's preferred alternative, was that regardless of when the administrative steps necessary for registration were completed, paragraph 83(4) should be interpreted as requiring registration with effect from the day of receipt, so that the phrases in paragraph 83(6) "on the registration of a notice" and "on the day on which the notice is registered" are treated as references to the effective date of registration, i.e. the date of receipt of the notice.
25. The second interpretation, proffered by Mr Goodison in the alternative, was that if the date of registration for the purposes of paragraph 83(6) could not be earlier than the date when the administrative process was completed by the Registrar, then in every case of a properly delivered paragraph 83 notice, paragraph 83(6)(a) should be treated as extending the term of appointment of the administrator until that date, even if it would otherwise already have ended.
26. The third alternative, propounded by Ms D'Cruz, was simply that the date of registration for the purpose of triggering a liquidation under paragraph 83(6)(b) was indeed the date when the administrative process of registration was completed. Implicit in her submission was that the obligation to register in paragraph 83(4) was to do so as soon as reasonably practicable after receipt of a notice. She submitted that if the consequence was to create a gap between the end of the administration and the onset of the liquidation, then the adverse consequences which I have described at the beginning of this judgment could not be avoided. Ms D'Cruz did not, in particular, support Mr Goodison's submission that paragraph 83(6)(a) was sufficient in such circumstances to extend the period of the administrators' appointment.
27. No one suggested that it was in fact practicable for the Registrar to complete the administrative process of registration in every case on the day of receipt of a paragraph 83 notice. Mr Goodison did not criticise the average period of three working days described by Ms D'Cruz, and nor do I. To ensure a 'same day' service in every case would require the Registrar to devote a disproportionate amount of staff resources to ensure that occasional peaks in the rate of delivery of paragraph 83 notices could always be accommodated. In my judgment Parliament cannot be taken to have intended otherwise, unless there is no sensible alternative interpretation of paragraph 83.
28. I consider that the first of the three alternative interpretations of paragraph 83 summarised above is to be preferred. Since I have reached a conclusion different from that which appears to have been assumed by the Registrar and applied in practice over many years without challenge, I shall set out my reasons in a little detail.
29. The starting point is a purposive rather than merely literalist interpretation of paragraph 83. It is as David Richards J recognised in Re E Squared plainly designed to provide a simple and inexpensive means whereby administrators may, in the circumstances stated in sub-paragraph (1), move the company seamlessly (i.e., in the present context gaplessly) from administration into creditors' voluntary liquidation. A subordinate purpose is that this important change in the company's status should be recorded in a public register at a time when the change occurs, and in a manner sufficient to inform those inspecting the register thereafter when it occurred.
30. That primary purpose, and in particular the intention that the transition should be gapless, is discernible not merely, or even mainly, from the language of paragraph 83 itself, but from the language of all those other provisions (summarised at the beginning of this judgment) which provide for special consequences to flow from a liquidation which is immediately (i.e. gaplessly) preceded by an administration.
31. The strength of Ms D'Cruz's interpretation is that it fulfils more completely than the other two what I have described as the subordinate purpose of paragraph 83 (which she conveniently labelled maintaining the transparency of the register). But for all the reasons set out above it does so at the price of defeating the primary objective of a gapless progression from administration to liquidation, not merely in the exceptional case such as the present, but routinely in cases where, as they are apparently entitled to do, administrators deliver a paragraph 83 notice to the Registrar very shortly before the expiry of their period of office. It also involves treating the phrase in paragraph 83(4) "on receipt of a notice" as meaning in reality "as soon as reasonably practicable after receipt of a notice".
32. At first sight, the second alternative (which extends the administrators' term of office until the onset of a liquidation triggered by registration of a paragraph 83 notice) appears to fulfil both the primary and second purposes. It certainly avoids the creation of gaps and their adverse consequences. It also ensures that the liquidation commences at precisely the time when notice to the public to that effect first appears on the register.
33. It is in my view undermined by two considerations. The first and less important is that it has the effect of extending the administrators' period of office during a period when (because the paragraph 83 notice has not yet appeared on the register) the public would otherwise think that it had terminated by effluxion of time pursuant to paragraph 76 and following of Schedule B1.
34. The second and more serious difficulty is that it assumes the ability of the administrators by notice to extend rather than merely cut short their period of office, contrary to what I regard as the clear intent behind the scheme created by paragraphs 76 to 86, taken as a whole. The general thrust of that scheme is that administrators are appointed for precisely fixed periods, that those periods can only be extended by court order made before the period ends, or (and once only) by the consent of the company's relevant stakeholders, in writing or at a creditors' meeting: see paragraphs 76 to 78. By contrast there are various provisions by which (usually when the purpose of the administration has been fulfilled) administrators may by notice or other simple process, bring their period of office and the administration to an early end. Paragraph 83(6)(a) is but one example. Others are to be found in paragraphs 79, 80 and 84. Furthermore, the language of paragraph 83(6)(a) is in my view language appropriate to early termination rather than extension.
35. I recognise that the capacity for the second interpretation to lead to formal extensions of the administrator's period of office will in ordinary circumstances be limited to the usually short period of a few working days between the Registrar's receipt of a paragraph 83 notice and the administrative completion of the process of its registration. Nonetheless there may be exceptions, and the unusual facts of the present case constitute a spectacular example of a case in which, if the Registrar now registers the First Notice after the court's determination that it was properly delivered, the effect will have been to extend the administrators' period of office for well over a year.
36. The first alternative, which I prefer, fulfils the primary purpose only marginally less effectively than the second alternative, and detracts only to what I regard as an acceptable extent from the fulfilment of the subordinate purpose of transparency. I consider that it gives full effect to Parliament's intention that registration should take effect on receipt of a paragraph 83 notice by the Registrar, as provided in paragraph 83(4). It involves treating the registration of the notice as taking effect a little earlier than the evidence of it first becoming available for public inspection. Thereafter, it affords to any inspecting member of the public a precise record of the date when, in accordance with Parliament's intention, the company's voluntary liquidation commenced.
37. Precisely the same effect is achieved, in the analogous context of land registration by the combined effect of section 74 of the Land Registration Act 2002 and Rule 20(1) of the Land Registration Rules 2003, which provide that the registration of a disposition takes effect from the date when the application for it reaches the Land Registry, rather than from such usually later date upon which the administrative formalities of registration are completed.
38. I recognise that the conclusion to which I have come is not spelt out as clearly in paragraph 83 of Schedule B1 in relation to administration as it is in the Land Registration Act 2002 and attendant rules in relation to real property. Nonetheless it is in my view an available interpretation of the less explicit language of paragraph 83, and one which substantially achieves both its primary purpose and, at least when the register is viewed thereafter, the main part of its subordinate purpose.
39. It falls just short of the second interpretation in achieving that primary purpose because it does not deal with a case in which a paragraph 83 notice is, for example, posted by liquidators on their last day of office, but only reaches the Registrar thereafter. This is however a small price to pay because, as occurred in the present case, administrators can protect the integrity of the process which they intend to achieve by ensuring that their notice is, if necessary, hand delivered to the registrar before their period of office ends. They thereby achieve complete protection from unwelcome gaps between administration and liquidation, and are in no sense exposed to the inevitable administrative delays which thereafter occur at the registry.
40. I am incidentally comforted in reaching an interpretation which detracts slightly from achieving the greatest degree of transparency of the register by the fact that paragraph 83(5) requires the administrator to notify both the court and all creditors of the company of whose claim and address he is aware by sending them a copy of the paragraph 83 notice as soon as reasonably practicable after its delivery to the Registrar. That process, rather than registration, provides the main route by which notice of the transition of the company from administration into liquidation is communicated to its stakeholders.
41. The answer therefore to the question what would have happened if the Registrar had not rejected the First Notice is that the administrative process of registering it would probably have been completed by 17 December, or early in the following week, and that the register would at all times thereafter have shown that the company's administration ceased on 14 December 2010 (the day of the receipt of the First Notice) and that its creditors' voluntary liquidation commenced on the same day.

Relief

42. Having concluded that the First Notice should have been registered, with effect from 14^th December 2010, and that neither the Second nor Third Notices should have been registered at all, the question remains what if anything the court can or should now do about it.
43. S.1096 of the 2006 Act confers a limited power on the court to order the removal from the register of material that derives from anything invalid or ineffective, or which is factually inaccurate or forged. The court is given no express power to order that material should be added to the register, save that any order which it makes for removal of material must itself be sent to the Registrar and registered. The court may also make consequential orders with respect to the legal effect (if any) of the material ordered to be removed.
44. Mr Goodison submitted that, as a party to the proceedings, the Registrar could be compelled by the court to do anything necessary to put the matter right. Alternatively he submitted that in appropriately constituted proceedings for judicial review the court could order the Registrar to register the First Notice, with effect from 14^th December 2010.
45. Ms D'Cruz did not, understandably, come to court armed to deal with an application for judicial review. Nonetheless she did, on instructions, say that the Registrar would in practice register the First Notice, and with effect from 14^th December, if the court was to declare that this is what ought to be done.
46. Assisted by that sensible attitude on the part of the Registrar, that is what I propose to do. I am satisfied in this case that the present state of the registered entries, which wrongly purport to show a seamless transition from administration to liquidation on 4^th February 2011, is one which is at least capable of causing harm to the orderly winding up of the company's affairs. I shall therefore order those entries to be removed, and declare that the First Notice ought to be registered with effect from 14^th December 2010. I shall nonetheless give permission to apply to any person wishing to argue otherwise, provided that application is made within six months of the removal of the offending entries.
47. There may well be cases where, for example, registration of a duly delivered notice has wrongly been refused, and no alternative notice registered. They may give rise to a much harder balancing of competing interests than has been necessary in the present case, in particular because no seamless move from administration to liquidation will have been advertised to the public. In the present case the perhaps fortunate combined effect of two consecutive mistakes in the registry has limited the misconception in the public mind to the precise date when that move took place.