Administration – Changes to out of hours appointments
The recent decision of Re All Star Leisure (Group) Limited 2019 has clarified the position with respect to Notice of Appointments of Administrators filed electronically on behalf of qualified floating charge holders out of court hours to be defective, though capable of being cured under rule 12.64 of the Insolvency Rules 2016.
All Star Leisure Group Ltd (“the Company”) was subject to a winding up petition. Its effect resulted in it being placed into administration so a pre-pack sale of itself and its 5 subsidiaries could be achieved.
The directors of each subsidiary appointed administrators and a qualified floating charge holder (“QFCH”), being a creditor of the Company, used its power to appoint an administrator to enable the proposed sale to take place.
An appropriate Notice of Administrator (“NOA”) was drafted by solicitors on behalf of the QFCH, and filed electronically using the High-Court’s CE document filing system on two occasions prior to the Birmingham District Registry closing at 4pm. The NOA was duly filed at 4:18pm and the pre-pack sale completed later that day at 5:12pm.
The issue for the court to consider was, whether this filing after court hours and subsequent sale contravened the process set out in rule 3.20 Insolvency Rules 2016 (“IR 2016”) which provides that when a court is closed, the QFCH can only file an NOA by (1) faxing it to a designated telephone number or (2) emailing it, or attaching it to an email, to a designated email address. Using the High Court’s CE filing system was not one of the permitted methods and so on the face of it appeared the NOA was invalid.
The Civil Procedure Rules which govern the rules for any litigious claims, provide at Practice Direction 51O (“PD51O”), that documents can be filed 24 hours a day however where an appointment is made by a QFCH and the court is closed, the filing must be in accordance with rule 3.20 IR 2016 (see PD51O (c)).
After an application to the court from the administrators seeking confirmation of their appointments’ validity, the following was held:-
- The out of hours filing on behalf of the QFCH by CE file rather than by rule 3.20 IR 2016 was a formal defect and not a fundamental error;
- No substantial injustice had been caused by the defect;
- It was appropriate for the court to cure the defect; and
- The appointments were deemed to have taken effect at 4:18pm.
The court was satisfied not to remain confined to the procedure detailed in rule 3.20 IR 2016 because it does not specify a mandatory way (i.e. permissive) in which NOAs must be filed outside court hours and do not directly conflict with Civil Procedure Rules allowing 24 hour e-filing.
Points to note
- The above decision is in relation to rule 3.20, and PD51O (C) is only in relation to QFCHs.
- The position with regards to a company or director making an NOA remains unclarified.
- The fact that rule 3.20 out of hours procedure is only available to QFCHs and not for company or director appointments is not a reason to prevent QFCHs from using CE file outside court hours.
- Currently, creditors can petition for a company’s winding up using CE-file outside court hours, but directors have no power to block this by appointing administrators out of hours creating an uneven playing field.
- NOAs filed by solicitors on behalf of directors or companies should be done within court hours to avoid any ambiguity.