Global menu

Our global pages

Close

NMUL Realisations Limited (in Administration) [2021] EWHC 94 (Ch)

  • United Kingdom
  • Banking and finance
  • Restructuring and insolvency

21-01-2021

Eversheds Sutherland Restructuring team recently acted for the applicant administrators in Re NMUL Realisations Limited (in Administration) [2021] EWHC 94 (Ch).

The team were successful in obtaining a decision not only in favour of their clients, but of great interest for insolvency professionals: in principle, a failure by a secured creditor to give notice of their intention to appoint administrators to a prior secured creditor will not result in an invalid appointment, but a mere defect that is capable of remedy by the Court. Whether or not the defect will be remedied depends upon the facts in each individual case and the decision in no way takes away the obligation to give notice to prior secured creditors. It is a helpful development in a line of case law concerning the appointment of administrators. 

The decision is also a timely reminder that, when considering the nature and extent of security granted by a company, the charges register at Companies House cannot be relied upon. This will be the case even if, as in Re NMUL Realisations Limited (in Administration), a certificate of satisfaction has been filed in respect of security and the party with the potential interest in it is unascertainable.  The decision highlights the need, in practice, for significant lender diligence both on origination and when considering the appointment of an administrator.

An in-depth analysis of the decision is below.

Re NMUL Realisations Limited (in Administration) [2021] EWHC 94 (Ch)

Summary

In Re NMUL Realisations Limited (in Administration) [2021] EWHC 94 (Ch), Deputy ICC Judge Frith held that the appointment of administrators to Norton Motorcycles (UK) Limited (the “Company”) was not void ab initio, notwithstanding that the appointing qualifying floating chargeholder had not given notice of its intention to appoint administrators to a prior qualifying floating chargeholder pursuant to paragraph 15 of Schedule B1 to the Insolvency Act 1986 (the “Act”). 

Rather, the failure to give notice of its intention to appoint administrators was merely a formal defect in the appointment that was capable of remedy by order of the Court pursuant to Rule 12.64 of the Insolvency Rules (England and Wales) 2016 (the “Rules”), which Deputy ICC Judge Frith ordered on the basis that no substantial injustice would be caused. It was material that the two parties that could have had an interest in the prior qualifying floating charge did not object to the relief sought, nor did the creditors or shareholders of the Company.

The facts

On 29 January 2020, following a downturn in the Company’s fortunes and its inability to repay sums demanded by a secured lender (the “Lender”), the Lender appointed administrators to the Company in its capacity as qualifying floating chargeholder. 

The Lender did not serve a notice of their intention to appoint administrators on any other party because, according to records at Companies House and after making various other enquiries, it appeared that there were no prior unsatisfied qualifying floating chargeholders in respect of the Company.  Therefore, on the basis of publicly available information and as far as the Lender could ascertain in the time, the obligation under paragraph 15 of Schedule B1 to the Act to give notice to any prior qualifying floating chargeholder (or obtain their consent) ahead of appointment did not apply.

It was subsequently discovered, however, that historic security containing a prior qualifying floating charge in favour of a third party, whilst marked as satisfied, had not (in fact) been satisfied.  Therefore, the administrators applied for an order that their appointment was valid, notwithstanding a notice of intention to appoint had not been served on this prior qualifying floating chargeholder.

The decision

Deputy ICC Judge Frith held that, technically, a notice of the Lender’s intention to appoint should have been served on a third party in respect of the prior qualifying floating charge. 

This was notwithstanding (i) a certificate of satisfaction had been filed with the Registrar of Companies in respect of the prior qualifying floating charge and it was recorded on the charges register at Companies House as satisfied.  Unfortunately, the charges register at Companies House in respect of a company is not conclusive, since certificates of satisfaction may (for example) be fraudulent; and (ii) the prior qualifying floating chargeholder had been dissolved in 2016 and it was not clear whether a notice of intention should have been served on the Government Legal Department, as vestee of the dissolved chargeholder’s assets by virtue of bona vacantia, or the Enforcement Receiver appointed to realise the assets of the directors of the dissolved chargeholder pursuant to the Proceeds of Crime Act 2002.  Had it been known that there was a prior qualifying floating charge, in any event, the Lender could have served on both potentially interested parties to avoid doubt.

That said, drawing a line with the decision in Re Tokenhouse VB Ltd (formerly VAT Bridge 7 Ltd); sub nom Strategic Advantage SPC (for and on behalf of VAT 1 SP) v Rutter and others [2020] EWHC 3171 (Ch), Deputy ICC Judge Frith held that the failure to give notice to a party on behalf of the prior qualifying floating chargeholder under paragraph 15 of Schedule B1 to the Act was merely an irregularity giving rise to a formal defect in the appointment that was capable of remedy by order of the Court pursuant to Rule 12.64

Applying Rule 12.64, in the circumstances, there would be no substantial injustice caused in curing the appointment.  Amongst other factors, the two parties that could have had an interest in the prior qualifying floating charge were served with the application and had not objected to the relief sought; nor had the creditors or shareholders, who were invited to make representations by the administrators’ progress report, objected. 

The Court also acknowledged the time pressure under which the parties were all operating when appointing the administrators and, presumably referring to the charges register at Companies House and in any event the issue of on whom to serve the notice of intention, that “certain important facts… were not readily available at the time” (see paragraph 27).

Analysis

The decision follows Re Tokenhouse, in which ICC Judge Jones held that a failure by directors to give notice of their intention to appoint administrators to a qualifying floating chargeholder as required by paragraph 26(1) of Schedule B1 to the Act was not fundamental – or so prejudicial – to mean that the subsequent appointment of administrators was invalid, and helpfully refines the rationale.

Deputy ICC Judge Frith adopted the reasoning of ICC Judge Jones in Tokenhouse and, as with a failure to comply with paragraph 26(1) of Schedule B1 to the Act, a failure to comply with paragraph 15 of Schedule B1 to the Act following Re NMUL Realisations Limited (in Administration) is a mere defect.  It is clear from Deputy ICC Judge Frith’s judgment, however, that whether the Court will exercise its discretion under Rule 12.64 will depend on whether “substantial injustice” has been suffered and that this “will depend entirely on the facts of each case” (see paragraph 29).  The emphasis on substantial injustice and considering the facts of each case ensures that the Court will balance the competing rights of stakeholders in the appointment process in question. 

It will be of relief to practitioners that, while Re NMUL Realisations Limited (in Administration) confirms that parties cannot rely on the charges register at Companies House, they should be able to rely on Rule 12.64 if they have made genuine efforts to ascertain the rights of other parties to notice of the intention to appoint administrators (because, in the words of Deputy ICC Judge Frith, “[i]t is not hard to imagine the Court refusing to exercise its discretion for an egregious failure to follow the Rules” (see paragraph 29)).  As Deputy ICC Judge Frith also notes it is, of course, always open to parties to apply to Court if there is doubt around a charges register, but the judgment in Re NMUL Realisations Limited (in Administration) may provide comfort to parties to proceed where this is not practicable because of (by way of example) significant time pressure.

It is therefore hopefully now settled that, where advisors have taken all steps possible in the time available to them but there has been an understandable failure – or, in fact, it is impossible – to give notice of intention to a party prescribed by the Insolvency Act 1986, the subsequent appointment of administrators is not a nullity.