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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Strategic Advantage SPC v Rutter & Ors (Rev 1)  EWHC 3171 (Ch) (14 October 2020)
Cite as:  EWHC 3171 (Ch)
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BUSINESS AND PROPERTY COURT OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF TOKENHOUSE VB LIMITED (formerly VAT BRIDGE 7 LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
B e f o r e :
| STRATEGIC ADVANTAGE SPC
For and on behalf of VAT 1 SP
|- and -
|(1) MR LAURENCE RUTTER
(2) MR SIMON WILLIAM HOLDEN
(3) MR GRAHAM AVERY
(4) TOKENHOUSE VB LIMITED
(formerly VAT Bridge 7 Limited)
(5) MR JEREMY KARR
(as purported Joint Administrator of Tokenhouse VB Limited)
(6) MR JAMIE TAYLOR
(as purported Joint Administrator of Tokenhouse VB Limited
Mr Iain Pester for the 1st, 2nd and 3rd Respondents instructed by direct access
Ms Tina Kyriakides (instructed by HCR Specher Grier) for the 5th and 6th Respondents
No-one else appeared or was represented
Hearing date: 4 September 2020
Crown Copyright ©
I.C.C. Judge Jones:
A) The Issues and Task
"The question whether the failure to comply with the notice requirements of para.26 inevitably invalidates the appointment of the administrator has been much debated in recent cases at first instance, and remains the subject of controversy. Only a ruling of a higher court can resolve the current impasse."
B) The Facts and Submissions
C) The Statutory Background
C1) The Introduction of Out of Court Appointments
"Administration" was introduced in the 1986 Act to facilitate the rescue and restructure of businesses. It is of the nature of the commencement of an administration that the formalities will have to be observed under pressure of time and circumstance. Whilst under the 1986 Act the commencement and termination of that process took place in court proceedings, the Enterprise Act 2002 streamlined that process and enabled administrators to be appointed out of court. The true construction of Sch.B1 and of the relevant Insolvency Rules depends upon setting the particular paragraph or rule in the context of this scheme as a whole."
C2) The Scheme As A Whole
C3) Out of Court Appointments and Qualifying Floating Charge Holders
a) An administrative receiver would be appointed (normally as an agent of the company) with the function of achieving the realisation of the secured assets now the subject of a crystallised floating charge for the benefit of the floating charge holder. This process would start upon appointment rather than require a proposal and vote of creditors in accordance with the procedure for all administrations, albeit that a "pre-pack" sale may be an option.
b) In contrast, all administrations have the purpose and aim summarised in paragraph 17 above, even if the qualifying floating chargeholder makes the appointment. An administrator must act in the interests of the creditors as a whole, subject to the administrator's function being to make a distribution to one or more secured or preferential creditors. That function will only arise if the administrator thinks it is not reasonably practical to achieve either of the other two objectives and if it will not unnecessarily harm the interests of the creditors as a whole (see paragraphs 3(2) and 3(4) of Schedule B1).
c) Whilst a receiver may still be appointed over less than a substantial part of the company's secured assets, that may well be unattractive commercially and the appointee would be required to vacate office if an administrator is appointed (see paragraph 41(2) of Schedule B1).
"The notice of intention has to be given to those specified in paragraph 26(1) of Schedule B1... The purpose of giving the notice is clearly to afford the holder of the superior right the opportunity to establish whether its security is enforceable, to decide whether to make its own appointment under paragraph 14 of Schedule B1, and (if necessary) to give 2 business days' notice to the holder of any and every prior qualifying floating charge. The giving of the notice also affords the holder of the superior right the chance to conduct negotiations with the proposed appointors over the identity or terms of appointment of the proposed administrator or (in an extreme case) to prevent the company going into administration."
C4) The Scheme for Out of Court Appointments
"the structure envisages that there will be two separate stages in the process: the appointment followed by the filing of the notice. The appointment may be made before notice of intention is sent and the subsequent step of filing the notice of appointment may be made under that authority without the need for a second resolution provided those entitled to notice raise no relevant objection. The appointment will take effect in accordance with paragraph 31 of schedule B1."
C5) The Consequences of An Appointment
C6) Other Relevant Provisions
a) Sub-paragraphs 27(3) and 27(4) and 29(2) and 29(7) of Schedule B1 respectively require a statutory declaration to be filed with the notices of intention and appointment and provide that a criminal offence will be committed if a statement is false and not reasonably believed to be true.
b) Paragraph 34 of Schedule B1 empowers the court to order a person who makes an invalid appointment to indemnify the appointee against any liability which arises solely by reason of that invalidity.
c) Section 232 of the Act provides that the acts of an administrator are valid "notwithstanding any defect in his appointment, nomination or qualification". Paragraph 104 of Schedule B1 confers a presumption of validity in the following terms: "An act of the administrator … is valid in spite of a defect in his appointment or qualification".
d) Rule 12.64 of the Insolvency Rules 2016 (formerly Rule 7.55 of the Insolvency Rules 1986) provides:
"No insolvency proceedings will be invalidated by any formal defect or irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that injustice cannot be remedied by any order of the court".
e) The court has a general power to rectify errors of procedure conferred by CPR Rule 3.10.
a) In the case of court appointments, Chargeholders must be notified of the application as soon as is reasonably practical after it is made (see paragraph 12(2) of Schedule B1). A qualified floating charge holder is entitled to apply for an administration order ...see paragraph 35 of schedule B1). They may also intervene in an application if they would prefer a different appointee to the insolvency practitioner preferred (paragraph 35 of Schedule B1).
b) A court appointment will be valid subject to review or appeal under Rule 12.59 of the Insolvency Rules 2016 (formerly Rule 7.47 of the Insolvency Rules 1986) even if the requirement of notice was not fulfilled. It is a court order.
c) Chargeholders wishing to make an out of court appointment under paragraph 14 of Schedule B1, which can only be done if the floating charge is enforceable (paragraph 14 of Schedule B1), are required by paragraph 15 of Schedule B1 to give notice of their intention to relevant floating charge holders whose charge has priority over their charge (see the early decision of Mr Justice Peter Smith in Fliptex Ltd v Hogg  EWHC 1280 (Ch),  B.C.C. 870).
D) The Problem
a) Paragraph 26 of Schedule B1 which requires a notice of intention as summarised at paragraphs 6-8 above.
b) Paragraph 27 of Schedule B1 requiring the notice of intention to be filed with the court as soon as is reasonably practical together with any document accompanying it and a statutory declaration in the prescribed form made not more than 5 business days before filing (Rule 3.23(6)(b) of the Insolvency Rules 1986, formerly Rule 2.20 of the Insolvency Rules 1986). The declaration, which is subject to a criminal offence provision, requires (amongst other matters) statements to the effect that the insolvency requirements are met and the appointment is not prevented by paragraphs 23-25 of Schedule B1.
c) Paragraph 28 of Schedule B1 provides that an appointment may not be made after the period of 10 business days beginning with the date of that filing. It also prohibits an appointment if the requirements of paragraphs 26 and 27 of Schedule B1 have been complied with.
d) Paragraph 29 of Schedule B1 requires the notice of appointment to be filed. It is to include a statutory declaration made not more than 5 business days before filing (see (Rule 3.25(4)(b) of the Insolvency Rules 1986, formerly Rule 2.25 of the Insolvency Rules 1986) which declares (amongst other matters and subject to a criminal offence provision) that the appointment is in accordance with Schedule B1 and that the statutory declaration filed with the notice of intention to appoint remains accurate.
e) Paragraph 31 of Schedule B1 provides that the appointment takes effect when the requirements of paragraph 29 of Schedule B1 are satisfied.
E) An Alternative, Retrospective Solution
F) Binding Authority
a) This is not a case where the purported appointment is void because there was no power to appoint or the appointment was not made. Examples of those types of case include the failure to make an appointment (see Re Kaupthing Capital Partners II Master LP Inc; Pillar Securitisation Sarl v Spicer  EWHC 836 (Ch),  BCC 338) and the failure to pass a valid resolution to appoint (see Minmar (929) Ltd v Khalastchi  EWHC 1159 (Ch);  BCC 485).
b) For cases such as this, where there is an issue of compliance with the requirements of paragraphs 26-30 of Schedule B1, there is now a consensus binding upon me that the court should follow the decision of Mr Justice Arnold, as he then was, in Re Ceart Risk Services Ltd  EWHC 1178 (Ch),  BCC 592 to the extent that he held that the answer to the question whether non-compliance results in invalidity depends upon whether Parliament intended that outcome. That is to be decided by first identifying the purpose of the requirement breached and second by identifying the consequences of non-compliance. As Mr Justice Norris explained in Re Euromaster Ltd (above), the focus is on "the consequences of non-compliance".
c) If the answer is that there is not automatic invalidity and breach is an irregularity, it follows that paragraph 31 of Schedule B1 will be given effect accordingly. The presumptions of validity within section 232 of the Act and paragraph 104 of Schedule B1 will apply (as expressly decided by the decision of Mr Justice Arnold in Re Ceart Risk Services Ltd) together with Rule 12.64 of the Insolvency Rules 2016, formerly Rule 7.55 of the Insolvency Rules 1986) (see also the decision of Mr Justice Nugee, as he then was, in Re Spaces London Bridge Ltd  EWHC (Ch),  B.C.C. 280 and CPR Rule 3.10.,to the extent necessary).
d) As a result, the decision in Re G-Tech Construction Ltd  B.P.I.R. 1275 that in a case of breach, in that case of paragraph 29 of Schedule B1 by failing to file the correct prescribed form but with reasoning equally applicable to any of the requirements of paragraphs 26-30 of Schedule B1, there cannot be an effective appointment because of the terms of paragraph 31 of Schedule B1 is not to be followed.
e) Mr Justice Marcus Smith in Re Skeggs Beef Ltd  EWHC 2607 (Ch),  B.C.C. 43 has identified three categories of case to be applied when deciding the consequences of a breach of the requirements for an out-of-court appointment. Namely, cases where (i) the breach is fundamental, (ii) not fundamental but have caused no injustice, and (iii) not fundamental but have caused substantial injustice.
f) When answering the question of Parliamentary intention and for the purpose of categorising the breach, the provisions concerning the appointment of administrators out of court are to be interpreted within the context of the statutory scheme for administrations "as a whole" (Re Virtual Purple Professional Services Ltd (above)).
g) The judgment of Mr Justice Marcus Smith also leads me to conclude that when applying those categories and determining the First Issue, I must apply the reasoning of Mr Justice Norris in Re Euromaster Ltd (above) and proceed from the premise that paragraphs 26-32 of Schedule B1 prescribe procedural requirements. The result being that a breach will "naturally fall to be treated as irregular" (Norris J. at ). The reasoning has been approved in the case of Re Melodious Corporation  EWHC 621 (ch),  B.C.C. 727 by Sir Terence Etherton when Chancellor.
h) Neither Mr Justice Marcus Smith nor Mr Justice Norris were specifically concerned with a breach of paragraph 26(1) of Schedule B1. In Gregory v A.R.G. (Mansfield) Limited  EWHC 1133 (Ch),  B.C.C. 641 at [56-88] H.H. Judge Davis-White Q.C., sitting as a Judge of the High Court, disagreed with His Honour Judge Purle Q.C.'s decision in Re BXL Services  EWHC 1877 (Ch),  B.C.C. 657 that Re Ceart Risk Services Ltd (above) established as settled law that a failure to give notice to a Prescribed Person did not invalidate the appointment under paragraph 26(2) of Schedule B1. That conclusion must equally apply to paragraph 26(1) of Schedule B1 and bind me.
i) In any event Mr Justice Norris did not have to address within his reasoning each procedural provision or circumstance of breach. He did not decide the First Issue and this leaves the possibility, in particular in the light of previous authority, that a failure to give a notice of intention under paragraph 26(1) of Schedule B1 may be an exception which does not "naturally fall to be treated as irregular".
G) The Decision – The First Issue
a) The fact that the breach can be cured, if appropriate, by the replacement of administrators by court order (see Issue 2 below).
b) There will be consistency with the outcome for a breach of paragraph 26(2) of Schedule B1) in accordance with Re Euromaster Ltd bearing in mind that Prescribed Persons include supervisors and the company who may also appoint administrators.
c) Parliament has provided potential remedies to deter breaches by making it a criminal offence to file a false statutory declaration not reasonably believed to be true and to potentially have to indemnify the appointee (see paragraph 27(a) and (b) above).
d) There will no longer be a need to make retrospective appointments, ending the concerns that have arisen in respect of them (see paragraph 38 above).
H) The Decision - The Second Issue
a) Corporate Commercial Collections Limited owes £7,338,636.16 but its statutory accounts filed for the period to 31 December 2019 report net liabilities of £1.6m.
b) Appleby Castle (Outbuildings) Limited owes £929,670.29 but its statutory accounts filed for the period to 28 February 2020 report net liabilities of £256,157.
c) One Charter Limited owes £1,078,758.07 but its statutory accounts filed for the period to 31 January 2020 report net liabilities of £294,715 before it (presumably used the original loan to purchase a property for £1,625,000 on 19 February 2019, There is a valuation report provided by the directors of £1,350,000.
d) Triple C Funding Limited owes £2,511,139.58 but its statutory accounts filed for the period to 30 November 2019 report net assets of £344,275.
e) EMC Power Limited owes £1,566,340.46 but its statutory accounts filed for the period to 31 December 2019 report net assets of £113,335.
f) VAT Bridge Limited owes £184,892.90 but its statutory accounts filed for the period to 31 December 2018 report net assets of $342,404. liabilities of £1.6m.
g) VAT Bridge 2 Limited owes £1,387,301.10 but its statutory accounts filed for the period to 31 January 2020 report assets and shareholder funds of £2.00. This being after it had purchased a property for £2,216,136 on 19 December 2019.
I) Conclusion and The Future
(1) My task has been made considerably easier by a detailed review of authorities by H.H. Judge Davis-White Q.C., sitting as a Judge of the High Court, in the case of Gregory v A.R.G. (Mansfield) Limited (above at [56-88]). However, I trust he will forgive me for observing in the context of my task that his decision in part adds to the line of "conflict of judicial opinion" and does not relieve me from having to analyse where that line has led for the purposes of those sitting below High Court Judge level.
(2) The approach I will take is this: I will treat paragraphs 56-88 of his decision as being read into this judgment at this point. I will provide my analysis of the decisions most relevant to my task without repeating (unless necessary) his observations upon those cases I refer to. Whilst it is necessary for me to add my commentary to the extent necessary to explain my reasoning, his analysis sitting as a High Court Judge has obvious priority.
Re G-Tech Construction Ltd
(3) In my judgment until the decision of Re Ceart Risk Services Ltd (above) I would have been bound to follow the decision of Mr Justice Hart in Re G-Tech Construction Ltd (above). It is a decision based upon the plain meaning rule and decides that paragraph 31 of Schedule B1 provides for the consequence of non-compliance, namely that an appointment cannot be effective. It is consistent with the decision of Fliptex Ltd v Hogg (above) in respect of paragraph 14 of Schedule B1.
(4) In that case, the company had appointed an administrator but failed to comply with the requirements of paragraph 29 of Schedule B1 by filing the correct prescribed form. The error was only identified after some 12 months when it was being proposed to place the company into voluntary liquidation. Mr Justice Hart decided there cannot have been an appointment because paragraph 31 of Schedule B1 provides that an appointment "under paragraph 22 [of Schedule B1] takes effect when the requirements of paragraph 29 are satisfied". As he said, "a necessary prerequisite of an appointment taking effect under para 31 of Sch B1" had not been met. As he explained at : "The relevant insolvency process here is administration, and one is simply faced with the difficulty which seems to me to be an insuperable one, of the provisions of para 31 of Sch B1 to para 35".
(5) He also decided that paragraph 104 of Schedule B1, which provides that an act of an administrator of a company is valid despite any defect in his appointment, could not be relied upon if there was no appointment. Equally, there were no insolvency proceedings and, therefore, the Insolvency Rules would not apply. That prevented advantage being taken of what was then Rule 7.55 of the Insolvency Rules 1986 (now Rule 12.65 of the Insolvency Rule 2016), which provided that no insolvency proceeding should be invalidated by any formal defect or irregularity unless any injustice caused by it could not be remedied.
(6) Mr Justice Hart's solution was to make a retrospective appointment under paragraph 13(1) of Schedule B1. Although initially reluctant, he was persuaded that this provision's unfettered discretionary power conferred that jurisdiction. The order had the effect of ratifying all that had been done as purported administrator and allowed fees and expenses to be recovered as though there had been a valid appointment throughout.
After G-Tech Construction Ltd and Before Re Ceart Risk Services Ltd
(7) Re G-Tech Construction Ltd (above) was followed by cases such as Re Kaupthing Capital Partners II Master LP Inc; Pillar Securitisation Sarl v Spicer (above), Re Frontsouth (Witham) Ltd (In Administration)  EWHC 1668 (Ch),  BCC 635 and National Westminster Bank plc v Msaada Group (a firm)  EWHC 3423 (Ch),  EWHC 5 (Ch), 
(8) Although Ms Heal relied heavily upon Re Kaupthing Capital Partners II Master LP Inc; Pillar Securitisation Sarl v Spicer (above), and no doubt there is much within the judgment to consider by a higher level of court, its facts present a different scenario. The effect of using the wrong form in that case was that it and the attached resolution referred to the appointment of a company not of a partnership. That being so, there was no appointment over the partnership and, therefore, the appointment could not be valid. This is similar to the facts which resulted in the decision of the then Chancellor, Sir Andrew Morritt, in Minmar (929) Ltd v Khalastchi (above). The appointment could not be valid because it was contrary to the company's articles. These are cases where the appointment was not made or there was no power to appoint.
(9) However, obiter remarks of the then Chancellor, Sir Andrew Morritt, in Minmar (929) Ltd v Khalastchi (above) also addressed the failure of the directors to give notice of intention to appoint to a Prescribed Person, the company. The decision included an investigation as to whether a White Paper, Explanatory Notes or Ministerial Statement admissible under the rule in Pepper (Inspector of Taxes) v Hart  AC 593 might assist statutory construction. The Chancellor concluded that this failure would have meant in any event that the appointment was invalid because Schedule B1 paragraph 28 provides that an appointment of administrators cannot be made under paragraph 22 of Schedule B1 unless the requirement under paragraph 26(2) of Schedule B1 for notice of intention to appoint was complied with
(10) However, there were also cases moving away from this approach including Hill v Stokes Plc  EWHC 3726 (Ch),  B.C.C. 473 to which the Chancellor was not referred. In that case His Honour Judge McCahill Q.C., sitting as a High Court Judge, decided that the court should adopt a flexible approach, categorising fundamental and non-fundamental requirements when analysing the consequences of non-compliance of the requirements for a notice of intention to be given to a Prescribed Person under paragraph 26(2) of Schedule B1.
(11) His Honour Judge Purle Q.C. in the case of Re Assured Logistics Solutions Limited (above) found the decisions in Hill v Stokes Plc (above) and Minmar (929) Ltd v Khalastchi (above), albeit obiter, irreconcilable. However, this different approach only arose in the context of His Honour Judge McCahill Q.C. addressing notices given to Prescribed Persons and did not apply to notices to Chargeholders. Only in the former case did the absence of relevant prejudice mean he could not accept that Parliament had intended automatic invalidity. This meant the conclusion above, that I would be bound to follow Re G-Tech Construction Ltd, (above) was not yet altered by the Hill v Stokes Plc (above) line of authority.
(12) His Honour Judge Purle Q.C. in Re Assured Logistics Solutions Limited (above), also in the circumstance of a failure to give notice of intention to a Prescribed Person, the company, indicated his preference for the Hill v Stokes Plc (above) approach. However, the irreconcilable authority of that case and the obiter remarks in Minmar (929) Ltd v Khalastchi (above) led him to view his case on the facts. He observed that the mere failure to give notice to the company when the directors acting as a board had chosen to appoint an administrator could not be a circumstance Parliament intended would result in invalidity of appointment when it caused no prejudice. That being so, he concluded there were insolvency proceedings to which Rule 7.55 of the Insolvency Rules 1986 (now Rule 12.64 of the Insolvency Rules 2016) applied with the result that the formal defect would not invalidate the proceedings subject to objection and to the court deciding substantial injustice had been caused which was irredeemable.
(13) Mr Justice Norris in Adjei v Law for All (above) also suggested a possible alternative route even if the law was correctly stated, obiter, in Minmar (929) Ltd v Khalastchi (above). He said this and I will underline the words particularly relied upon by Ms Kyriakides:
14. For the purposes of the application before me it has been taken that the law is correctly stated in that obiter passage in Minmar (929) Ltd (above): no contrary argument was addressed. On that basis, by parity of reasoning the appointment by the directors of Law For All of Mr Batty and Mr Evans as administrators was invalid because the qualifying charge holder was not given notice of intention to appoint an administrator in accordance with para.26(1) of Sch.B1. This in turn means (if the decision in G-Tech Construction is right) that para.104 cannot be used to validate the acts of Mr Batty and Mr Evans since July 28, 2011. There was no argument in the present case to the contrary: but there does seem to me to be scope for argument on another occasion as to precisely what acts para.104 (and indeed s.232 of the Insolvency Act 1986) does validate when the scheme of the Act is considered as a whole.
15. On the state of the authorities and argument before me I must accept that the only solution is that afforded by the making of a retrospective administration order in exercise of the jurisdiction identified in G-Tech Construction. I do so with the same misgivings but with the same desire to provide a practical answer as Morgan J. in Re Derfshaw Ltd  EWHC 1565 (Ch);  BCC 631 and Henderson J. in Re Frontsouth (Witham) Ltd  EWHC 1668 (Ch);  BCC 635.
(14) Nevertheless, none of the pre-Ceart Risk Services Ltd (above) cases reviewed by H.H. Judge Davis-White Q.C. undermine Re G-Tech Construction Ltd (above) as the decision to be followed at that point in the line of conflicting authority. For example, although Mr Justice Norris in Re Virtual Purple Professional Services Ltd (above) followed Hill v Stokes Plc (above), he expressly contrasted paragraphs 26(1) and 26(2) of Schedule B1 when reaching his decision.
(15) Re Virtual Purple Professional Services Ltd (above) is nevertheless an important decision for the First Issue because it led the way to the approach of Mr Justice Arnold in Re Ceart Risk Services Ltd (above). Mr Justice Norris in the circumstance of a breach of paragraph 26(2) of Schedule B1 decided that Schedule B1 does not provide for the consequences of non-compliance. As a result, he applied the approach to construction laid down by Lord Steyn in R v Soneji (Kamlesh Kumar) (above). He concluded that Parliament will not have intended an imperative requirement to lead to invalidity when the purpose of providing information to a Prescribed Person is not linked to the issue of validity.
(16) However, he expressly contrasted that with the failure to give notice under paragraph 26(1) of Schedule B1 to the Chargeholders, who had superior rights enabling them to potentially appoint their own administrator or otherwise to agree the nominee. He did not address the point that two of the Prescribed Persons potentially had the same rights.
Re Ceart Risk Services Ltd
(17) In Re Ceart Risk Services Ltd (above) Mr Justice Arnold was concerned with a provision which prohibits appointment under paragraph 22 of Schedule B1 over a company regulated under the Financial Services and Markets Act 2000 ("FSMA") without the consent of the Financial Services Authority (or other body specified from time to time) ("the Authority") (see section 362A(2) FSMA). The consent had to be in writing and filed with the notice to appoint under paragraph 27 of Schedule B1 or, absent the requirement for such notice, with the notice of appointment under paragraph 29 of Schedule B1 (see section 362A(3) and (4) FSMA). This, therefore, is a decision for which the principles of statutory interpretation should apply to the requirement for a notice of intention to appoint under paragraph 26 of Schedule B1, albeit that the purposes behind the provisions will obviously be different.
(18) Mr Justice Arnold was referred to many of the conflicting authorities including Re G-Tech Construction Ltd, Hill v Stokes Plc, Minmar (929) Ltd v Khalastchi and Re Virtual Purple Professional Services Ltd (above). He followed the approach to statutory interpretation specified in R v Soneji (above) and identified the first step as being to identify the purpose of the requirement to obtain consent. The next step was to identify the consequences of non-compliance.
(19) As a matter of precedent, I am bound to apply that approach to statutory interpretation to the First Issue, subject to later authority. Accordingly, Re G-Tech Construction Ltd (above) is not binding upon me. Whilst it is correct that Mr Justice Arnold was not referred to all previous authorities, that will not affect the position in precedent at the level below High Court Judge. Some of those cases are identified by His Honour Judge Purle Q.C., sitting as a High Court Judge, in Re BXL Services  EWHC 1877 (Ch),  B.C.C. 657. He decided he was bound to follow Re Ceart Risk Services Ltd (above), as I must be. He also decided it is now settled law that a failure to give notice to a Prescribed Person does not invalidate the appointment. His decision of settled law, therefore addresses paragraph 26(2) of Schedule B1 but not paragraph 26(1) of Schedule B1 unless or to the extent that consistency between the two sub-sections is required. In any event, as will be seen at paragraph (32 ii) below, that opinion has been superseded to that extent for the purposes of precedent by the decision of Gregory v A.R.G. (Mansfield) Limited (above).
(20) I am similarly bound by Mr Justice Arnold's decision that paragraph 104 of Schedule B1 will apply. As he said at :
"Paragraph 104 says that, even though an administrator has been defectively appointed, his acts shall be valid. This seems to me to be apt to address situations where the defect in the appointment is curable, as opposed to situations where the appointment is incurably invalid. If para.104 does not apply where an appointment has been made subject to a curable defect, then it is difficult to see in what circumstances it would ever apply. I therefore respectfully disagree with Hart J. [in Re G-Tech Construction Ltd above to whom the case of Morris v Kanssen  A.C. 459 was not cited]".
(21) The outcome in Re Ceart Risk Services Ltd (above) depended upon the purpose of and consequences for service of notice upon the Authority. Whilst the outcome obviously does not bind me for the purposes of the First Issue, it provides important guidance, subject to the distinction that FSMA did not provide any express statutory time limit for notification. It is instructive that (amongst other matters) Mr Justice Arnold contrasted the fact that non-compliance would not have serious consequences if post-appointment consent could be obtained with the problems invalidity could cause to the detriment of creditors' interests. His decision was that Parliament intended that the defect resulting from breach could be cured if a notice of consent was subsequently obtained. Whether the equivalent option is available in the context of paragraph 26(1) of Schedule B1 and to what extent that is relevant to the First Issue were not matters for his judgment.
Re Euromaster Ltd
(22) Cases such as Re BXL Services (above) and Re Eco Link Resources Ltd (In CVL)  B.C.C. 731 followed the approach of Mr Justice Arnold towards statutory interpretation. However, as mentioned, his decision still left open the need to decide whether Parliament intended a breach of paragraph 26(1) of Schedule B1 to result in invalidity. His Honour Judge David Cooke's decision in the Birmingham, District Registry in Re Eco Link Resources Ltd (In CVL) (above) indicates that it will. It was concerned with the need for a qualified floating charge holder to give notice of intention to appoint to a prior qualifying floating charge holder under paragraph 15 of Schedule B1 rather than with paragraph 26(1)(a) of Schedule B1. However, the similarities are obvious.
(23) He decided the requirement, a precondition, for "at least two business days' written notice" to be given was critical. He concluded Parliament must have intended a breach of this provision to mean an appointment will be invalid. Its purpose was to enable the prior charge holder to agree an appointment or to make his own appointment and non-compliance would cause "potential prejudice". Not only would the opportunity to appoint be lost but any application to remove existing administrators would face "potential dispute" even in those circumstances. Whilst not binding upon me, as a matter of judicial comity the approach should normally be followed subject to High Court level or higher authority.
(24) A month later, however, Mr Justice Norris in Re Euromaster Ltd (above) considered the position in the light of Re Ceart Risk Services Ltd (above) in the context of an appointment having been made eleven business days after the filing in court of the notice of intention to appoint when paragraph 28(2) of Schedule B1 provides that an administrator "may not" be appointed under paragraph 22 of Schedule B1 after the period of ten business days beginning with the date on which the notice of intention to appoint was filed under paragraph 27(1) of Schedule B1. He decided the appointment was irregular not void. The Judge also identified the approach to statutory interpretation as follows at :
"… to focus on the consequences of non-compliance and, taking into account those consequences, to consider whether Parliament intended the outcome of non-compliance to be total invalidity: in short, to ask whether it was a purpose of the legislation that an appointment made in breach of para.28 should be null."
(25) Adopting that approach, he decided that the purpose of the notice of intention was:
"to afford the holder of the superior right the opportunity to establish whether its security is enforceable, to decide whether to make its own appointment under para.14 of Sch.B1, and (if necessary) to give two business days' notice to the holder of any and every prior qualifying floating charge. The giving of the notice also affords the holder of the superior right the chance to conduct negotiations with the proposed appointors over the identity or terms of appointment of the proposed administrator or (in an extreme case) to prevent the company going into administration".
(26) Obviously, his approach must be followed. However, it cannot be concluded that this decision determines the First Issue. That is because the reasons for and purposes of the 10 days' maximum period and the minimum 5 business days' notice period for notices under paragraph 26(1) of Schedule B1 will be different. The 10 days are required because the filing of a notice of intention starts the interim moratorium under paragraph 44 of Schedule B1. That period of statutory protection cannot be open-ended and 10 days is intended to be a reasonable window of opportunity for an appointment to be made. Mr Justice Norris decided, however, that an appointment one day after its expiry would not cause consequences justifying the conclusion that Parliament intended the appointment to be invalid and incurable. It would be a defect in procedure but not fundamental to the insolvency proceedings. Obviously, different reasoning will apply when considering the consequence of breach of paragraph 26(1) of Schedule B1's 5 days period.
(27) Nevertheless, the High Court Judge's reasoning at paragraphs [26-28] of his judgment is to be noted. In particular he observed that it "is highly undesirable to have a multiplicity of circumstances in which the appointment of an administrator is automatically invalidated" when "the object of introducing out-of-court appointments was to streamline the process of business rescue". In addition, he reasoned (my underlining for emphasis):
"Sch.B1 contains a mixture of provisions, some of which are naturally read as defining the circumstances in which the power to appoint arises and some of which are naturally read as prescribing procedural requirements that must be fulfilled before the appointment is properly made. If an appointment is made in circumstances where there is no power to appoint then the purported appointment would naturally fall to be treated as a nullity. I will give two examples. In Minmar (929) Ltd v Khalastchi  EWHC 1159 (Ch);  BCC 485 the appointment was a nullity because there was no quorate meeting of the directors, the board had never properly resolved to do anything and those who attended the meeting had no power to appoint. In Re Blights Builders Ltd  EWHC 3549 (Ch);  BCC 712 the appointment was a nullity because the company had no power to appoint administrators by reason of the existence of an undisposed of winding-up petition.
If the appointment is made in breach of some other requirement more of a procedural nature then the purported appointment would naturally fall to be treated as irregular. That was the view taken by H.H. Judge Purle QC of the "minor deficiencies" in Re Assured Logistics Solutions Ltd (above) and by Arnold J. in Re Ceart Risk Services (above) of the requirement to obtain the consent of the FSA.
28. I consider that this distinction is reflected in the terms of Sch.B1 itself as regards appointments by directors. Paragraphs 22–25 inclusive specify when it is that the directors or the company have the power to appoint administrators. Paragraphs 26–32 set out the procedural requirements for the exercise of the power. The structure of the Schedule suggests (albeit not strongly) that the court should treat non-compliance with the requirements set out in para.28 as leading to an irregularity rather than the nullity."
(28) That reasoning should be applied at a lower judicial level subject to later authority. It supersedes the approach in Re Eco Link Resources Ltd (In CVL) (above). The First Issue should be determined on the basis that paragraphs 26-32 of Schedule B1 prescribe procedural requirements with the result that a breach will "naturally fall to be treated as irregular". It is also highly significant that Sir Terence Etherton when Chancellor approved Mr Justice Norris's above-mentioned reasoning in the case of Re Melodious Corporation (above), albeit in the context of Rule 7.55 of the Insolvency Rules 1986 (now Rule 12.65 of the Insolvency Rules 2016) (see paragraphs [73 and 75] of the judgment). The fact Mr Justice Norris did not have to address each circumstance of breach, including the First Issue, means, however, that this still leaves the possibility that failure to give a notice of intention under paragraph 26(1) of Schedule B1 may be an exception to the natural fall but this reasoning is to be applied in context.
Subsequent Decisions leading to Re Skeggs Beef Ltd
(29) Re Euromaster Ltd (above) has also been followed in cases such as Re BXL Services (above) and Re Eiffel Steelworks Ltd  EWHC 511 (Ch),  2 B.C.L.C. 57 before Mr Andrew Hochhauser Q.C., sitting as a High Court Judge. It would have been followed by Mr Justice Nugee, as he then was, in Re Spaces London Bridge Ltd (above) had the notice of appointment, which failed to specify the date and time of appointment, not been found to be valid. There being no substantial injustice caused by the breach, he explained he would have exercised his power under Rule 12.64 of the Insolvency Rules 2016 (formerly Rule 7.55 of the Insolvency Rules 1986) to remedy a formal defect or irregularity.
(30) Mr Justice Marcus Smith in Re Skeggs Beef Ltd (above) also followed Re Euromaster Ltd (above). In paragraph  of his judgment the High Court Judge identified three categories of case to be applied when deciding the consequence of a defective out-of-court appointment:
"(1) cases where the defect is fundamental: in such cases, the purported administration appointment is a nullity. There are no insolvency proceedings on foot, and so there is nothing that the court can cure;
(2) cases where the defect is not fundamental and causes no substantial injustice: r.12.64 of the Insolvency (England and Wales) Rules 2016 provides: [inserted into text]
Thus, provided the defect is not fundamental (i.e. not falling within [21(1)] above), so that there are indeed insolvency proceedings on foot, the court must first satisfy itself that the defect or irregularity has caused no "substantial injustice". If so satisfied, then the proceedings will not be invalidated by any formal defect or irregularity; and
(3) cases where the defect is not fundamental, but substantial injustice is caused: if the defect—again, not being a fundamental defect within [21(1)] above—is found to cause "substantial injustice", then the court must ask itself whether that substantial injustice can be remedied by an order of the court. Of course, the court will consider, in light of all the circumstances, whether it is appropriate to make a remedial order. If so, then the defect is cured on the court making the order. If the court cannot make a remedial order or does not consider that it is appropriate to do so, then the defect remains uncured.
(31) He then drew attention to the following distinctions the case law to which he had been referred has drawn in the case of notices of appointment of administrators:
"(1) the failure to file a notice of appointment in the prescribed form: this appears to amount to a fundamental flaw which renders a purported out-of-court appointment a nullity: Re G-Tech Construction Ltd  B.P.I.R. 1275; Re Kaupthing Capital Partners II Master LP Inc  EWHC 836 (Ch);  BCC 338; Re MTB Motors Ltd (in admin.)  EWHC 3751 (Ch);  B.C.C. 601; and Re Frontsouth (Witham) Ltd (in admin.)  EWHC 1668 (Ch);  BCC 635. In short, this is a case falling within that described at [21(1)] above;
(2) the filing of a notice of appointment, in the prescribed form, in the wrong manner. This appears to amount to a "defect" or "irregularity" that is not fundamental, and that can be dealt with in one of the two ways set out at [21(1)] and [21(2)] above: Re Assured Logistics Solutions Ltd  EWHC 3029 (Ch);  BCC 541; Re Euromaster Ltd  EWHC 2356 (Ch);  B.C.C. 754."
(32) Those distinctions do not directly address the First Issue which, subject to later authority, turns upon whether within the context of the reasoning of Mr Justice Norris in Re Euromaster Ltd (above) the failure to give notice under paragraph 26(1) of Schedule B1 is a category (1), (2) or (3) case as identified by Mr Justice Marcus Smith in Re Skeggs Beef Ltd (above).
Gregory v A.R.G. (Mansfield) Limited
(33) In the latest case at High Court Judge level to which I have been referred, Gregory v A.R.G. (Mansfield) Limited (above), H.H. Judge Davis-White QC, sitting as a Judge of the High Court disagreed with Mr Justice Arnold's decision in Re Ceart Risk Services Ltd (above) when finding that the failure to obtain the authority's consent under section 362A FSMA was a fundamental flaw. In reaching that decision, however, the Judge adopted the same approach as Mr Justice Arnold by applying the test required by R v Soneji (above). The difference between those two decisions, therefore, lies in the application of the test to the specific statutory provision and their respective analyses of the purposes for the requirement of consent. That analysis, of course, falls outside the scope of the First Issue.
(34) However, I note, in particular, the following from the judgment of H.H. Judge Davis-White QC:
i. The reference to the speech of Lord Bingham (and other members of the House of Lords) in Seal v Chief Constable of South Wales (above) at  to welcoming:
"the … tendency to prefer substance to form must generally discourage the invalidation of proceedings for want of compliance with a procedural requirement".
ii. At paragraph , that he did not agree with His Honour Judge Purle Q.C. in Re BXL Services (above) that Re Ceart Risk Services Ltd (above) established as settled law that a failure to give notice to a Prescribed Person did not invalidate the appointment under paragraph 26(2) of Schedule B1.
iii. His observation at paragraph  that the precise limits of paragraph 104 of Schedule B1 have not "really been explored" and his reference to Mr Justice Norris in Re Care Matters Partnership Ltd (in admin.)  EWHC 2543 (Ch);  BCC 957 suggesting it may apply to a defective appointment resulting from procedural irregularity in contrast to one where there has been no appointment or (perhaps) if there was no power to appoint.
iv. His reference to the general provision of Rule 12.64 of the Insolvency Rules 2016 (formerly Rule 7.55 of the Insolvency Rules 1986):
"No insolvency proceedings will be invalidated by any formal defect or irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that injustice cannot be remedied by any order of the court".
v. His reference to the court's general power to rectify errors of procedure conferred by CPR Rule 3.10.
Those matters are to be borne in mind when applying to the First Issue the approach to statutory construction adopted by Mr Justice Arnold in Re Ceart Risk Services Ltd (above), the categories identified by Mr Justice Marcus Smith in Re Skeggs Beef Ltd (above) and the reasoning of Mr Justice Norris in Re Euromaster Ltd (above) at paragraphs [26-28] of his judgment.