Limitation on when a Notice of Intention to Appoint Administrators can be filed
On 11 April 2017, Judgment was handed down in the matter of JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd  EWCA Civ 267. This case clarified a few issues relating to when it is (and is not) appropriate to file a Notice of Intention to Appoint Administrators (NOIA).
The background of this case is that JCAM Commercial Real Estate Property CV Ltd (JCAM) was the landlord of property leased by Davies Haulage Ltd (DHL). Following non-payment of rent, JCAM issued possession proceedings against DHL.
Shortly before the possession proceedings were issued, DHL filed their first NOIA, however they had not informed JCAM. As a result of the NOIA the proceedings were stayed. Over the next few weeks, three further NOIAs were filed at court, and it transpired that the fourth and final NOIA was filed to enable DHL to have the benefit of an interim moratorium for ten business days whilst proposals for a CVA were finalised. It became clear that, far from having 'a settled intention to appoint an administrator', the directors of DHL were merely proposing this as an alternative option, should the CVA proposals fail, in order to obtain the moratorium.
JCAM applied to the court to have the fourth NOIA removed from the court file on the basis that it is an abuse of the court's process and had been improperly filed.
Lord Justice David Richards in the Court of Appeal handed down the leading Judgment, in which he clarified that the fourth NOIA was to be removed from the court file. He made the point that there are only limited circumstances in which a moratorium can be granted to enable CVA proposals to be granted, and DHL was not eligible for this. DHL was not entitled to use the benefit of a moratorium obtained when filing a NOIA in order to prepare CVA proposals.
There was some discussion about the purposes of the interim moratorium which is conferred under paragraphs 40-44 of Schedule B1 of the Insolvency Act 1986. Lord Justice David Richards stated that in his view, a NOIA under paragraph 26 of Schedule B1 of the Insolvency Act 1986 should be filed only where there is a qualifying floating charge holder who may wish to exercise their rights to appoint an administrator under paragraph 14 of Schedule B1 of the Insolvency Act 1986. He stated that:
"The purpose of filing a copy of the notice in court and the purpose of the interim moratorium triggered by filing the copy, is to protect the company and its assets while that person decides whether or not to appoint an administrator, and if he decides not to do so, to provide the same protection pending an appointment by the person giving the notice….If there is no person to whom notice must be given under paragraph 26(1), there can be no interim moratorium."
The fourth notice was removed from the court file on the basis that it was filed when there was no 'settled intention to appoint an administrator'. A firm decision had to have been reached that an appointment of an administrator was to be made.
So what does this mean going forwards? It means that where there is no qualifying floating charge holder, the directors of a company have no right to file a NOIA, and thus have the benefit of the ten business day moratorium. In this case, the court was only asked to remove the fourth NOIA, not the previous three, which according to the court should not have been filed.
However this may present problems as it will mean that IPs who are asked to advise in respect of administrations where there is no qualifying floating charge holder will have to decide very quickly which of the statutory purposes of administration are likely to be achieved, and may lose the opportunity to get a head start on understanding the best options for the company, and where necessary put together a 'pre pack deal' knowing that there is a moratorium in place. IPs will have to carry out the investigations and put together any proposed sale of a company's business but without the benefit of ten days 'breathing space.' This could mean that the time and effort put into to structuring a deal to come into effect immediately upon appointment could be wasted, if for example a disgruntled creditor decides to take any legal action against the company.
One solution to this may be the use of applications for administration orders, because when an application is made for an administration order an interim moratorium is in effect as soon as the application has been filed at court, and lasts until the application has been determined by the court. This will allow companies and IPs the breathing space necessary in order to make the best decision for creditors as a whole.
If you have any queries in respect of appointment of administrators, administration applications, or insolvency generally, then do please contact any member of Blake Morgan's Business Support and Insolvency team.