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Insolvency 24/7 Drive-Thru

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Insolvency 24/7 Drive-Thru

Insolvency 24/7 Drive-Thru

The validity of appointment of administrators has been the subject of a lot of case law over recent years. 2019 was a year that focused on when and how appointments can be made out of physical Court opening hours.  The introduction of online filing, allowing documents to be filed at Court 24 hours, whether the Court office is physically open or not, has caused much confusion.  

The Short Story

The High Court requires all appointments to be filed via its e-filing portal, which was intended to bring the Court into the 21st century and allow e-filing 24/7. Following the 2019 cases the opposite has occurred. Under the 2016 insolvency rules only qualifying floating charge holders (QFCHs) can appoint administrators outside of court hours, but they cannot do so via the e-filing system (only by fax or email), which makes a mockery of 24/7 e-filing. Whereas the dissident case of Keyworker Homes suggests directors can and erodes the special privileges afforded to QFCHs.   Given the confusion we suggest caution is exercised and, for now, out of hours appointments are only made by QFCHs, and by following the precise requirements of the 2016 rules.  Until further clarification (or legislative reform) is provided we suggest directors work on the basis they can’t appoint out of hours via e-filing.

The Long Story

Let’s start in January 2019.  In HMV Ecommerce[1] an appointment was e-filed by directors outside of Court hours, without complying with the specific requirements of the rules for out of hours appointments. The Court dodged the key question - whether appointments by directors could be made 24/7 via e-filing - and simply decided to waive any breach of the rules and declare the appointment valid and effective from the time of the e-filing submission.

Fast forward to October 2019 and the Court grappled with this again in 2 cases:

(1) In Skeggs Beef[2] the Court confirmed that only a QFCH can appoint administrators out of hours (not directors), but that it cannot do so via e-filing.  However, the Court viewed e-filing by the QFCH as a minor defect that it could remedy and declared the appointment valid and effective from the time it was e-filed.  

(2) In SJ Henderson[3] the Court agreed that e-filing cannot be used to appoint out of hours, but decided an appointment e-filed out of hours (in this case by directors not a QFCH) had no effect while the Court was closed and was more than a minor defect.  However, it agreed to declare the appointment effective from the time the Court office subsequently opened.

As at October 2019 the Court was clear that e-filing system cannot be used to make an out of hours appointment. In November 2019 things got confusing when, in Keyworker Homes[4], the Court decided that a company or its directors can use the e-filing system to appoint administrators outside court hours; and the appointment will take effect at the time of e-filing without needing Court validation.  But decided that a QFCH cannot use the e-filing system out of hours.

Most recently, in All Star Leisure[5] the Court decided that an appointment e-filed by directors out of hours was valid and effective at the time it was e-filed, stating that limiting the use of the 24 hour e-filing system to physical Court opening hours is absurd. The Court openly disagreed with the SJ Henderson decision, called the current situation an “apparent absurdity” and called for to clarify the situation and safeguard the unique power of QFCHs to appoint out-of-hours.

Commentary

There’s a massive tension between the 24/7 e-filing system and the rules. It’s clear that amendments to the rules are required to clarify the position and tidy up the result of the contradicting case law.  In our view, it’s best err on the side of caution as it stands and follow SJ Henderson for nowHowever, there’s a clear trend towards the Court’s allowing 24/7 appointments and we expect this to become the reality in time – we just have to wait for either a senior Court decision or legislative reform to clarify that.

[1] Wright and others v HMV Ecommerce Ltd and another

[2] Eason and another v Skeggs Beef Ltd

[3] SJ Henderson & Company Limited and Re Triumph Furniture Limited

[4] Woodside and another v Keyworker Homes (North West) Limited

[5] Causer and another v All Star Leisure (Group) Ltd

If you would like to discuss any of the issues raised in this article, or need any advice, please contact Frank Bouette or give us a call on 0345 070 6000.

This article was prepared by David Lim