Aug 2017
Author: Nigel Cook
In response to a threat by its Landlord to exercise its right of distress over the company’s assets, the company’s sole director filed a Notice of Intention to appoint an administrator and served it on the qualifying floating charge holder thus creating the interim moratorium under paragraph 43. Successive Notices of Intention followed and upon the filing of the fourth Notice the Landlord applied for an order to remove the last Notice on the grounds that it was an abuse of process. In fact, the company was proposing a company voluntary arrangement otherwise than through an administration.
The Court of Appeal allowed an appeal by the landlord. It noted that in the context of paragraph 26 of Schedule B1 the notice is required to be given if the person “proposes” to appoint an administrator and that this is synonymous with the intention implicit in the notice. The interim moratorium is thus required to protect the company’s assets while the qualifying floating charge holder makes his decision on whether to appoint his own choice of administrator. The legislation does not envisage use of the moratorium where other restructuring options are being considered including a company voluntary arrangement. The Court pointed out that if a company voluntary arrangement was the real proposal then filing Notice of Intention and serving them on the debenture holder might have the effect of frustrating this option if the debenture holder-proceeded to appoint administrators.
This case follows others, including Corner Care in 2010 and South Coast Construction (a case which was discussed in our seminar earlier this year), in which the Court examined the practice of filing multiple Notices of Intention and also filing a Notice of Intention where there is no qualifying floating charge holder required to be served.
The practice of filing Notices of Intention simply in order to obtain the interim moratorium has already been criticised by the Court and is likely to be unavailable in future. It is also clear that the Court has inherent power to prevent an abuse of process and will be ready to strike out Notices of Intention if they do not involve a genuine proposal which satisfies the statutory purpose for an administration.
For further advice please contact Nigel Cook, either by email [email protected] or by phone on 01306 502294.
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