Insolvency – Private & Commercial Litigation Solicitors | Insolvency Legal Advice |

Director Disqualification Update – January 2022: New Year, New Laws

admin — Tue, 16 Nov 2021 10:57:30 +0000

On 15 December 2021, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 received Royal Assent and serves as an interesting development within the director disqualification legal regime.

You may have read our previous update on this in May 2021 Director Disqualification Update after the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill had its first reading in the House of Commons on 12 May 2021.

This new piece of legislation will be a useful tool for the Insolvency Service as it extends their powers to investigate and disqualify company directors of dissolved companies. This is mainly to target directors who seek to avoid repaying liabilities by simply dissolving their companies.

In particular, such conduct has become increasingly common as many directors seek to evade repayment of COVID-19 government bounce back loans. Read our update about this here Director Disqualification and Coronavirus Bounce Back Loans.

Where a director is found to have engaged in misconduct which makes him unfit to be a director, he could face disqualification for up to 15 years.

In addition, under this new legislation, compensation orders can now be applied for against a disqualified director of a dissolved company. This means that a disqualified director could be ordered to pay compensation to those creditors who have suffered prejudice as a result of his misconduct.

If you require any director disqualification advice, please do not hesitate to get in touch with our experts today at ac@jamesedwardassociates.com or jb@jamesedwardassociates.com.

Director Disqualification and Coronavirus Bounce Back Loans

admin — Tue, 16 Nov 2021 10:56:59 +0000

The Bounce Back Loan Scheme was introduced to provide financial aid to small and medium-sized businesses affected by the coronavirus pandemic. The scheme enabled small and medium-sized businesses to borrow up to £50,000 with no fees or interest payable for the first 12 months. After 12 months, an interest rate of 2.5% per year becomes payable and the government guarantees 100% of the loan.

The scheme is now closed to new applications, but we are seeing an increasing number of investigations by the Insolvency Service into directors’ conduct in relation to possible abuses of the scheme. More recently, the Insolvency Service has banned multiple directors following investigations into their conduct. The investigations showed that the directors in question had misused the loan funds for improper purposes or inappropriately applied to use the scheme.

For example, a director of a cleaning company applied for a bounce back loan in the sum of £30,000. At the time, the company was clearly insolvent which the director knew (or ought to have known) meaning that there was no prospect whatsoever of repayment of the loan. The director was subsequently banned for a period of nine years. This is a “middle bracket” disqualification, which is reserved for serious cases which do not merit the “top bracket” of 11 to 15 years.

In addition, joint directors of a chicken takeaway business applied for a loan in the maximum amount of £50,000. The joint directors were ineligible for the loan as they had sold the business some years earlier. They were banned accordingly.

A director of a pub also applied for a bounce back loan. It transpired upon investigation that he had transferred a significant proportion of the loan to his personal bank account. The amount transferred was almost 3 times his normal salary. He was disqualified accordingly.

Alan Draycott, the Deputy Official Receiver has said:

“The Government loan schemes have provided a lifeline to millions of businesses across the UK – helping them to continue trading during the pandemic and protecting millions of jobs. As these three cases show, the Insolvency Service will not hesitate to investigate and use our powers against those who abused the COVID-19 support schemes.”

It is clear that the Insolvency Service is continuing to investigate possible abuses of the Coronavirus Bounce Back Loan Scheme. If you have received any correspondence from the Insolvency Service regarding your conduct in relation to the scheme or otherwise, please get in touch with our specialist director disqualification solicitors today.

Our team can be reached via email at ac@jamesedwardassociates.com, jb@jamesedwardassociates.com or via telephone on +44 7441912822.

30 September 2021 – a Key Date for Insolvency Professionals

admin — Tue, 16 Nov 2021 10:55:30 +0000

Background

As a result of the coronavirus pandemic, the Corporate Insolvency and Governance Act 2020 (“CIGA”) received Royal Assent on 25 June 2020. CIGA made a number of substantial changes to existing insolvency legislation. Some of the significant changes (discussed in further detail below) were in relation to the presentation of winding up petitions and statutory demands.

What are the changes?

Schedule 10, paragraph 1 of CIGA provides, insofar as is material, that a statutory demand served between the period of 1 March 2020 – 30 September 2021 cannot provide the basis of a winding up petition when presented against a registered or unregistered company.

Schedule 10, paragraph 2 of CIGA also introduces an additional hurdle for petitioning creditors. In general terms, a petitioning creditor must be able to demonstrate that they have reasonable grounds for believing that:

The debtor company has not been financially affected by the coronavirus pandemic, or;
The debtor company would have been insolvent in any event even if the coronavirus pandemic had not had an effect on the financial affairs of the debtor company.

The above is known as the coronavirus test. Schedule 10, paragraph 3 of CIGA extends the coronavirus test to unregistered companies.

What are the problems?

One particular gap in the legislation is that financial effect is not defined, meaning this will be left to judicial interpretation on a case-by-case basis. Further, although a petitioning creditor must now include confirmation within a winding up petition that the coronavirus test is met, (see schedule 10, paragraph 19 (3) of CIGA) it is difficult to see how, in practice, a petitioning creditor would be able to realistically determine this given it is likely they will be unfamiliar with the debtor company’s financial affairs.

Extension of Restrictions under Corporate Insolvency and Governance Act 2020

admin — Tue, 16 Nov 2021 10:43:14 +0000

As of yesterday, Thursday 24 September 2020, the Government has brought into force an extension to the operation of a number, but not all, of the restrictions and measures found within the Corporate Insolvency and Governance Act 2020 (“CIGA”). This has been done via Regulation 2 of The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 SI 2020/1031.

Statutory Demands and Winding up Petitions

The restrictions regarding service of statutory demands and winding up petitions have been extended by 3 months. The updated end date for these restrictions is 31 December 2020.

As such, no statutory demand will have been validly served between the period of 1 March 2020 and 31 December 2020. This applies regardless of whether the debtor or company has been impacted in any significant way by the coronavirus crisis.

Winding up petitions may not be presented for the full period of 27 April 2020 to 31 December 2020 unless the petitioner has ‘reasonable grounds for believing’ that the company would have been deemed insolvent even if coronavirus had had no financial effect on it.

Validation Orders and Company Meetings

The temporary rules regarding both seeking of validation orders and company meetings have been extended to 31 December and 30 December 2020 respectively.

No company subject to a winding up petition presented between 27 April 2020 and 31 December 2020 will have to apply for any validation orders under s.127 Insolvency Act 1986. This exemption does not depend on the company showing that it is only insolvent due to coronavirus related issues.

Regarding the temporary rules around company meeting (including no longer requiring meetings to be held in any particular place or to have a physical quorum, and allowing electronic voting), these have been extended to 30 December 2020, as opposed to 31 December 2020.

Small Suppliers and Ipso Facto Rules

The CIGA rules relating to ‘ipso facto’ clauses were enacted to prevent suppliers from terminating contracts with companies subject to various insolvency procedures.

To protect smaller suppliers, they were provided temporary dispensation from these rules. This dispensation has now been extended until 30 March 2021, and will allow ‘smaller suppliers’, as defined in s.15 CIGA, to continue to rely on ipso facto clauses.

Moratorium Regime

The Moratorium was a principle introduced in s.1 CIGA. The regime in CIGA set out which companies could invoke this new procedure, and which could not. The Government then introduced temporary modifications to increase the ease with which certain companies could invoke the Moratorium procedure.

The temporary modifications allowed a company to:

Use the out of court filing route (as opposed to having to apply to court);
Invoke the procedure even if the company had been subject to a CVA, administration, or Moratorium within the past year (initially, this would have disqualified a company from doing so);
Rely on a wider certification with regards to the rescue of the company via the Moratorium procedure.
- Temporary modification wording:
  - “it is likely that a moratorium for the company would result in the rescue of the company as a going concern or would do so if it were not for any worsening of the financial position of the company for reasons relating to coronavirus”.
- Pre-modification wording:
  - “likely…[to] result in the rescue of the company as a going concern”.

These temporary modifications have been extended to 30 March 2021.

Suspension of Liability for Wrongful Trading

his provision has not been extended. The previously set out date for the temporary suspension is 30 September 2020, and as such, this provision is still set to expire at midnight on Wednesday 30 September 2020.

Quarterly Insolvency Updates

admin — Tue, 16 Nov 2021 10:42:05 +0000

On 30 July 2020, the UK Insolvency Service published its quarterly insolvency statistics. Of note are the following:

Overall numbers of company insolvencies fell by 23% when compared with the previous quarter, and by 33% when compared with the same quarter in 2019. The three industries that experienced the highest number of insolvencies in this quarter were the: construction industry, the accommodation and food services industry, and the wholesale retail repair of vehicles industry.

The reduction in company insolvencies is not surprising given the support packages implemented by the government in response to the COVID-19 pandemic. The Insolvency Service has advised that “caution needs to be applied when interpreting these statistics” and suggested that the pandemic may have had some effect on the timeliness of insolvency registrations.

In particular, it highlighted that the lockdown may have resulted in insolvency practitioners, Companies House and courts not being able to process insolvencies “in the usual manner”. The Insolvency Service also commented that as it has no record of whether an insolvency is directly related to the pandemic or to other circumstances, it is not possible to state the direct effect of the pandemic on insolvency volumes.

Another practical takeaway is that the Insolvency Service plans to incorporate the new procedures of company moratorium or flexible restructuring plan introduced in the Corporate Insolvency and Governance Act 2020 into future statistical releases. This should provide a useful gauge for how widely-used these new procedures are likely to be going forward.

For further information on the above, or any insolvency assistance, please contact us on 0207 467 3980 and speak to one of our insolvency law solicitors now. Alternatively, email us with your query at info@jamesedwardassociates.com and we will be sure to call you back at a time convenient for you. All communications will, of course, be dealt with in the strictest of confidence.

Coronavirus: Is the glass half full or half empty?

admin — Tue, 16 Nov 2021 10:41:06 +0000

As a business restructuring lawyer and business owner myself I am reminded daily of the difficulties our clients face with the current pandemic. Now however is the time when we must recover our confidence and realise this lock down is not forever and it is not all doom and gloom.

Nations and people can help fuel recovery and indeed have done so after wars and famine. As @LukeJohnsonRCP writing in The Sunday Times eloquently put it:

“Take the Germans and the Japanese after the Second World war – both countries achieved remarkable revivals despite being ruined and utterly demoralised following their defeat in 1945. People stage comebacks from many disasters, often wiser and more resilient than ever. It is important that society does not become too risk averse, and that nations do not worry too obsessively about their health to the detriment of living.”

As #restructuring lawyers, we often feel like doctors or psychiatrists attempting to solve a problem using the rule of law but one tool I find very useful is the S.A.R.A.H model of change. SARAH is an abbreviation for:

Shock
Anger
Resistance
Acceptance, and
Healing/Hope

The model can be used to facilitate a smooth process and positive result when implementing change in businesses by improving your colleagues understanding and minimising their concerns. The model embodies the phases we experience when coming to terms with change. The experience of the various phases described below will differ and depend on the particular facts of the matter and our personalities as some may have better coping mechanisms than others.

But let’s face it no one likes to change but as dinosaurs found out to their cost, it is usually necessary. For example the top football managers do not think “That’s it we have won the Premiership, so we do not have to make any transfers next season”. Equally Steve Jobs and Apple did not launch the first iPhone and then think “We have cracked it; we do not have to think about designing a new improved model”.

And yet change is a phenomenon that we do not often like, initially at least.

However, an understanding of the timeline below improves the ability of the individual(s) implementing the change to provide tailored and valuable support to stakeholders in a business during this period.

Shock

When first faced with change, we are often prone to being apprehensive, which can cause a reaction of shock or denial.

#SME owners should adopt a supportive approach, allowing his or her colleague to be heard. Your team needs to be able to decipher the basis for the change and its intended outcome and accordingly must be provided with as much relevant information as possible to assist their understanding.

Anger

Who cannot feel angry with the current situation? Anger is common once the stakeholder has established the basis for the change and its intended outcome, which can manifest as passive aggression or even rage.

It is crucial to remember that the stakeholder is displaying a heat of the moment reaction and is not currently thinking logically; the anger is directed at the change and not the individual personally. Anger should not be met with anger or insistence and the supportive approach followed in the previous phase should continue. To prevent this anger reaching an uncontrollable and impractical level, the individual should attempt to identify and resolve the stakeholder’s concerns as quickly as possible.

Resistance

During this phase, your colleague may feel sceptical, despondent or a sense of wrongdoing, for example. As a result, many stakeholders will resist the change which may include one of the following:

Attempting to divert attention away from the change.
Continuing to find further issues and arguments to avoid the change.
Being unresponsive to the proposed change.

A balance needs to be struck here between the supportive approach adopted so far and the individual holding their ground. The individual should attempt to focus the stakeholder’s mind on the key issues and draw up action plans to deal with each of these, setting out clear timeframes and success indicators. A step-by-step approach should be followed, concentrating on what can currently be achieved, no matter how small. More senior members of staff may have to assist the individual or take over to ensure this difficult phase is overcome.

Acceptance

This phase occurs once the stakeholder has come to terms with the change and is ready to accept it. After acceptance, the stakeholder can begin to see the benefits of the change.

During this phase, the individual should encourage the stakeholder to take small steps towards implementing the change that they feel comfortable with, creating a positive environment and providing constructive criticism if appropriate.

Healing/Hope

In this final phase, the stakeholder has now reached a point where they are optimistic about the change and willing to use their efforts to drive it forward.

The individual should set realistic and agreed targets and an action plan of how these can be achieved, providing any necessary support. The individual should be aware that change does not happen overnight, and stakeholders should be discouraged from falling back into old habits instead being encouraged to push forward.

We need to stop being blinded by the headlights and find a way out of the fog. Society and the economy need brave entrepreneurs to rebuild the economy, to create jobs and generate tax to pay for this Covid-19 bill which no doubt will follow.

The author of this article is the Head of Insolvency & Restructuring https://bit.ly/3aOzCS7 @SummitLawLLP jb@jamesedwardassociates.com Mob 07773 847877.

Business as Usual (for now)

admin — Tue, 16 Nov 2021 10:38:19 +0000

Parties should not take for granted that upcoming hearings and or trials will be automatically adjourned given the current COVID 19 pandemic.

The decision of Mr John Kimbell QC sitting as a Deputy High Court Judge in the case of Re Blackfriars Limited [2020] EWHC 845 (Ch) highlights the Court’s attempt to keep cases progressing in spite of what goes on elsewhere.

The Application

The current joint liquidators of One Blackfriars Limited (in Liquidation) (“the Company”) made an application pursuant to CPR 3.1(2)(b) to adjourn a five-week trial in June 2020 involving four witnesses and thirteen expert witnesses.

The basis of the liquidators’ claim were damages of approximately £250 million for the alleged mishandling of the administration of the Company by its former administrators.

The basis of the application (opposed by the Defendants who were the former administrators) was on the following four grounds:

To proceed with the trial would be inconsistent with the Prime Minister’s instructions on 23 March 2020 to stay at home;
A remote trial could not proceed without exposing those taking part to an unacceptable risk to their health and safety;
The technological challenges in conducting a remote trial were too great; and
There was potential for unfairness in conducting a remote trial.

The submissions in response in summary were:

Far from being inconsistent with Government instructions, to proceed with the trial would be fully in accordance with both the primary legislation enacted in response to the COVID crisis and specific guidance given to the civil courts, both of which make clear that the appropriate response is to proceed with as many hearings as possible using video and remote technology;
A properly arranged remote trial could proceed without endangering the safety of the individual participants or the public;
The technology to conduct a fully remote trial is already available and has been successfully deployed already in some cases;
Whilst a remote trial will present challenges to all involved, it would not lead to unfairness.
The application was in any event premature because the parties have not yet had an opportunity to explore all of the remote technology options for a trial which, after all, is not scheduled to take place for another ten weeks.

The application to adjourn was refused, despite the Judge being “more than satisfied” that the application was “entirely due to real concerns whether a trial can take place safely and not for tactical reasons”.

The Judge took account of, but was not limited to, the following:

Considering all of the information before him, the Judge had:

“…no hesitation whatsoever in rejecting [the]…submission that to proceed with a remote trial in this case would be inconsistent with the guidance issued by the Prime Minister on the evening of 23 March 2020.”

The Judge found that the legislation and guidance was “…a clear and consistent message” that “as many hearings as possible should continue and they should do so remotely as long as that can be done safely”.

The Judge was aware that as part of flexible case management as indicated under the Protocol regarding Remote Hearings, parties were expected to cooperate to address the challenges and begin preparation earlier than they normally would to ensure that they are equipped to proceed by way of remote communication. The Judge was also mindful that remote trials have gone ahead successfully but “…whilst not underestimating for one moment the technological challenge”, the present case did not warrant an adjournment.

Given the above, where possible, hearings and trials will proceed to be heard remotely. The Court will assess the merits of any application to adjourn and will not accept the current situation as being a sufficient reason alone for an adjournment.

Trading to the Detriment of HMRC – Director Disqualification

admin — Tue, 16 Nov 2021 10:36:22 +0000

A recap of the principles applicable to allegations by the Secretary of State of trading to the detriment of HMRC – The Secretary of State for Business Energy and Industrial Strategy v Raymond St John Murphy [2019] EWHC 459 (Ch)

In The Secretary of State for Business Energy and Industrial Strategy v Raymond St John Murphy [2019] EWHC 459 (Ch) the principles applicable to allegations of trading to the detriment of HMRC (the most common ground for disqualification proceedings) were reaffirmed. This is an important decision for company directors as it was established that a director cannot avoid disqualification on the basis that he hopes the company would be in a position to pay tax at a later date.

The background

An application for a disqualification order pursuant to section 6 of the Company Directors Disqualification Act 1986 was brought against Mr Murphy. Mr Murphy was formerly the sole director of St John Law Limited (“the Company”), which entered into liquidation.

One of the principal allegations brought by the Secretary of State was that Mr Murphy had caused the Company to fail to comply with its obligations to file and pay taxes when due. As a result, he had caused or permitted the Company to trade to the detriment of HMRC.

The defence

Mr Murphy sought to defend this aspect of the claim on two principal grounds:

Mr Murphy claimed that he was owed a substantial amount from HM Treasury in respect of a costs order made in his favour in 2011 in criminal proceedings brought against him. This would have been sufficient to satisfy all liabilities due to HMRC at a later date, and;
The Company was due to receive sufficient income shortly in order to repay HMRC liabilities in full. The Company was therefore not insolvent.

The principles

It has long been established that non payment of crown debts, cannot, in itself, justify a finding of unfitness (see Re Sevenoaks Stationers (Retail) Ltd 1991 Ch 164, 183 per Dillon LJ). Instead, a policy of discrimination must be established.

1) The starting point is to establish a discriminatory practice of paying other creditors with the result that the company is trading at the expense of the creditor who is discriminated against. This may constitute unfit conduct.

2) The evidence required to establish a policy of discrimination can be direct but can also be inferred from conduct – for example, the fact of withholding payment for a significant period in contrast to the payment of others. Such practice is normally found in cases where the company is insolvent, cannot pay all its creditors when the debts falls due and the director decides to pay those creditors who press and not those who forbear (whether intentionally or because of administrative problems in pressing for prompt payment of companies in financial difficulty).

3) If a deliberate policy of non-payment of Crown debts is established, the court asks whether the defendant has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies taking into account any extenuating (not the higher test of exceptional) circumstances. However, the guidance of the court is that a deliberate policy of non-payment over a lengthy period is likely to be misconduct justifying such a finding.

4) If the Defendant has fallen below the required standards of probity and competence, it is the duty of the court to make a disqualification order. Other matters, such as subsequent conduct and the current position are for mitigation and/or an application for permission to act.

5) A finding of a deliberate policy of discrimination does not require a conscious decision to that effect by the directors of a company. Accordingly, the decision can be subconscious and the reasons for it may be unconscious.

The decision

The allegation that Mr Murphy had caused the Company to trade to the detriment of HMRC was made out. Substantial payments were being made to other creditors (including Mr Murphy) at a time when HMRC were not being paid. This policy continued for a significant period of time. Accordingly, a policy of discrimination was made out and Mr Murphy was disqualified for a period of 8 years.

For more information on director disqualification proceedings (at any stage) please get in touch with our specialist team today on +44 7441912822 or email ac@jamesedwardassociates.com.

A Brave New World: Evolving Insolvency Law and Practice in Response to the COVID-19 Pandemic

admin — Tue, 16 Nov 2021 10:35:13 +0000

We live in unprecedented times.

The Government and the Courts have been rapidly introducing measures in an attempt to ease the economic impact on UK business and individuals of the COVID-19 pandemic and the resulting “lock-down”.

Proposed Changes to Insolvency Legislation

On 28 March 2020, the Government proposed new measures to improve the UK insolvency system and provide greater flexibility to help businesses hit by the COVID-19 crisis.

The main proposals:

Wrongful Trading – the temporary suspension, from 31 March 2020 for an initial period of three months, of the law on Wrongful Trading (under which a director of a company can be held personally liable for company losses incurred after the point in time when the director should have concluded that there was no reasonable prospect of avoiding insolvent administration or liquidation)
Business Rescue Moratorium – the introduction of a new moratorium (which has been under Government consultation since 2018), designed to prevent creditors from taking enforcement action whilst a rescue/restructure is being sought and also ensuring continued access to goods and services from suppliers essential for ongoing trading.

The Business Secretary stated that the legislation is to be introduced ‘at the earliest opportunity’. It is expected that this could be as early as the end of April 2020. For directors facing unprecedented difficulties in assessing the ongoing viability of otherwise sound businesses, the temporary removal of wrongful trading risk will be welcome. However, the Government did stress that all other directors’ duties and statutory causes of action under existing company and insolvency legislation would remain in force. It is not currently known whether the new Business Rescue Moratorium will include enhanced measures aimed specifically at tackling the COVID-19 crisis but the introduction of a new, more flexible, procedure of this type can only help otherwise viable businesses to survive the economic stresses of the current crisis. As ever, the Government will need to walk the line between preserving businesses suffering in this crisis and the interests of creditors.

Temporary Insolvency Practice Direction 2020

In addition to proposed legislative changes, the Courts have also taken urgent steps to introduce temporary measures to help to deal with the some of the challenges of the COVID-19 pandemic.

The Temporary Insolvency Practice Direction (‘Temporary IPD’) came into force on 6 April 2020 and will remain in force until 1 October 2020. It is intended to provide workable solutions for Court users during the COVID-19 pandemic and avoid, so far as possible, the need for parties to attend Court in person (whilst also managing reduced Court resources). It also addresses some longer standing issues surrounding the use of the Court’s e-filing system.

The Temporary IPD applies to all insolvency proceedings in the Business and Property Courts and is intended to supplement, and where necessary, take precedence over the existing insolvency practice direction (July 2018).

The key provisions are:

Adjournment and re-listing of pending applications – almost all applications and claim forms listed for hearing before 21 April 2020 are adjourned. If the matter is considered urgent then the parties can apply for it to be re-listed using a specific process (justifying the urgency). Non-urgent matters will be re-listed pursuant to guidance issued by the supervising judge. Winding up and bankruptcy petitions to be heard before an ICC Judge in the Rolls Building will be subject to a separate temporary listing procedure (listed in groups of two or more cases and given an allocated slot and a video conference link). Petitions heard outside London will be re-listed using the same procedure once it has been put in place.
Remote Hearings – unless ordered otherwise all insolvency hearings will be conducted remotely using video meeting technology. If the Judge considers it inappropriate to continue with a remote hearing (e.g. due to technological failure) the Court will issue a notice of adjournment and fix a new time and date. For non-petition hearings, the Court will send the parties an invitation or provide a link to video conference software or may direct a party to arrange a recordable telephone conference.
Remote Statutory Declarations – as required in relation to Administrations (and by extension Members Voluntary Liquidation), declarations may be attested via video conference provided that the attestation refers to the fact that it was conducted in this way.
E-filing notices of intention to appoint and notices of appointment – this clarifies various parties’ entitlement to file: notices of intention to appoint an administrator (NoI); and notices of appointment of an administrator (NoA), using the Court’s e-filing system (CE-File) and the effective time of those filings. The position can be summarized as follows:

		Company/Directors	Qualifying Floating Charge Holder
NoI	During Court Hours (10am – 4pm)	May use CE-File Treated delivered to the Court at the time and date recorded in the Court’s automatic notification of filing	May use CE-File Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing
	Out of Court Hours	May use CE-File Treated as delivered to the Court 10am next working day	Temporary IPD silent Unclear but can probably use CE-File. These filings are uncommon
NoA	During Court Hours (10am – 4pm)	May use CE-File Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing	May use CE-File Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing
	Out of Court Hours	May use CE-File Treated as delivered to the Court 10am next working day	Must use the fax and email process set out in the Insolvency Rules 2016

The Court staff will continue to review NoIs and NoAs filed by CE-File but the deemed time of delivery set out above will not override the Court staff’s ability to reject them for other reasons. However, any delay in formal acceptance of an NoA by Court staff will not affect the validity and time the appointment takes effect.

Practice Direction 51Z to Stay Possession Proceedings

This practice direction, effective from 27 March 2020 (and ceasing to have effect on 30 October 2020), complements the provisions of the Coronavirus Act 2020 emergency legislation to prevent imminent evictions and delay possession proceedings in light of the ongoing COVID-19 crisis.

The practice direction provides that:

all proceedings for possession brought under CPR Part 55; and
all proceedings seeking to enforce an order for possession by a warrant or writ of possession,

are stayed for a period of 90 days from 27 March 2020 i.e. until 25 June 2020. Note however that the automatic stay does not apply to claims for injunctive relief.

In the context of proceedings brought by a trustee in bankruptcy, the automatic stay would not prevent the trustee from obtaining a declaration of the trustee’s beneficial interest in a property, but it would stay any action for possession and sale of the property.

Comment

We live interesting times. The full extent, and indeed the effectiveness, of the changes to insolvency law and practice in response to the COVID-19 crisis remain to be seen. The imminent introduction of a new insolvency procedure, the Business Rescue Moratorium, represents one of the biggest changes in the UK insolvency regime in the last 10 years. The interesting question is whether any of the temporary measures and practices being introduced in response to the COVID-19 pandemic are retained after the crisis is over.

Procedural Defects in Electronic Filing of a Notice of Appointment of Administrators, and Expiration of a Notice of Intention to Appoint Administrators

admin — Tue, 16 Nov 2021 10:33:08 +0000

Remedies for procedural defects

In Re Statebourne Cryogenic Limited [2020] EWHC 231 (Ch) the High Court considered whether the identification of the specific regional Business and Property Court to which an NOA was to be allocated was a requirement of either the Insolvency Act 1986 or the Insolvency (England and Wales) Rules 2016 and whether, if incorrect identification was an error, such an error should be waived.

PD 51O allows the court to remedy an error of procedure made while using CE-file in accordance with CPR 3.10(b). CPR 3.10(b) provides that where there has been an error of procedure such as a failure to comply with a rule or practice direction, the court may make an order to remedy the error.

In the context of the appointment of administrators, the appropriate remedy may (instead or in addition to the use of CPR 3.10(b)) be a declaration or order under:

Paragraph 104 of Schedule B1 to the Insolvency Act 1986 (Schedule B1), which declares acts of an administrator valid despite defects in his or her appointment.

Rule 12.64 of the IR 2016, which allows the court to remedy a formal defect or irregularity unless substantial injustice has been caused by the defect or irregularity and the injustice cannot be remedied by an order of the court.

CE-file

On 29 January 2020, the Chancellor of the High Court issued a guidance note “clarifying the procedure to be used in the Business & Property Courts regarding the appointment of an administrator when an application is made electronically outside court hours” (January Guidance Note). Under the January Guidance Note, the use of CE-file outside usual court working hours to file a NOA will lead to the matter being referred to a judge.

The duration of a notice of intention to appoint administrators by company or directors

The court also considered when an NOI filed on behalf of the directors of a company expired, and the consequences of filing such a notice late.

An appointment of administrators may not be made by the company or its directors “after the period of ten business days beginning with the date on which the notice of intention to appoint is filed…” (paragraph 28(2), Schedule B1).

In JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd [2017] EWCA Civ 267 (JCAM) the Court of Appeal determined that an NOI filed by the company or its directors during the course (the time was not stated in the judgment) of a Friday expired at the end of the second following Friday. (There were no intervening bank holidays during this period.)

The reasoning in JCAM was followed in Woodside and another v Keyworker Homes (North West) Ltd [2019] EWHC 3499 (Ch) (Keyworker).

Facts

Solicitors for the directors of a company filed an NOI using CE-file on Friday 17 January 2020. They intended to file (and apparently followed the process to do so) in the Business and Property Court (B&PC) in Newcastle but the NOI was processed (for reasons unexplained) by court staff into the London B&PC.

The solicitors filed (using CE-file) an NOA on Friday 31 January 2020, in usual court hours, again selecting the Newcastle B&PC as the relevant court. The NOA was rejected by the court staff as having been incorrectly filed in a court other than where the NOI had been filed. Accordingly, the solicitors filed a second NOA, out of court opening hours but on the same day (Friday 31 January), without stating a specific B&PC.

In accordance with the January Guidance Note, the matter was referred to a High Court Judge.

Decision

The High Court (Zacaroli J) held that neither Schedule B1 nor the IR 2016 require the name of the relevant court to be shown on the NOI or NOA. As such, the court found that if (though it did not rule on this) there was an error in the first NOA, that was a mere defect in procedure. It made an order under CPR 3.10(b) waiving any defect.

The court also held that the first NOA had been filed out of time. The court considered that, for a NOI filed on Friday 17 January 2020, the NOA should have been filed at the latest by the end of Thursday 30 January 2020.

The court considered that Keyworker (in which the court had sanctioned a more expansive interpretation of when the ten-day period finished) was wrong: it also considered that the court in JCAM had not rendered any decision on the interpretation of paragraph 28(2) of Schedule B1.

Nevertheless, the defect had not caused substantial injustice. The court was content to rectify the defect, and order that no actions of the administrators were invalidated by the defect, by orders under rule 12.64 of the IR 2016 and paragraph 104 of Schedule B1.

Comment

Although the context in which this issue came before the court was because of the filing of an NOA (the second NOA, in this case) out of court hours, the January Guidance Note was not in fact relevant. The court found that the first NOA, filed earlier and within usual court hours, was either valid or, if defective, capable of remedy by court order.

However, the court’s interpretation of the period within which an NOA must be filed under paragraph 28 of Schedule B1 is troubling for the uncertainty it creates: it decided that for a director or company NOI filed on a Friday (here, 17 January 2020), an NOA had to be filed (in the case of no intervening public holidays) no later than on the second following Thursday (here, 30 January 2020).

Although the Court of Appeal in JCAM did not discuss the meaning of paragraph 28(2) of Schedule B1, it ruled without comment that under paragraph 28(2) of Schedule B1 an NOI filed on a Friday expired at the end of the second following Friday (see paragraph 16 of the judgment, and note there were no intervening public holidays during this period).

The court did not (in keeping with the decisions in JCAM and Keyworker) make any determination as to whether the NOA had to be filed by a specific time on the tenth business day. It is perhaps surprising that this issue has not been the subject of more judicial consideration. This is because, in the context of the duration of an administration as a whole, and paragraph 76(1) of Schedule B1 (which uses similar wording to paragraph 28(2) of Schedule B1), the High Court has held that an administration ends, on its final day, at the same time of day as that at which it originally entered administration (In the matter of Property Professionals+ Ltd [2013] EWHC 1903 (Ch)).