Vol 9 (2012) - Issue 3

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Re Virtualpurple versus National Westminster Bank: The Next Instalment

Introduction
On 21 December 2011 judgment was handed down in Re Virtualpurple Professional Services Limited. Norris J, sitting in the Chancery Division of the High Court confirmed that a valid appointment of administrators had taken place where the company director had failed to give notice of intention to appoint an administrator in accordance with paragraphs 26 to 28 Schedule B1 of the Insolvency Act 1986 ('IA 86'). Neither had the director given copies of the notice in accordance with r.2.20(2) of the Insolvency Rules 1986 ('IR 86'). By judgment handed down on the same day in National Westminster Bank v Msaada Group & Ors, Warren J held that the failure to serve a copy of the notice of intention upon those set out in r.2.20(2) IR 86 rendered the appointment of administrators invalid. These conflicting decisions add to the confusion surrounding the recurring issue of the validity of out of court appointments of administrators made by directors where (1) notice of intention to appoint an administrator has not been given to any person who is or may be entitled to appoint an administrative receiver or to a qualifying floating charge holder; and (2) a copy of the notice has not been given to (a) an enforcement officer; (b) any person entitled to distrain against the company or its property; (c) any supervisor of a voluntary arrangement; and (d) the company. Two notable cases where this matter had previously arisen are Hill and Pope v Stokes Public Limited Company, and Minmar (929) Limited v Khalastchi. In Hill, HHJ McCahill QC held that the directors’ failure to give copy notice to persons who had distrained against the company or its property pursuant to r.2.20(2)(b) IR 86 did not cause the appointment to be invalid. In direct contrast to Hill, Sir Andrew Morritt C. found in Minmar that the appointing director’s failure to give notice of intention to the other directors and to the company meant that the appointment of administrators was invalid.

Virtualpurple– the facts
Ms Williamson was the sole director of Virtualpurple Professional Services Limited which traded as a software development company ('VPS'). Ms Williamson held a formal meeting on 9 February 2011 at which VPS’s considerable financial problems were documented. It was noted at the meeting that VPS had received advice stating that creditors’ best interests would be served by entering into administration. No person was entitled to appoint an administrative receiver and there was no qualifying floating charge holder. As a result, Ms Williamson and her advisors concluded that it was not necessary to file a notice of intention to appoint administrators using Form 2.8B as prescribed by paragraph 26(3) Sch. B1 IA 86 and r.2.20(1) IR 86. In addition, there were no persons to whom a copy of the notice of intention was required to be given under the provisions of paragraph 26(2) IA 86 and r.2.20(2)(a) to (d) IR 86. Pursuant to paragraph 22 Sch. B1 IA 86, two administrators were appointed with immediate effect. A Form 2.10B was duly filed at court. However, due to the doubts raised by the opposing decisions in Hill and Minmar, Ms Williamson and the joint administrators applied for a declaration that the appointment was valid.