Case update: Seabrook Road Ltd v Security Trustee Services Ltd [2001] EWHC 436 (Ch)
Under paragraph 22 of Schedule B1 of the Insolvency 1986 (IA86) a company has the power to appoint an administrator out of court. However, paragraph 26 of Schedule B1 requires a person who proposes to make an appointment under paragraph 22 to give at least five business days’ written notice to any person who may be entitled to appoint an administrative receiver or administrator under paragraph 14 of Schedule B1.
Paragraph 27 of Schedule B1 requires a person who gives notice of intention to appoint under paragraph 26 to file with the court as soon as reasonably practicable, a copy of the notice given under paragraph 26 and any document accompanying it. Paragraph 28 prevents an appointment being made under paragraph 22 unless the person who makes the appointment has complied with the requirements of paragraphs 26 and 27 and the period of notice under paragraph 26 has expired or each person to whom notice has been given under paragraph 26 has consented.
Paragraph 44 provides for an interim moratorium from the time when the NOITA is filed with the Court until the appointment takes effect or the period under paragraph 28(2) expires.
The Court of Appeal in JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd [2018] 1 WLR 24 held that in order to give notice under paragraph 26 of schedule B1 the person had to intend unconditionally to make an appointment. An intention to appoint an administrator which was made on a conditional basis was not a valid intention for the purposes of paragraph 26. As such a notice should only be given under paragraph 26 if the company has a genuine and settled intention to appoint an administrator.
In Seabrook, a facilitation agreement had been entered into between Security Trustee Services Limited (STS) Seabrook Road Ltd (Seabrook) and Retail Money Market Ltd (“Ratesetter”) in August 2019 for the refinancing of property development. STS were agent and security trustee for Ratesetter. Seabrook had given a charge over the property and a floating charge over the chattels.
Seabrook defaulted on the facilitation agreement and STS appointed receivers on 7 December 2020. Later that day STS were told that Seabrook had filed a notice of intention to appoint administrators with the Court on 27 November 2020. That notice had not been served on Ratesetter or STS notwithstanding that the notice said it was being given to STS under paragraph 26 of Schedule B1 IA86.
On 15 December 2020 the receivers’ solicitors wrote to Seabrooks’ solicitors and explained that an application to Court was necessary because of difficulties which were created as a result of the NOITA and upon Seabrook’s solicitors confirming that they agreed to accept service of the application it was disclosed that a second NOITA had been filed on 10 December 2020. Again, it had been confirmed in the notice that STS had been given notice, but this was not the case.
Proceedings were commenced on 13 January 2021 and it turned out that two further NOITAs had been allegedly served by Seabrook on 3 November 2020 and on 16 November 2020 but neither of these had in fact been served on STS.
In his Judgment, Mr Justice Miles noted the inexcusable breach of the rules by Seabrook. The NOITA forms clearly refer to the need to provide notice to the QFCH and the forms stated that notice had been given, which was not true.
The Judge commented on why notice is given to a QFCH, namely to enable it, if it so chooses, to appoint its own administrator. Furthermore, the interim moratorium under paragraph 44 presupposes that notice has been given and if that has not happened then the company cannot protect itself against the QFCH. As such the notices were an abuse of process.
Furthermore, the Judge held that the company did not have a genuine and settled intention to appoint an administrator. That is because during the negotiations with STS there was never any suggestion that the company intended to appoint an administrator.
The Judge considered that the notices were filed only to arm the company with an argument against the appointment of receivers and to give it leverage in negotiations and there was never a genuine intention to appoint an administrator.
It was held that there was not the necessary intention required before a valid notice may be given under paragraph 26. The Judge was also satisfied that the notices were not valid and as such the interim moratorium never name into effect. The Court ordered that the NOITAs be removed from the Court file.
