This article looks at whether the courts will enforce an adjudicator’s decision when faced with a Notice of Intention to Appoint an Administrator from the company found liable under such a decision.
In the early part of 2017, in the case of South Coast Construction Limited v Iverson Road Limited, the court exercised its discretion to allow an adjudicator’s decision to be enforced despite the issue of an NIA. Such a notice normally puts a hold on any court proceedings, but it is subject to the Court’s discretion.
Bernards Sport Services Limited v Astrosoccer4u Limited.
That issue came up again later in 2017: Astrosoccer4u (“Astro”) entered into a contract with Bernards Sport Services (“Bernards”) for Bernards to provide them with a sports pitch.
The pitch was provided but a dispute arose over payment. Bernard said it had issued a valid Payment Notice and, as there was no Pay Less Notice in response to it, Astro had to pay the full amount of the sum claimed. But Astro did not pay. So Bernards referred the dispute to adjudication. Astro alleged that there were defects in the pitch, although this was not something that had been raised in a Pay Less Notice. It was therefore not something considered in the adjudication.
Bernards were successful, being awarded circa £175,000 against Astro. But still no payment was made.
In a telephone conversation between the parties, Astro admitted that the sum found due by the adjudicator was, indeed, due. But rather than making payment, or any proposals for the same, ten days later Astro’s solicitors, who had been involved in the adjudication, wrote to Bernards stating in effect that either they mediate the dispute or, if not, then Astro would enter into insolvency and Bernards would then face a claim from the insolvency practitioner for the alleged defects to the pitch.
Astro then took various measures to restructure the company which, from the Court’s judgment, was in the “…hope of avoiding paying this legitimate debt”.
Draft notice of intention to appoint an administrator
Astro sent a draft notice of intention to appoint an administrator to Bernards, but the court found that they had no intention of serving that notice, and that instead, “…the letter made plain that it was being provided in draft so that further pressure was being put on the claimant to withdraw the Court proceedings and agreed to meet to discuss the settlement”.
Astro lodged a fresh notice of intention to appoint an administrator in the Companies Court on 31 August 2017. But the judge found that there was no evidence that that document had been filed at Companies House, as required. The judge found that that was, “…plainly part of the defendant’s endeavours to avoid this hearing or judgment being given at this hearing”.
The judge found that the actions of the defendant Astro were “…part of an attempt to avoid this debt. I regard them, as a completely bogus series of events, endeavouring to prevent the debt being paid”.
Use of Victorian company legislation to avoid paying a due debt
The notice of intention to appoint an administrator was contradicted by the fact, as the judge found, that Astro was still trading through its website. The judge concluded that “Accordingly, on the face of all that, this is a classic example of two directors endeavouring to use Victorian company legislation to avoid paying a due debt. That, of itself, is (regrettably) not unusual. What is unusual here, in my judgment, is the connivance of [Astro’s solicitors]”.
The judge was highly critical of the conduct of Astro, but also, unusually, also critical of the actions and conduct of its solicitors.
Largely in light of the above conduct, judgment was given for Bernard against Astro.
The clear message from the court in this case is that parties need to ensure that they use insolvency processes only for genuine insolvency purposes. If they seek to do otherwise, then the court can take that conduct into account against them in subsequent court proceedings. Based on the court’s judgment in this case, it is likely that if Astro did subsequently go into insolvency, then any liquidator would be required to look carefully at the various transactions entered into by Astro in the run up to the court hearing, as to whether there were attempts to dissipate assets unlawfully.