Closegate case - Can a director challenge an administration appointment and was the bank estopped from taking action?

Closegate case - Can a director challenge an administration appointment and was the bank estopped from taking action?

Did the directors of a company in administration have standing to challenge the validity of the appointment of administrators? As a result of the bank’s conduct in the lead up to the appointment of the administrators, was the bank estopped from making a demand for the monies owing and appointing the administrators?

Original news

Closegate Hotel Development (Durham) Ltd and another v McLean [2013] EWHC 3237 (Ch), [2013] All ER (D) 308 (Oct)

How did the issue arise in this case?

The case concerned two construction companies that had been involved in the development of a hotel in Durham. The original financing by Barclays Bank plc had been lengthy and there was a refinancing in 2007/08, which led to complaints being made by the companies against Barclays. The companies issued proceedings against Barclays in the Companies Court on 2 November 2011.

In parallel with the pursuit of the claim, in early 2012, the companies made overtures to Barclays with a view to settling the debt owed to Barclays and the claim. On 26 June 2012, Barclays responded favourably, indicating that it was ‘willing to take part in discussions with the aim of reaching a solution to the current issues’. The parties agreed to a stay of the litigation while settlement discussions were ongoing. The companies proposed settling Barclays’ debt and the claim for a capital sum using funds raised from the Co-operative Bank and discussions continued between the parties into 2013, during which time the stay of the litigation was extended until 30 April 2013.

On 4 September 2013, the companies notified Barclays that the Co-operative Bank was unlikely to be able to do the deal with the companies as originally notified. Following this, the companies obtained two indicative offers of finance from potential funders but there was no communication between the companies and Barclays between 4 September 2013 and 11 October 2013.

On 11 October 2013, Barclays emailed the companies to notify them that it intended to make demand for repayment. Demand for repayment was served that day and, in the absence of any payment, Barclays appointed administrators later on 11 October 2013.

What was the case about?

The companies applied to court challenging the validity of the appointment of the administrators on the basis that IA 1986, Sch B1,

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