Retrospective application of administration orders—Mond v Synergi Partners

Retrospective application of administration orders—Mond v Synergi Partners

Can an administration order take retrospective effect when there has been a defective appointment of liquidators? Adam Deacock, barrister, and John Jessup, pupil, at 11 Stone Buildings, examine the court’s decision in Mond v Synergi Partners.

Original news

Mond v Synergi Partners Ltd [2015] EWHC 964 (Ch), [2015] All ER (D) 81 (Apr)

The applicant, in his capacity as a creditor of the company for the purposes of para 12(1(c) of Sch B1 to the Insolvency Act 1986 (IA 1986), sought an administration order to take effect retrospectively from November 2010. The court was being asked to make a retrospective order which would cure the fact of the void appointments of the purported present liquidators, by casting back over four years and validating the actions of those individuals, not as liquidators, but as administrators, in the intervening period, with a view to the company being moved by those freshly appointed administrators into creditors’ voluntary liquidation (CVL). The Chancery Division held that, in the circumstances, the only appropriate outcome for the present administration application was to make an order for the compulsory winding-up of the company.

Briefly, what was the background to the application?

On 4 February 2015 the applicant applied for an administration order in his capacity as a creditor under IA 1986, Sch B1, para 12(1)(c). The order was to take effect from 23 November 2010 (ie it was intended to be retroactive so as to create an administration fur and a half years earlier).

The applicant had appointed an administrator to the company on 22 November 2009. The administrator purported to move the company into CVL, and to appoint joint liquidators to carry this out, by a notice completed on 23 November 2010 and registered on 27 November 2010. However, the administration period had not been extended and had expired on 22 November 2010. The joint liquidators had therefore never been validly appointed, but nonetheless acted on behalf of the company for the following four years. In the course of doing so they had commenced a wrongful trading claim which would have had to have been abandoned for want of standing. The purpose of seeking a retrospective administration order was therefore to validate the actions of the joint liquidators (albeit as administrators) and to permit them to place the company into CVL so that they themselves could be appointed as liquidators.

What were the legal issues that the judge had to decide in this application?

The potential for the making of an administration order taking retrospective effect was acknowledged in Re G-Tech Construction Ltd [2007] BPIR 1275. The jurisdiction to do so was based on the supposedly wide wording of IA 1986, Sch B1, para 13(2), which allows the court to make an administration order taking effect ‘at a time appointed by the order’. After rejecting the argument that G-Tech was only a draft judgment, HHJ Hodge QC noted the general unease of the courts with the decision, but that the jurisdiction had nonetheless been used to cure the defective appointment of administrators in several cases.

Given the rather cautious approach the courts have taken to G-Tech it is perhaps surprising that the court should be asked to extend it to a case where there was a defective appointment of liquidators rather than administrators. The purpose of G-Tech orders is usually to clothe the ‘administrators’ with the office they thought they had.

Why did these issues arise?

One feature of the G-Tech jurisdiction is that it was understood in that and subsequent cases as being limited to making administration orders beginning no earlier than one year before the date of the making of the order, or in any event to creating an administration which lasted for no more than one year. This is because IA 1986, Sch B1, para 76(1) provides that the appointment of an administrator shall cease to have effect at the end of the period of one year beginning with the date on which it takes effect. This feature posed ‘real difficulty’ for the applicant who was asking to extend the scope of the jurisdiction considerably beyond its understood limits.

What were the main legal arguments put forward?

In an attempt to get around this problem, the applicant sought to distinguish G-Tech on the basis that that case involved the appointment of an administrator which, albeit invalid, had already been made. In the present case, there had been no purported appointment of an administrator.

What did the judge decide, and why?

HHJ Hodge QC found that the distinction drawn by the applicant was not a valid one. This is perhaps unsurprising as it might be thought to provide a cogent reason why the jurisdiction did not apply at all in the instant case, rather than a reason to extend the jurisdiction. In any event it did not offer any way round the wording of IA 1986, Sch B1, para 76(1). The court also referred to IA 1986, Sch B1, para 77(1)(b) which provides that an administrator’s term of office may not be extended after it has expired. That would prevent the court retrospectively making a sequence of orders extending a one year term to four years. The one year limit applied, and if the court made an administration order retrospective to the date sought it would have expired on 23 November 2011.

There is a second and fundamental restriction of the G-Tech jurisdiction, namely that it could only be exercised where one of the statutory purposes of administration would be likely to be achieved. The applicant did not argue that an order limited to a one-year period from 23 November 2010 would retrospectively validate the move to a CVL. On that basis it was difficult to see how any of the statutory purposes of administration could have been served by the order, the only aim of which would appear to be to validate some of the acts of the liquidators (albeit by making them administrators).

Interestingly HHJ Hodge QC took the view that, even if the effect of the order had been to validate the appointment of the liquidators, the order would still not be granted. None of the statutory purposes would have been satisfied because the only object of making a retrospective order would have been to move the company from administration into CVL. This would not have allowed the company to continue to trade as a going concern, achieved a better result for creditors than a winding-up, or allowed the realisation of property to make a distribution to secured creditors. The judge referred to the applicant’s desire to have the current ‘liquidators’ properly appointed as liquidators (which could only occur on exit from the proposed retrospectively—generated administration) rather than having an ordinary compulsory winding up where the Official Receiver, the Secretary of State, or a creditors’ meeting would choose the liquidators. While this appeared to motivate the application it is not clear whether it was suggested as a reason why the making of an administration order would achieve a better realisation for creditors than would arise if there were a liquidation not preceded by administration. It seems unlikely that it would have been accepted as a ground for making an order.

After considering and rejecting other options (including making an order taking effect one year before the making of the order and expiring on the date the order was made), HHJ Hodge QC exercised his discretion under IA 1986, Sch B1, para 13(1) to treat the application as a winding-up petition and to make an ordinary (prospective) winding-up order. The effect was to leave a liquidator to be appointed in the ordinary way.

To what extent is the judgment helpful in clarifying the law in this area?

This case does not add anything of significance to the law. It repeats unease with the G-Tech jurisdiction already expressed elsewhere, and reiterates the already clear point that a retrospective administration order cannot be made for a period exceeding one year. It will come as no surprise to practitioners that the court was unwilling to extend the G-Tech jurisdiction way beyond its existing limits. That jurisdiction is now less frequently invoked in recent years following the line of authorities beginning with Bezier Acquisitions Ltd [2011] EWHC 3299 (Ch), [2011] All ER (D) 119 (Dec) which indicated that many irregularities in administration appointment would not render the appointment void.

What practical lessons can those advising take away from the case?

The practical lesson that arises from this case is that practitioners must be very careful to ensure that the exit from an administration has been properly managed before it expires. Less dramatically it is useful to recall that on an administration application the court can, as an alternative, make a winding-up order.

Adam Deacock acted for the applicant in G-Tech.

Interviewed by Lucy Karsten.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietors.

Further Reading

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Court appointments—who can apply and in what circumstances?

How an administration comes to an end

A summary checklist and time-line for appointing an administrator using the court procedure

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First published on LexisPSL Restructuring and Insolvency

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.