National Westminster Bank Plc v Msaada Group (a firm) & Ors [2011] EWHC 3423 (Ch)

Case No No 9612 of 2011

[2011] EWHC 3423 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

IN THE MATTER OF THE INSOLVENCY ACT 1986

AND THE INSOLVENT PARTNERSHIPS ORDER 1994

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 21/12/2011

Before

MR JUSTICE WARREN

Between

NATIONAL WESTMINSTER BANK PLCApplicant

(1) MSAADA GROUP (A firm)Respondents

(2) GARY STEVEN PETTITRespondent

(3)ALAN REDVERS PRICERespondent

(4) GORDON CRAIGRespondent

Tina Kyriakides (instructed by Addleshaw Goddard LLP) for Applicant

Bridget Williamson (instructed by Turner Parkins LLP) for first and fourth Respondents

Hearing Hearing date: 28th November 2011

Judgment

Mr Justice Warren :

Introduction

[1]On 28 October 2011, the fourth Respondent (“Mr Craig”) was appointed as administrator for the first Respondent (“the Partnership”). The appointment (“theAppointment”)was made out of court by the partners, Philip Henry Keet and Maureen Keet, his wife. There are three applications before me: i) An application for a declaration that the Appointment is invalid. ii) If the Appointment is invalid, an application for an administration order in respect of the Partnership and the appointment of Richard James Philpott and Jane Moriaty (“the Bank’s Nominees”) as joint administrators. iii) If the Appointment is valid an application that Mr Craig be removed as administrator of the Partnership and that the Bank’s Nominees be appointed in his place.

[2]The Applicant (“the Bank”) is a substantial creditor of the Partnership and of the various companies wholly owned directly or indirectly by either the Partnership or Mrs Keet as I shall explain in more detail later in this judgment.

The first application

[3]The first application is for a declaration that the Appointment is invalid so that Mr Craig was not effectively appointed. The basis of this application is that paragraph 26 of Schedule B1 to the Insolvency Act 1986 as it applies to partnerships (“paragraph 26” and “Schedule B1”) was not given with the result that an essential requirement for the appointment of an administrator was not complied with so that the Appointment was wholly invalid. To deal with that proposition, I need to refer to that paragraph and to other paragraphs of Schedule B1.

[4]Paragraph 26 as it applies to partnerships (see article 11 of Schedule 2 to the Insolvent Partnerships Order 1994 (“IPO”)) is in the following terms:

“26.— (1) A person who proposes to make an appointment under paragraph 22 shall give at least five business days' written notice to— (a) any person who is or may be entitled to appoint an agricultural receiver of the partnership, and (b) any person who is or may be entitled to appoint an administrator of the partnership under paragraph 14. (2) A person who proposes to make an appointment under paragraph 22 shall also give such notice as may be prescribed to such other persons as may be prescribed. (3) A notice under this paragraph must— (a) identify the proposed administrator, and (b) be in Form 1A in Schedule 9 to the Insolvent Partnerships Order 1994” (a) any person who is or may be entitled to appoint an agricultural receiver of the partnership, and (b) any person who is or may be entitled to appoint an administrator of the partnership under paragraph 14. (a) identify the proposed administrator, and (b) be in Form 1A in Schedule 9 to the Insolvent Partnerships Order 1994”

[5]Paragraph 22 as it applies to partnerships (see article 6 of Schedule 2 to the IPO) provides power to the members of an “insolvent partnership” to appoint an administrator. There is no definition of “insolvent partnership” for the purposes of paragraph 22. It must have the same meaning as in section 420 Insolvency Act 1986 where, again, there is no definition. Certainly it would include a case where both(i) the partnership’s liabilities exceed its assets at their realisable value and

(ii) it is unable to pay its debts as they fall due. Indeed, it would seem to include a case where either of those situations exist: see Re Hough The Independent, 26 April 1990 (Warner J). It has not been suggested that the partners had no power to appoint an administrator and I proceed on the basis that they did.

[6]Paragraph 27 as it applies to partnerships (see article 12 of Schedule 2 to the IPO) is in the following terms “27.— (1) A person who gives notice of intention to appoint under paragraph 26 shall file with the court as soon as is reasonably practicable a copy of— (a) the notice, and (b) any document accompanying it. …………….” (a) the notice, and (b) any document accompanying it.

[7]Paragraph 28(1) provides that an appointment may not be made under paragraph 22 unless the appointor has complied with “any of the requirements of paragraphs 26 and 27…”. In addition, it is a requirement that “the period of notice specified in paragraph 26(1) has expired” or that everyone to whom a notice has been given under paragraph 26(1) has consented to the making of an appointment. Paragraph 28(2) then provides that an appointment may not be made under paragraph 22 after the period of 10 business days “beginning with the date on which the notice of intention to appoint is filed under paragraph 27(1)”.

[8]Paragraph 29, as it applies to partnerships, provides that a person who appoints an administrator under paragraph 29 must file a notice of appointment with the court. Paragraph 29(5) as currently drafted provides that the notice of appointment must be in Form 1B.

[9]Paragraph 30 has been relied on by Miss Williamson on behalf of the Partnership and Mr Craig. It commences with these words:

“30. In a case in which no person is entitled to notice of intention to appoint under paragraph 26(1) (and paragraph 28 does not therefore apply)……”

[10]The suggestion made by Miss Williamson is, of course, that the words in parenthesis show that paragraph 28 is applicable only where a notice has to be given to a person falling within paragraph 26(1) but is not applicable if the only person on whom a notice has to be served is a person who has been prescribed for the purposes of paragraph 26(2). I shall come to that suggestion in due course.

[11]Paragraph 44 has also played some part in the argument. Paragraph 44(4) provides for an interim moratorium from the time when a copy of notice of intention to appoint an administrator is filed under paragraph 27(1) until the appointment of the administrator takes effect or the period under paragraph 28(2) expires without the appointment of an administrator.

[12]It is also necessary to consider Rule 2.20 of the Insolvency Rules 1986 (“Rule 2.20” and “the Rules”). Rule 2.20 is as follows: “2.20.—(1) The notice of intention to appoint an administrator for the purposes of paragraph 26 shall be in Form 2.8B.

(2) A copy of the notice of intention to appoint must, in addition to the persons specified in paragraph 26, be given to– (a) any enforcement officer who, to the knowledge of the person giving the notice, is charged with execution or other legal process against the company; (b) any person who, to the knowledge of the person giving the notice, has distrained against the company or its property; (c) any supervisor of a voluntary arrangement under Part I of the Act; and (d) the company, if the company is not intending to make the appointment…. …………………” (a) any enforcement officer who, to the knowledge of the person giving the notice, is charged with execution or other legal process against the company; (b) any person who, to the knowledge of the person giving the notice, has distrained against the company or its property; (c) any supervisor of a voluntary arrangement under Part I of the Act; and (d) the company, if the company is not intending to make the appointment….

[13]Under article 18 of and Schedule 10 to the IPO, the Rules apply to partnerships as they apply to companies with such modifications as the context requires. A modified form is now relevant for the purposes of Rule 2.20(1), namely Form 1A found in the Schedule to the Insolvent Partnerships (Amendment) Order 2006. That form includes the following:

“This notice is being given to the following person(s), being person(s) who is/are or may be entitled to appoint an agricultural receiver of the partnership or an administrator of the partnership under paragraph 14 of Schedule B1 to the Insolvency Act 1986.”

That is similar to the equivalent rubric in the Form 2.8B used for a company. The persons there referred to are the persons to whom notice must be given under paragraph 26(1)(a) and (b). Form 1A has nothing to say about being given to any other person.

[14]Form 1B in that Schedule is the notice of the actual appointment of an administrator. In the case of companies, there are separate forms for use where notice of intention to appoint has, or has not, been issued, namely Forms 2.9B (described in its heading as one “(where a notice to appoint has been issued)”) and 2.10B (described in its heading as one “(where a notice to appoint has not been issued)”). Consistently with that, Form 2.9B refers to the notice given “in accordance with paragraph 26(1)….” but Form 2.10B contains no such reference. Form 1B is described in its heading a “Notice….. (where a notice of intention to appoint has not been issued)”. There is, apparently, no prescribed form where a notice of intention to appoint has been issued and yet paragraph 29(1) requires a notice of appointment to be filed in all cases with paragraph 29(5) providing that the notice of appointment must be in Form 1B.

[15]Mr and Mrs Keet did not give notice to anybody before appointing Mr Craig as administrator of the Partnership by the Appointment. There was no person who was or might have been entitled to appoint an agricultural receiver and no person who was or might have been entitled to appoint an administrator of the partnership under paragraph 14 (relating to holders of qualifying agricultural floating charges). There was therefore no person on whom notice had to be served under paragraph 26(1).

[16]Rule 2.20(2)(c), if it applies, requires, as we have seen, that a copy of the notice of intention to appoint must be served on the persons specified, one of which is any supervisor of a voluntary arrangement. At the time of the Appointment, the Partnership was subject to a Partnership Voluntary Arrangement under which the third and fourth Respondents were joint supervisors. They were not given notice of the intended appointment.

[17]The question which then arises is whether the joint supervisors were persons on whom notice of intention to appoint an administrator should have been given under paragraph 26(2). If the answer to that is they should have been given notice under that provision, the next question is whether that has the consequence that the Appointment is invalid.

[18]There are two decisions which have particular bearing on the answer to those questions. The first in time is the decision of HH Judge McCahill QC sitting as a judge of this Division in Bristol in Hill v Stokes plc

[2011] BCC 473

in which judgment was given on 23 November 2010; the second in time is the decision of the Chancellor in Minmar (929) Ltd v Khalatschi

[2011] EWHC 1159 (Ch)

[2011] BCC 485

(“Minmar”) in which judgment was given on 8 April 2011. Hill v Stokes was not referred to by the Chancellor or cited to him.

[19]In Hill v Stokes, the directors of the company made an out of court appointment of administrators under paragraph 22. They gave notice to the bank which was a person within paragraph 26(1) but did not give any notice of the appointment to the landlord which had distrained against the company or its property. The administrators applied for a declaration that their appointment was valid notwithstanding the absence of such notice to the landlord. The Judge held that the opening words of paragraph 28(1) which refer to compliance with paragraphs 26 and 27 should be interpreted as referring only to paragraphs 26(1) and 27. He accepted that Rule 2.20(2) is a prescribing provision for the purposes of paragraph 26(2) from which it followed that it was a requirement of paragraph 26(2) that a copy of the notice should have been served on the landlord; if that had not been so, he would not have needed to conclude that Rule 28 referred only to paragraph 26(1).

[20]The Judge reached his conclusion that paragraph 28 applied only to paragraph 26(1) and not also to paragraph 26(2) for a number of reasons which can be summarised as follows: i) The persons identified in paragraph 26(1) were to be given five days’ notice, for the very sound reason that they could either agree to the proposed administrator or seek to appoint their own, but that position was to be starkly contrasted with the prescribed persons under paragraph 26(2) for whom no minimum period of notice at all was given. One could be forgiven for thinking that the reason for notification under paragraph 26(2) was for information purposes, rather than as a prerequisite for the making of the order. ii) The requirements under Rule 2.20(2) to give notice to a person who has distrained were not absolute or unqualified but only applied if the person giving notice had knowledge of the distraint; it was therefore possible to envisage circumstances in which the obligation to give notice did not arise, even though distraint had taken place, and that was inconsistent with a strict construction of an obligation to notify these prescribed people so that non-compliance would render an appointment a nullity or invalid. iii) Form 2.8B did not require anything to be recorded concerning notice to prescribed persons but referred to any person entitled to appoint an administrator under paragraph 14 to which paragraph 26(1), rather than paragraph 26(2), applied: one might be forgiven for thinking that the notice was only to be given to each person with the power under paragraph 26(1) as opposed to a reference to each and every prescribed person under paragraph 26(2), for the very sound reason that they must be notified because of their power to trump the proposal and put in their own preferred administrator. iv) Further, Rule 2.20(2) did not readily lend itself to distinctions between the effect of non-service on the four categories of person within it so that the prescribed persons formed a class and it should be possible to identify a unifying theme applicable to them all or to none, but not to some and to others. v) The wording of paragraph 30 suggested that paragraph 28 was only concerned with those persons referred to in paragraph 26(1), thereby providing support for the proposition that only paragraph 26(1) was intended to be referred to in paragraph 28. In the event that there was no qualifying charge holder, even if the obligation to give notice under paragraph 26(2) and Rule 2.20(2) remained, it was clear from that statutory provision that a failure to do so did not prevent the appointment or render it invalid. vi) In circumstances where there was a qualifying charge holder and there were prescribed persons to whom notice should be given, there was no compelling reason for construing(a) the obligation in paragraph 26(2) as mandatory, in the sense of rendering subsequent steps a nullity in the event of a failure to comply with that requirement, or

(b) the reference in paragraph 28(1) to paragraph 26 as anything other than a reference to paragraph 26(1). vii) Although Rule 20.2 uses the word “must”, paragraph 26(2) uses the word “shall”. Rule 20.2 is subservient to paragraph 26(2) – the enabling provision. There are cases where the apparent strength of the words “must” and “shall” were held not to be fatal.

[21]In Minmar, a director of the company applied for an order setting aside the appointment of administrators under paragraph 22 purportedly made by directors of the company. For reasons which are not relevant to the case before me, the Chancellor held that the appointment was invalid and ought to be set aside. However, having reached that conclusion he considered what is essentially the point of law which is now before me. He prefaced that consideration by saying that the point of law did not arise but that he would indicate his conclusion in case the case went further. He held that paragraph Rule 20(2)(d) required notice in accordance with that provision to be given to the company itself and that paragraph 28 then precluded an appointment. It was a necessary part of this reasoning, although not stated in this way, that Rule 2.20(2) is a prescribing provision which applies even where no notice of intention is given under paragraph 26(1). On that basis, it was a requirement of paragraph 26(2) that notice should be given to the persons specified in Rule 2.20(2). Contrary to the decision of Judge McCahill, the Chancellor decided that paragraph 28 applied to paragraph 26 generally and not just to paragraph 26(1).

[22]The Chancellor summarised the arguments of counsel in [59] and [60] of his judgment. The argument for counsel for the directors was summarised in this way: The obligation under paragraph 26(2) only arises if there are persons within paragraph 26(1)(a) or (b) on whom notice must be served. This view is supported by the use of the word “also” in paragraph 26(2) and the terms of paragraph 30 which indicate that paragraph 28 only applies where there is an obligation under paragraph 26(1). Counsel seems, therefore, to have accepted that an obligation under paragraph 26(2) would arise where there are persons within paragraph 26(1) who must be served; that is consistent with the approach of Judge McCahill and is, it seems to me, entirely correct. I return in more detail to this later

[23]The Chancellor rejected that argument for essentially the following reasons: i) He could see no reason why those enumerated in Rule 2.20(2) should receive notice if there is a floating charge where there is someone entitled to appoint an administrative receiver or administrator but not otherwise: prima facie, each of them is concerned whether or not there is a floating charge. ii) The use of the word “also” indicates an additional obligation. This is not dependent on the existence of an obligation under paragraph 26(1) as is shown by the use of the words “any requirement” in paragraph 28. The difference in treatment between the two classes turns on the provision of a notice period in paragraph 26(1). In contrast, in relation to paragraph 26(2) the relevant persons and any relevant time limit are to be prescribed by regulations, that is to say the Insolvency Rules. Although Rule 2.20(3) makes provision for how notices are to be served, it does not lay down any period for service which must therefore presumably be a reasonable period. iii) The contra-indications are the words in parentheses in paragraph 30 and the prescribed forms, Forms 2.8B, 2.9B and 2.10B. As to paragraph 30, the Chancellor took the view that the words in parenthesis reflected the draftsman’s understanding of what he had already provided but once persons were subsequently brought within paragraph 26(2), the draftsman’s understanding became incorrect. But that could not alter the plain meaning of the earlier provision. iv) So far as the Forms are concerned, Forms 2.8B and 2.9B apply where there is a person within paragraph 26(1). Form 2.10B applies where there is no such person. But there is no form for giving notice of intention to persons within Rule 2.20(2) where there is no person within paragraph 26(1); nor is there space on any of the Forms for recording the notices given to those persons. v) The Chancellor therefore perceived an inconsistency between the words in paragraphs 26 and 28 on the one hand and the parenthetical words in paragraph 30 with no form supporting either view. vi) He found himself unable to reconcile the inconsistency. He accordingly followed what he saw as the clear words of paragraphs 26 and 28.

[24]Although both Judge McCahill and the Chancellor referred to the prescribed Forms and to Rule 2.20(2), it is not entirely clear to me how either of those is relevant to the construction of Schedule B1. Schedule B1 was introduced by the Enterprise Act 2002 which received the Royal Assent on 7 November 2002. The major changes to the Insolvency Rules 1986 (including Rule 2.20 and the relevant Forms) which were needed in consequence were introduced by the Insolvency (Amendment) Rules 2003 which were made on 8 August 2003. I do not consider that the provisions of the amended Rules are relevant to the construction of Schedule B1, although they are, of course, highly relevant to what the draftsman of the amendments thought Schedule B1 meant.

[25]In any case, paragraph 23 iv) above needs to be read in the case of partnerships as referring to Forms 1A and 1B, which I have described at paragraphs 13 and 14 above where I draw attention to the fact that there is only one form of notice for an actual appointment. There are also these differences: first, paragraph 26(3)(b) requires the notice under paragraph 26 to be in Form 1A and is thus more prescriptive than paragraph 26(3)(b) as it applies to companies where it merely has to be in the prescribed form. And secondly, paragraph 29(5) requires the notice of appointment to be in Form 1B and is thus also more prescriptive than paragraph 29(5) as it applies to companies where again it merely has to be in the prescribed form and where different forms are prescribed for cases where a notice of intention to appoint has, or has not, been given.

[26]In the case of partnerships, there is, as I have already pointed out, only one form, Form 1B, for use in the case of an actual appointment and that Form appears to be designed for cases where notice of intention to appoint has not been given. But clearly, notice of an appointment must be given where notice of intention to appoint has been given: it would be absurd to construe paragraph 29, as it applies to partnerships, as requiring notice of appointment to be given where notice of an intention to appoint has not been given, but not to require it where notice of an intention to appoint has been given. Accordingly, either paragraph 29(5) – which apparently requires the use of Form 1B in all cases – must be read as applying only in cases where no notice of an intention to appoint has been given, or Form 1B must be used even where notice of an intention to appoint has been given – in which case the inaccurate description of the Form must be ignored or a form with that description deleted or corrected can still be described as Form 1B.

[27]Form 1A contains a rubric (set out at paragraph 14 above) describing the persons to whom the notice is given and Form 2.8B contains a similar rubric in the case of a company, those persons, being in each case the persons referred to in paragraph 26(1). In each case, it might be said that the Form is not entirely apposite where there are no persons within paragraph 26(1) to be served since, although that part of the Form could be left blank, there is no space in which to insert the names of the persons, if any, requiring to be served under paragraph 26(2). The Chancellor nonetheless saw the Forms with which he was concerned as supporting neither result.

[28]Where all of that goes is to show that the draftsman of various bits of the legislation, including the Forms, has not been entirely accurate on any view. That suggests to me that great caution should be used in relying on the Forms when reaching a conclusion about the meaning of the legislation even if were permissible to do so.

[29]In the light of what the Chancellor said in Minmar, I must revisit the decision in Hill v Stokes and address each of the reasons which Judge McCahill gave for his decision. As will be seen, I disagree with his decision and agree with that of the Chancellor. Judge McCahill said what he did as a matter of decision. It is not entirely clear whether what the Chancellor said was strictly obiter or whether it was an alternative ground of decision. If it was only obiter I ought, as a matter of judicial comity, to follow Judge McCahill, sitting as a judge of this Division, unless I am convinced that he was wrong. Perhaps, given the subsequent judgment of the Chancellor, it is a little easier for me to depart from Judge McCahill’s decision than would ordinarily be the case but I still have to be clear in my own mind that he was wrong. In contrast, if the conclusion of the Chancellor was an alternative ground for his decision, I should follow his as the later judge. It is not necessary for me to resolve that point since in my view the reasons given by Judge McCahill do not support it. In my judgment, he was clearly wrong to decide the way he did on the basis of those arguments alone. Whether his decision could be upheld for other reasons is another matter. However, since I am declining to follow his reasoning, I think that I should deal with each of his reasons in some detail which I am afraid adds to the length of this judgment considerably. I will take his reasons in turn. But before I do so, I wish to make the following point.

[30]It is that paragraph 26(2) is a wide power, wide enough, in my view, to allow the prescribing not only of the persons to whom notice must be given and the form of notice but also the circumstances in which such notice should be given. It would have been possible for the draftsman of the Insolvency Rule 1986 to have adopted either of the following rules: i) The persons identified in Rule 2.20(2) could have been expressly prescribed for the purposes of paragraph 26(2). At the same time, it could have been provided that notice of intention to appoint an administrator should be given to such persons, with a minimum period of notice of, say, one day being required. ii) The same persons could have been expressly prescribed but so that notice only needed to be given in a case where a notice under paragraph 26(2) also needed to be given.

[31]Accordingly, the real questions which arise in the present case are, in my view, whether Rule 2.20(2) prescribes the persons identified in paragraph 26(2) so as require notice to be given under paragraph 26(2) even if no notice of intention to appoint is required under paragraph 26(1); and, if so, whether the requirement under paragraph 26(2) is also a requirement for the purposes of paragraph 28.

[32]I come then to the Judge’s reasons. His first reason is set out in paragraph 19 i) above. He stated that “one could be forgiven for thinking” that the reason for notifying the persons he referred to (that is to say, persons specified in Rule 2.20(2)) was for information only in order to save them from stumbling innocently into an enforceable interim moratorium under paragraph 44. One might, I agree, be forgiven, but one might still be wrong. I agree that, if the Judge was saying no more than that this was one of the reasons for notifying the persons concerned, he may be right. But that cannot, I think, be what he had in mind. He was surely saying that the stark contrast was relevant and that its relevance was that the purpose of a notice was solely the provision of information, being information relevant to the interim moratorium. I quite accept that one consequence of the notice would be that which the Judge identified, but I do not begin to understand where, from the four corners of the legislation or other admissible material, he was able to derive that that was the purpose of paragraph 26(2): it is speculation if I may respectfully say so. The Judge, in any event, seems to accept that that may not be the only purpose or perhaps even a purpose at all when he said in [56] that “the purpose….may be to prevent them inadvertently interfering with the interim moratorium”. None of this is to say that this consequence is immaterial: if it were clear from other provisions that paragraph 28 is restricted to compliance with paragraphs 26(1) and 27, then the consequence could be relied on to show that paragraph 26(2) was not devoid of any commercial relevance.

[33]The Judge’s second reason is set out in paragraph 19 ii) above. It is to be noted that this reason is given as one for concluding that paragraph 28(1) is referring only to paragraph 26(1): it is not given as a reason for saying that paragraph 2.20(2) does not prescribe anything for the purposes of paragraph 26(2) or that the notice which it prescribes is one which only needs to be given where a notice is in fact given under paragraph 26(1). It is true that categories (a) and (b) are not absolute in the sense which the Judge describes. But categories (c) and (d) are absolute. If the Judge’s conclusion is correct, it follows that it is impossible, without primary legislation, ever to prescribe a person or notice under paragraph 26(2) having the consequence that non-compliance would lead to invalidity of any appointment. Thus, it would be possible to prescribe, for instance, the holder of a floating charge which is not a qualifying floating charge as a person for the purposes of paragraph 26(2) and the giving of an original notice of intention to appoint to that person as “such notice” for the purposes of that paragraph; and this could be done even where paragraph 26(1) did not apply. However, it would not be possible to impose the same sanction for non-compliance as automatically applies in relation to a person specified in paragraph 26(1) (ie invalidity of the appointment) because paragraph 28 would not apply and there is no other relevant provision to impose such a consequence. I can think of no reason why that should not possible (once the first reason given by the Judge is out of the way). Indeed I wonder what the purpose of prescribing a person for the purposes of paragraph 26(2) would be if paragraph 28 were not to apply. Such prescribing would not appear to have any consequences.

[34]I do not fully understand what the Judge meant when he said that possibility of there being an enforcement or distraint without an obligation to give a notice arising (ie where the appointor does not know about it) is “inconsistent with a strict construction of an obligation to notify the prescribed people” so as to render an appointment invalid. The strictness of construction is not about the obligation to notify, which arises under paragraph 26(2), but about the consequence which arises under paragraph 28. If some practical problem arises as a result of Rule 2.20(2)(a) and (b), it is not because of a strictness of construction of paragraphs 26 and 28, but rather because of an inappropriate prescription of the circumstances in which the notice is required to be given.

[35]In any case, the Judge’s objection seems to be based on the consequence of non-compliance being disproportionate. But here the remedy lies in the appointor’s own hands; if Miss Kyriakides is correct in her submissions on the construction of paragraphs 26 and 28 and Rule 2.20(2), the appointor has simply to comply with Rule 2.20(2) whether in cases where paragraph 26(1) applies or where it does not apply. It has not been suggested to me that the decision in Minmar has caused any problem in relation to appointments made after the Chancellor’s decision had become widely known: the problem is for the past, as in the present case, and is a problem which arises because of an incorrect understanding that there was no requirement to serve a notice and not because of the draconian consequences of a perhaps unavoidable failure to give a notice.

[36]I have to conclude that I see very little force indeed in the Judge’s second reason.

[37]His third reason is set out in paragraph 19 iii) above: I am, of course, dealing with a case where a slightly differently worded paragraph 26 applies and where different Forms are appropriate. But nothing turns on that since I would not, unless compelled to do so, ascribe a different meaning to paragraph 28 in the context of a partnership from its meaning in the context of a company. I am not compelled to do so and thus I cannot distinguish the Judge’s reasoning on this point. His reason, as stated, is that the obligation to give notice to the prescribed person is an obligation to give a copy of the notice of intention to appoint.

[38]In that context, he found it interesting to look at Form 2.8B. I have already expressed the view that the prescribed Forms for companies, and indeed the terms of Rule 2.20(2) also, are not relevant to the construction of Schedule B1. But assuming their relevance, the Judge’s point is that Form 2.8B refers only to the persons specified in paragraph 26(1) and there is no space for insertion of the name of any prescribed person. This aspect of Form 2.8B was noted by the Chancellor, who also referred to Forms 2.9B and 2.10B which deal with the notice of appointment in the two different situations (ie where notice of intention to appoint is and is not required). The Chancellor found the Forms to support neither view. However, the Judge, using again the same phrase as earlier in his judgment, said that “one might be forgiven for thinking” that the notice was only to be given to persons within paragraph 26(1). I would, of course, agree that the Form is apposite for such cases; but it is an enormous leap from that to say that this provides a reason for construing paragraph 28 as referring only to paragraph 26(1).

[39]It is, in my judgment, an inadmissible leap. Rule 20.2(2) clearly applies on any view where a notice does have to be given under paragraph 26(1). In that situation, the requirement that a copy of the notice be given to the persons identified in Rule 2.20(2) would be satisfied by using the notice without any reference in it to those persons. The Form itself therefore provides no basis for saying that the persons specified in Rule 2.20(2) are not persons who are prescribed in those circumstances for the purposes of paragraph 26(2). The only question then is whether paragraph 28 is engaged by paragraph 26(2); the absence of a reference in the Form to the persons identified in Rule 2.20(2) has, in my judgment, no impact at all on the answer to that question.

[40]The Judge’s fourth reason is set out in paragraph 19 iv) above. He had previously said in [56] that the purpose of serving a notice on categories (a) and (b) related to the interim moratorium so that, I suppose it is right to infer, it would not be appropriate to impose the serious sanction applicable under paragraph 28 for non-compliance. I have dealt with and rejected this approach to purpose in paragraph 32 above. In any case, the Judge acknowledged that his analysis did not really apply to categories (c) and (d) – the company and a supervisor of a voluntary arrangement. He dismissed concerns about the company on the footing that it would be surprising of the court were constrained to find the appointment was rendered invalid by failure to serve on the company itself. But he said nothing at all about the supervisor and did not explain why it would be inappropriate to visit the consequence of invalidity where there is a failure to notify a supervisor. His fourth reason, in the light of that, was that Rule 20.2 did not readily lend itself to distinctions between the effect of non-service of the four categories of person. He considered that it ought to be possible to identify a unifying theme applicable to all of them. Given my rejection of his approach to categories (a) and (b) and the fact that he did not deal with category (d) at all, and given my own view that it would not be at all surprising to find that the failure to give of notice to the company resulted in invalidity of the appointment, I do not feel any difficulty in rejecting the Judge’s fourth reason.

[41]The Judge’s fifth reason is set out in paragraph 19 v) above. As the Chancellor noted, there is an inconsistency between the parenthetical words in paragraph 30(1) and the effect of paragraphs 26 and 28 if paragraph 28 is to be taken as referring to the whole of paragraph 26 rather than just to paragraph 26(1). It is a short point of construction. I do not know how Judge McCahill would have treated this point if it had stood alone rather than as one of the seven reasons which he gave. The conflict has to be resolved one way or the other. Were I coming to this matter without the benefit of either judgment, I would reach the same conclusion as the Chancellor. The wording of paragraph 26 and 28, taken by themselves, is I consider clear; that clear meaning should not, I think, be affected by the parenthetical words in paragraph 30. I reach that conclusion for the reasons given by the Chancellor. I am also influenced in reaching this conclusion by the following point which I have already identified in paragraph 33 above. If the Judge’s conclusion is correct, it follows that it is impossible, without primary legislation, ever to bring about a situation(i) where there is an obligation to give an original notice of intention to appoint to an identified person (not already to be given notice under paragraph 26(1)) and at the same time

(ii) where a failure to give that notice is to have the consequence that any subsequent appointment is invalid. This is not something which Judge McCahill considered; had he done so, he might well have reached a different conclusion.

[42]The Judge’s sixth and seventh reasons are set out at paragraphs 19 vi) and vii) above and can be taken together. The sixth reason is really directed at the desirability of flexibility. There is, he said, no compelling reason for construing the obligation of paragraph 26(2) as mandatory. In support of the suggestion that the court should retain a desirable degree of flexibility, he referred to Form 2.9B which he saw as instructive. He referred to paragraph 8 of that Form which refers to the appointor having given notice under paragraph 26(1) and where either 5 business days have elapsed or each person to whom notice was sent has consented to the appointment. That paragraph, however, does no more than reflect paragraphs 28(1)(a) and (b) and does not give rise to any argument which could not be raised in relation to paragraph 28 itself.

[43]In any case, as the Judge himself described matters, the necessary flexibility which he considered desirable was to enable the court to correct minor defects in form rather than substantial defects of substance. Thus the use of the word “must” in various provisions had been taken as directory rather than mandatory. But the wording in the present case leaves no room for that approach. Paragraph 28 is quite clear in saying that an appointment may not be made unless the requirements referred to in paragraph 26) have been satisfied. The question is what, as a matter of construction, those requirements are; and that is not, I consider, a matter which can properly be decided by reference to what the court might see as a “desirable flexibility”. For the same reason, I do not consider that there is anything at all in the seventh point.

[44]Those are my reasons for disagreeing with the reasons of Judge McCahill. That is not an end of the matter, however, because Miss Williamson made some further submissions with which I need to deal.

[45]But first, there was a point made by Judge McCahill in relation to the opening words of Rule 20(2) which I would like to deal with at this stage. I am not sure whether Miss Williamson relies on what he said but I deal with it anyway. After referring to those opening words (“A copy of the notice….. must in addition to the persons specified in paragraph 26 be given to….”) the Judge pointed out, perfectly correctly, that the only category of persons specified in paragraph 26 before the act of prescribing are those within paragraph 26(1). He saw this as providing an example of the draftsman using paragraph 26 when he must mean paragraph 26(1). It is true that the draftsman could have been more precise, but what he said in Rule 2.20(2) was not wrong. Even if a person who is prescribed for the purposes of paragraph 26(2) thereby becomes a person specified in paragraph 26 (which I do not consider is clear) it is the case that the reference in Rule 2.20(2) can only apply to persons who are, apart from the Rule itself, within paragraph 26 already. Judge McCahill uses this laxity, to use his word, to support the view that the reference in paragraph 28(1) to paragraph 26 can also be taken as a reference to paragraph 26(1). But the contexts are entirely different. In the case of Rule 2.20(2), it makes no difference to the effect of the Rule to replace “26” with “26(1)” whereas in paragraph 28(1) it makes a great deal of difference. I derive no assistance from this point.

[46]Miss Williamson submits that Rule 2.20(2) is not a prescribing provision at all so that the persons mentioned in that Rule are not within paragraph 26(2). Judge McCahill rejected, at [41], a similar submission which was made to him. It is not possible to elaborate much other than to point out that the Insolvency Rules 1986 (and amendments) were made under the powers conferred by sections 411 and 412 of the Insolvency Act 1986. Under sections 251 and 384 of that Act, “prescribed” means prescribed by rules which in turn are rules made pursuant to section s 411 and 412, that is to say the Insolvency Rules. Rule 2.20(2) can therefore be seen prescribing persons and purposes for the purposes of paragraph 26, although the extent of that prescription is something I will have to say more about.

[47]Indeed, unless Rule 2.20(2) is seen as engaging paragraph 26, it is not easy to see what power there is to require service of a notice of intention on anyone. Although provisions about the giving of notices generally, their form, the manner of serving the persons to whom any notice is to be given can be included in the Rules pursuant to paragraphs 3, 4 and 5 of Schedule 8 to the Insolvency Act 1986, those provisions do not, I think, authorise the imposition of a requirement to serve a document on a person when the enabling legislation itself states who is to be served either directly, as in paragraph 26(1), or indirectly as in paragraph 26(2) through the mechanism of a statutory instrument. Accordingly if Rule 2.20(2) does not prescribe persons for the purpose of paragraph 26(2), there is no obligation to give notice, and an obligation cannot be created by the Rules.

[48]One gets little guidance from other parts of Rule 2.20, for within that Rule one finds different powers being exercised. On the one hand, Rule 2.20(1) is clearly prescribing a Form pursuant to paragraph 26(3); on the other hand, Rule 2.20(3) is clearly utilising the powers found in paragraph 4 of Schedule 8. In my judgment, Rule 20.2(2) is a prescribing provision; it prescribes both persons and notices for the purposes of paragraph 26(2). It may also be, or at last be purporting to be, exercising some other rule-making power to impose an obligation on a person to give notice to another of some matter. But even if there is such a power, that does not detract from the conclusion that the Rule is prescribing matters for the purposes of paragraph 26. That was the conclusion of Judge McCahill and it is implicit in the reasoning of the Chancellor. I agree with them. The extent to which Rule 2.20(2) prescribes what notices have to be given and when they have to be given is, unfortunately, less than clear.

[49]Let me start with the case where paragraph 26(1) does apply. In that case, the notice required by paragraph 26(1) has to be in the form prescribed under paragraph 26(3). Rule 2.20(1) clearly prescribes Form 2.8B for that purpose. Rule 2.20(2) then provides that a copy of the notice must be given to the listed persons. It is this sub-Rule which prescribes the listed persons for the purpose of paragraph 26(2) with the result that a notice has to be given under paragraph 26(2).

[50]What is the form of notice which is then required under paragraph 26(2)? Clearly it is Form 2.8B, the same form as was required in relation to the notice under paragraph 26(1); and that is so either because the notice is within the ambit of “The notice of intention to appoint” in Rule 2.20(1) or because the effect of Rule 2.20(2) is to prescribe the same form. In this context, it is to be noted that Rule 2.20(2) refers to a copy of the notice being given not only to the listed persons but “in addition to the persons specified in paragraph 26”. Thus, what is seen as being given even to the persons specified in paragraph 26(1) is a copy of the notice. There are therefore to be as many pieces of paper in the same form as there are persons to whom notice must be given. Each piece of paper is both a “copy” of the notice of intention to appoint for the purposes of Rule 2.20(2) and a notice in the prescribed form for the purposes of paragraph 26(1) and (2). I think it is right to see all of these notices as within Rule 2.20(2): each of them when given is a “notice of intention to appoint” and the role of Rule 2.20(1) is, it seems to me, to prescribe Form 2.8B in relation to all of them. That is why Rule 2.20(1) refers to paragraph 26 and not just paragraph 26(1) thereby reflecting the provisions of paragraph 26(3).

[51]Subject to Miss Williamson’s further arguments which I deal with below, I do not see the position as being any different, so far as concerns paragraph 26(2), in the situation where paragraph 26(1) does not apply. Even in this situation, I see Rule 2.20(2) as prescribing the listed persons for the purposes of paragraph 26(2). Clearly the appointor has an intention to appoint and, were it not for the presence of the words “in addition to….” it would be clear, in my view, that Rule 2.20(2) was prescribing the listed persons for the purposes of paragraph 26(2). Those added words do not, in my judgement, mean that the giving of notice to the listed persons is required only where there are persons who have to be given notice under paragraph 26(1). Rather, it is simply being said that not only does notice have to be given to the persons specified in paragraph 26(1) where applicable, but also notice has to be given to the persons listed in Rule 2.20(2). The notice for the purposes of paragraph 26(2) then has to be in Form 2.8B for the same reasons as when paragraph 26(1) does apply.

[52]Miss Williamson submits that it is wrong to see Rule 20.2(2) as prescribing the persons listed for the purposes of receiving notice of intention, and asks why they need to be given notice at all. Categories (a) to (c) would not be entitled to appoint an administrator so it is not clear why they need advance warning. And in a case where it is not the company or partnership itself which is intending to make the appointment, it is not clear why the company or partnership needs advance notice that someone else is intending to appoint. But this argument proves too much. It is quite clear that some sort of notice has to be given under Rule 2.20(2) where paragraph 26(1) does apply, even if the listed persons are not prescribed for the purposes of paragraph 26(2). So her question still remains.

[53]There is more in another point which she makes. Where paragraph 26(1) applies, an interim moratorium will be imposed under paragraph 44(4) once the notice of intention is filed under paragraph 27(1). It makes sense, she says, to give notice to the listed persons since they will be affected by the interim moratorium. True, no doubt, but so might many other creditors be affected, not least the holder of a floating charge in the case of a company which is not a qualifying floating charge. But such a person is not included in the list in Rule 2.20(2). In any case, I agree with the Chancellor when he says that the persons listed in Rule 2.20(2) will be concerned with an impending administration whether or not there is a qualifying floating charge in existence. Indeed, the present case shows that notice to a supervisor might have real practical consequences since, had he been told of the impending appointment, he might well have informed the Bank which could have launched its administration application before the appointment of Mr Craig was made.

[54]Miss Williamson next submits that the inclusion of an enforcement officer and a distrainer within the class of persons who must be given notice could lead to uncertainty because Rule 2.20(2) only requires notice if the person giving the notice has the requisite knowledge specified in each of paragraphs (a) and (b). But that point, it seems to me, goes nowhere: it is a point which applies just as much where there is a person within paragraph 26(1) as where there is not. So, unless it can be said that Rule 20.2(2) never engages paragraph 26(2), it does not assist Miss Williamson. I have already rejected the submission that Rule 2.20(2) is not a prescribing provision. Accordingly, I reject any argument based on uncertainty in respect of knowledge.

[55]Miss Williamson draws my attention to the corresponding provisions in relation to an administration application and the contrast which is to be drawn. In Rule 2.20(2), there is no distinction drawn between the four categories of person identified. However, in relation to those categories in the context of an administration application, a distinction is made between different categories as is seen in Rules 2.6 and 2.7. Rule 2.6(3) is similarly worded to Rule 2.20(2). It requires the application to be served on various persons including a supervisor under an IVA and on the company (if it not the applicant), the same categories as (c) and (d) under Rule 2.20(2). But categories (a) and (b) under Rule 2.20(2) are dealt with separately under Rule 2.7 which only requires notice of the application to be given as soon as reasonably practicable after filing the notice.

[56]I do not see this contrast as assisting Miss Williamson’s case at all. Indeed, the relevant provisions – paragraph 12(2) of Schedule B1 and Rules 2.6 and 2.7 – seem to me to assist the Bank if anyone. But caution must be used in drawing parallels at all. There is no equivalent in an administration application to the provisions of paragraph 28 designed to ensure that the necessary notices are given before an appointment can be validly made. In contrast, the purpose of paragraph 12 of Schedule B1 and Rule 2.6 is to ensure that relevant persons know of the proceedings and are able to attend any hearing. It is interesting to note that, unsurprisingly, a supervisor and the company itself are to be served rather than merely notified. They are to be treated, so far as notification by way of service is concerned, in precisely the same way as the persons specified in paragraphs 12(2)(a) to (c). The introductory words of Rule 2.6 are very similar to those of Rule 2.20(2). There is thus a precise parallel between paragraph 12(2) read with Rule 2.6 and paragraph 26 read with Rule 20.2(2).

[57]It is impossible, in my view, sensibly to suggest that Rule 2.6(3) should be construed in such a way that there is no obligation to serve the persons identified in that paragraph unless there are persons to be served within paragraph 12(2)(a) to (c). The result would be absurd. But this means that the words “in addition” in Rule 2.6(3) cannot carry the weight which Miss Williamson says they should carry (together of course with her argument about service of a copy) in Rule 2.20(2); and the fact that they cannot do so suggest that she is wrong about Rule 2.20(2) itself. The fact that Rule 2.6(3) can only properly be construed as requiring service of the application even where there is no person to be served under paragraph 12(2) supports the view that the similar wording of Rule 2.20(2) requires service of notice of intention to appoint even where there is no person to be served under paragraph 26(1).

[58]Miss Williams has a point concerning the time limits for service of notice of intention to appoint. As the Chancellor pointed out, no time limit is prescribed in the Rules or elsewhere. He concluded that notice must therefore be given within a reasonable time. Miss Williamson submits that this will lead to difficulties and uncertainties. In particular, if a notice is given which is too short, it will be an ineffective notice so that paragraph 28(1) will not be complied with and any subsequent appointment will be invalid. Further, she says that a requirement to give notice to the persons identified, with a corresponding delay in the appointment of an administrator while the notice period runs, would appear to undermine the legislative intention in introducing the out of court appointment process, namely to provide a swift and straightforward mechanism for putting an insolvent entity into administration.

[59]This point about time limits is not, I think, a concern where notice has to be given under paragraph 26(1). What is reasonable has to be assessed in the context of the statutory scheme which envisages a tight timetable. Thus, in a case where paragraph 26(1) applies, Rule 27(1) requires a copy of the notice of intention to appoint to be filed as soon as reasonably practicable, and any actual appointment must, under Rule 28(2), be made within 10 days of the date of filing. If one assumes that notice ought ordinarily to be filed on the day on which it is given or perhaps the day after, the appointment has to be made within 10 or 11 days of the giving of the notice of intention. An appointment will not, therefore, ordinarily be capable of being made less than 5 days or more than 11 days after the notice of intention to appoint is given under paragraph 26(1). If Rule 2.20(2) is to work, the reasonable period under that Rule cannot be longer than 10 days and ordinarily, I suggest, it would be reasonable if it provided for the same period as the notice of intention under paragraph 26(1) (assuming that the reasonable time, for the purposes of Rule 2.20(2) is somewhere between 5 days (there is no reason to give a shorter period than under paragraph 26(1)) and 10 or 11 days (for it to be possible to appoint at all). If that is the reasonable time when a notice under paragraph 26(1) is required, I see no reason to think that the same time would not be reasonable where such a notice is not required.

[60]Where notice under paragraph 26(1) is not needed, it is true that the imposition of a reasonable time limit for notice could delay the appointment. The need to give notice to the company or partnership would not normally present a problem since the directors could always accept a very short time indeed as reasonable. It will only be in a minority of cases that there will be persons who need to be given notice under Rule 2.20(2) so I do not see a requirement to give them notice as undermining the general legislative intent of providing a swift implementation of an administration. Further, even in those cases, the requirement to pause for a reasonable time before putting the company into administration is hardly incompatible with that statutory objective. If matters are really very urgent indeed, an emergency application can be made to the court for the appointment of an administrator.

[61]I do not consider, therefore, that any of Miss Williamson’s arguments cause me to depart from the view that Rule 2.20(2) applies even where there is no need to give a notice of intention under paragraph 26(1). Accordingly, the persons listed in Rule 2.20(2) are prescribed for the purposes of paragraph 26(2) even where no notice needs to be given under paragraph 26(1).

[62]In concurrence with the reasoning of the Chancellor, it is then right to follow the clear words of paragraphs 26 and 28 so that the latter is not to be read down as referring only to paragraph 26(1). For reasons which I have given, I do not consider that the reasons which Judge McCahill had for reaching the contrary conclusion are enough to support it. I decline to follow his decision.

The administration application

[63]In the light of that decision, the second application before me is for an administration order in respect of the Partnership and the appointment of the Bank’s Nominees as joint administrators.

[64]But, as with a company, the court can only make an administration order only if it satisfied that the partnership is or is likely to become unable to pay its debts. For the purposes of Schedule B1 as it applies to partnerships, the meaning of “unable to pay its debts” is found in the modified paragraph 111 and has the meaning given by sections 222, 223 and 224. Sections 222 and 223 have also been modified in respect of partnerships, so that references to those sections in the definition in paragraph 111 is a reference those sections as modified. The modified section 223 is not relevant on the facts of the present case. The modified section 222 is not applicable, so far as I am aware, since there has been no statutory demand in the prescribed form. One is left, therefore, with the unmodified section 224 which deems the partnership to be unable to pay it debts in a variety of circumstances, including the following: i) If it is proved to the satisfaction of the court that the partnership is unable to pay its debts as they fall due. ii) If it is proved to the satisfaction of the court that the value of the partnership’s assets is less than the amount of its liabilities, taking account of its contingent and prospective liabilities.

[65]Miss Williamson resists the appointment of the Bank’s Nominees. She says that Mr Craig is the preferable appointee and that his appointment should be confirmed by making a retrospective order of the type made in Cyril Adjei v Law For All

[2011] EWHC (Ch) 2672

The facts

[66]The following are my findings of fact nearly all of which are common ground.

[67]The Partnership is a firm whose members are Mr and Mrs Keet. It is the owner of a number of care homes for the elderly or housing for vulnerable adults. It also owns the equipment used in the care homes. The Partnership receives the rental income from the properties and payment for the use of the equipment from the operating companies. The running of the care homes and the provision of domiciliary services is carried on mainly by separate operating companies licensed by the Care Quality Commission to operate the homes. Some of the relevant CQC registrations are held by Leystan Ltd (“Leystan”), a company which is owned by the Partnership and others are held by Cornwald Ltd (“Cornwald”), a company owned by Mrs Keet. Contracts for provision of care and services are with relevant local authorities. The Partnership also owns Msaada Ltd (“Msaada”) which in turn owns some further properties. Mrs Keet owns Msaada Holding Company Ltd (“Holdings”). Until recently, the Partnership employed all of the staff within the group; that has changed as I will explain in a moment.

[68]The Bank has provided a number of facilities (“the Facilities”) to the Partnership and to Msaada Holdings and Cornwald. The Facilities are secured in whole or in part by debentures over the assets and undertakings of those companies, by legal charges over a number of properties owned by the Partnership, Msaada and Cornwald and by certain guarantees.

[69]There has been default under the Facilities following a demand made by the Bank on 23 September 2011. It is common ground that the Partnership is insolvent on a cash-flow basis, that is to say that it is unable to pay its debts as they fall due. I am satisfied on the evidence which I have been taken to that that common ground is correct. Accordingly the partnership is unable to pay its debts for the purposes of Schedule B1 as applied to partnerships.

[70]On 30 July 2010, KMPG were engaged by the Partnership and the Bank to advise on the financial position and future strategy of the Partnership and its associated companies, Msaada, Leystan, Holding and Cornwald (together “the Group”). This engagement was varied in March and August 2011 first to enable KPMG to review updated management accounts and revised forecasts and later to consider the refinancing and sale options for the Group.

[71]The Partnership entered into a Partnership Voluntary Arrangement (“PVA”) on 30 September 2010 under which it undertook to pay monthly instalments. The purpose of the PVA was to give the Partnership time to restructure its business and re-finance its debt to the Bank. The Bank, as a secured creditor, was not a party to the PVA. By June 2011, Mr and Mrs Keet had both entered into Individual Voluntary Arrangements.

[72]Various offers have been made to the Bank: i) In October 2010, Mr and Mrs Keet made an offer of £5 million to purchase the Bank’s debt in the Group but this was rejected for lack of proof of funding. ii) On 8 July 2011 they made an offer of £3 million to purchase the Bank’s debt which was, as before, rejected for lack of proof of funding. iii) Then, in August 2011, they made an offer of £3.1 million. This offer was rejected on the basis that the shortfall on its lending would exceed the amount of the shortfall were the Group put into administration. iv) On 19 September 2011, Mr Pettit, one of the joint supervisors under the PVA, informed the Bank and KPMG that there were two potential investors interested in buying the business of the Group. Their identities were not disclosed. v) On 27 September 2011, Mr and Mrs Keet made an offer of £4.1 million to purchase the Bank’s debt. This offer was rejected because the Bank did not believe that Mr and Mrs Keet could meet the drawdown requirements of the new lenders.

[73]In the meantime, Ms Ellerington of KPMG met with Mrs Keet on 15 September 2011 and advised her of the Bank’s intention to seek an administration order. Three days later, Mrs Keet emailed Ms Ellerington, informing her that any administration application would be opposed, but she did not give reasons for that.

[74]Then, on 23 September 2011, the Bank made formal demand in the sum of just over £4.85 million on the Partnership and Group companies under the Facilities. This figure did not include demand for payment under a SWAP agreement in the sum of £885,000 as there was not, at that time, any event of default.

[75]Following that, drafts of the administration application and supporting evidence were served personally on the Partnership and on Mr Pettit on the same day, 23 September 2011. The Bank clearly did not want to take Mr and Mrs Keet by surprise and so served the proceedings in draft but held off actually commencing the application until the day it was to be heard in order to avoid certain concerns identified in Mr Philpott’s first witness statement.

[76]One of those concerns related to certain accounts with Barclays Bank PLC. The Bank had ceased financing the current day to day operations of the Partnership and the Group, including payment of employees’ wages, a role which was being carried out by Barclays Bank PLC. It was into Barclays accounts that trade receipts were being paid. The Bank’s Nominees were concerned that, once the application was issued and noted on the court records, Barclays might freeze the accounts and payments such as wages might not be made between the date of the application and the hearing of the application. That might lead to a breakdown in trade and erode the value of the Partnership.

[77]Another concern was that key employees of the Partnership and Group might leave during the 5 business days notice period under Rule 2.8(1) again having an adverse effect on the value of the Partnership assets.

[78]On 23 September 2011, Mrs Keet was informed by the Bank that it was likely that its agents would be attending court on 29 September 2011. Further, the rejection of the offer on 27 September 2011, referred to above, informed Mrs Keet that the Bank intended to continue with its existing strategy of appointing administrators over the Group. Mrs Keet can have had no doubt about the Bank’s intentions.

[79]Counsel and solicitor for the Bank duly attended court on 29 September 2011 to make the administration application. However, at just after 9.00 am, Mrs Keet emailed Mr Summersgill of the Bank with an offer to purchase a number of the Group properties for £5 million, to be financed by an entity called Soho Corporate. As a result, the administration application was removed from the List in order to give time for the offer to be considered. Soho Corporate’s offer of finance was made to a company called then Ariel Care Ld and now called Psalmist Group UK Ltd (“PGUK”) on the terms of a facility letter dated 28 September 2011. That offer was subject to a valuation of the properties being obtained confirming that the portfolio was worth between £6.7 million and £7.6 million. The Bank, in a letter dated 30 September 2011, agreed to allow Mr and Mrs Keet and Soho Corporate 7 – 10 days to produce that valuation. In that letter, the Bank warned Mr and Mrs Keet that if the valuation produced a figure of less than £7.1 million or if they were unable to draw down an amount less than £5 million from Soho Corporate, then the administration application would be immediately relisted.

[80]The Bank and KPMG chased the Keets and Soho Corporate but no valuation was produced. On 24 October 2011, Mr Bridgewater of KPMG asked Mrs Keet when Soho Corporate would be responding and was told that she would chase the matter up that day and revert back. She never did in spite of further chasing from Mr Bridgewater.

[81]In the meantime, on 18 October 2011, the contracts of employment of employees previously employed by the Partnership were transferred to PGUK. This is a company owned by Mrs Keet. The Bank has no security over its shares or its property.

[82]On 28 October 2011, Mr Webb of the Bank sent an email to Mrs Keet in which he informed her that, in the absence of further information about funding, the Bank intended to attend court on 2 November 2011 to obtain an administration order.

[83]What happened next came as a surprise to the Bank. On the same day, 28 October 2011, without any prior notification to anyone, including the supervisor of the PVA, Mr and Mrs Keet made the Appointment appointing Mr Craig as administrator. On the basis of the evidence available at the hearing, it appeared that Mr Craig was only approached for the first time on behalf of the Partnership (by a Mr David Coutts) at 5.30 pm on 27 October 2011. Miss Williamson said on instructions that that was incorrect and that the approach was the day before. Even accepting that that was so, the Bank, was entitled, on the basis of the evidence, to think the approach was made on 27 October 2011 and that is the basis on which I proceed whatever the actual position may be. Notice of the Appointment was filed on 28 October 2011 at 12.45 pm only a few hours after the warning from the Bank that it was relisting the administration application. This was a remarkably short time for Mr Craig to familiarise himself sufficiently with the case to be able to accept office. Indeed, there was only a short time even if Mr Craig was first approached the day before. On 31 October 2011, Turner Parkinson, Mr and Mrs Keet’s solicitors, served a sealed notice of appointment on Mr Pettit presumably pursuant to paragraph 32.

[84]Mr Pettit replied on the same day asserting that the Appointment was invalid as it was in breach of paragraphs 26(2) and 12(5). I do not see what relevance paragraph 12(5) has; perhaps it is a reference to the wrong provision but I am unable to see what that might be. On 2 November 2011, the Bank made an urgent application for a declaration that the Appointment was invalid. The matter of was adjourned and has now come on before me.

[85]To complete the picture, the PVA came to an end on 21 November 2011, the supervisor having taken the view that the purposes of the PVA could not be achieved.

Discussion

[86]It is apparent from Mr Philpott’s evidence that an administration over the Partnership as originally envisaged was intended to result in a sale of the assets of the Partnership and the Group so that the acquirer would obtain a going concern. This is not to say that the objective under paragraph 3 was rescuing the Partnership itself as a going concern; rather the objective is more readily seen as within paragraph 3(1)(b), that is to say the objective of achieving a better result for the Partnership’s creditors as a whole than would be likely if the Partnership were wound up (without first being in administration).

[87]The strategy which the Bank had been intending to adopt once administrators were appointed was to appoint the Bank’s Nominees as administrators over the group companies over which it held security and to appoint receivers over properties owned by Mr Keet or Mrs Keet with a view to selling the business and assets of the business on a going concern basis; this was perceived as the way to maximise the realisation for the benefit of all creditors in the Group. This strategy was to be adopted because the Partnership did not hold the CQC authorisations or the care contracts with local authorities; instead, it owned the properties from which the care homes traded and at which domiciliary care was provided, as well as being the employer of staff. If I can put it this way, the value of the Group lay in the entirety of the business but the Partnership did not own that entirety. It was nonetheless in the interests of all creditors that the full value of the entirety should be realised.

[88]That strategy was blown off course as a result of Mr and Mrs Keet transferring the employees to PGUK on 18 October 2011. The Bank suspects that this transfer was carried out as a means to thwart the Bank; after all, the Appointment was made when the Bank had given Mr and Mrs Keet time, yet another opportunity it might be said, to arrange financing with Soho Corporate. They went behind the Bank’s back, not even telling the joint supervisors what they were about to do. In contrast, Miss Williamson submits that there were perfectly valid reasons for doing so. Those reasons were not in evidence. Essentially, Miss Williamson, asserted on instruction, that when the demand for payment was made by the Bank, the Partnership accounts were frozen. PGUK paid the employees and it was considered appropriate to transfer the contracts of employment to the payer. I am far from convinced by that as an explanation. But it is, in any case, based on an incorrect premise, for there is no evidence that the bank accounts were ever frozen. Indeed, it appears from Mr Philpott’s witness statement made on 22 September 2011 (and thus well before the transfer of employees) that the day to day operation was being carried out through accounts with Barclays and the Bank had no day to day role. I do not think that anything turns on this in the end and need say little more about it.

[89]Clearly, the continuance of the contracts with local authorities and the continuance of the CQC registration are central to any successful continuation of the business. The view of the Bank’s Nominees is that the employees will not “walk” but would be willing to continue working in the business under new ownership; they would not want to leave those for whom they provide care in the lurch. The Bank’s Nominees have approached an Agency which thinks it could provide staff to run the homes. They have approached the local authorities and do not consider that the CQC registration would be withdrawn. Miss Kyriakides says that there is no evidence to support the stated view of Mr and Mrs Keet that the Bank’s strategy runs the risk of losing local authority contracts and CQC registrations before a purchaser is found. KPMG have considerable experience of other administrations involving care homes. Their strategy would be to talk to the relevant authorities while finding a purchaser and consider that they would be able to keep the business going. There is some common sense in that view: it would not be in the interests of the local authority to force the homes to close but would be far better to leave the residents where they are.

[90]The Bank clearly has no confidence in Mr Craig; it has enormous confidence in the Bank’s Nominees. Miss Kyriakides submits, with justification on the basis of the evidence which it had and which was before me, that the Bank has good reason not to have any confidence in him. These reasons will be apparent from what I say below. But to highlight the most important reason, he appears, proceeding as I do on that footing that he was approached only on 27 October 2011, to have been willing to accept appointment with only 18 hours between his first instruction and his actual appointment, most of that overnight, and, so far as the evidence before me revealed, to have made inadequate investigations to satisfy himself that the objective which he seeks to achieve – rescuing the Partnership as a going concern – is achievable. The Bank’s reasonable lack of confidence can only be reinforced by the fact that Mr Craig has been fined on two occasions for failing to carry out sufficient investigations as nominee of two proposed CVAs to satisfy himself that they had a reasonable prospect of being approved as implemented. Now, there are things which can be said in mitigation about that, and Miss Williamson did so. These occasions were in any case several years ago and should not carry any significant weight. But given that the area of misconduct was precisely the area of concern in the present case, the Bank is entitled to feel an element of discomfort.

[91]Miss Williamson reminds me of the hierarchy within the statutory purpose found in paragraph 3. An administrator should perform his functions with the objective of rescuing the partnership as a going concern and should only focus on the second objective if he thinks the first objective cannot be achieved or if the second objective would achieve a better result for the creditors as a whole. She says that Mr Craig’s approach is to seek refinancing and thus to act with the objective of rescuing the Partnership as a going concern; whereas the Bank’s Nominees’ approach is to realise the assets of the Partnership in conjunction with the Group companies or their assets, so as to place a going concern in the hands of a purchaser but not rescuing the Partnership. That is all very well in theory, but it only holds water if there is a realistic prospect of achieving refinancing. History does not suggest that that is likely; Mr Craig produced no proposals for refinancing at the time of his appointment; nor did he do so when preparing evidence for this hearing. There was nothing in the evidence before me to suggest that he, rather than Mr and Mrs Keet, is actively seeking out refinancing. If such refinancing were to be found, no doubt the landscape would change. But that would be so even if the Bank’s Nominees were in office: they would, if a real prospect of refinancing were produced, have to consider it and decide whether their objective should change to rescuing the partnership as a going concern.

[92]Miss Williamson also suggests that the Bank’s Nominees have misunderstood in a fundamental way the functions of an administrator of the Partnership. This is because Mr Philpott refers, in his first witness statement, to the administrator being able “to achieve a sale of the Partnership as a going concern”. I do not agree with that criticism: Mr Philpott uses that language to describe exactly the approach which I have just described as can be seen by reference the report which he and his proposed co-administrator had prepared. In any case, he does not refer to the rescue of the Partnership but to its sale as a going concern. I do not see this as an inapposite description of what he was proposing: clearly one cannot sell a partnership in the way that one can sell a company.

[93]Further, I do not see the hierarchical structure of paragraph 3 as dictating who is to be appointed as administrator. If there are two potential administrators, A and B, one of whom, A, considers that the company can be rescued as a going concern and the other of whom, B, does not (or, if he does, he nonetheless considers that a far better return will made by pursuing the second objective), the court does not have to appoint A just because he will pursue the first objective although that will be a factor to be brought into account. The court has to make an assessment of which of them to follow and if takes the view that the approach of A is wildly optimistic or that of B wildly pessimistic, that must be taken account of; it is all part of the balancing exercise in choosing one administrator rather than another.

[94]Mr Craig’s approach to this administration appears, from what I have seen, to follow what Mr and Mrs Keet would like to see happen which is to refinance the business and retain the current ownership. That seems to me to be an optimistic outcome given the inability to refinance over a considerable period to date. He appears to have no fall-back plan: none, at least, is articulated in the evidence. There is no administration strategy at all if refinancing is not achieved. Indeed, Mr Philpott says in his second witness statement – and this is not challenged in any evidence from the Partnership or Mr Craig – that he was told by Mr Craig that his (Mr Craig’s) remit (ie a remit from Mr and Mrs Keet to him) was to buy some time to refinance with Soho Corporate”. Mr Craig does not explain how refinancing is, in his view, likely to be attained, and whether with Soho Corporate or anyone else, and, significantly, he does not appear to have been informed before taking up his appointment about the previous failed attempts to obtain finance. He comments, with no apparent concern about the impact which this might have on the business of the Partnership and the Group, that the employees had, since 18 October 2011, been contracted to PGUK. I have to say that I agree with Miss Kyriakides when I read the evidence on behalf of the Partnership, and that of Mr Craig in particular, that it is deficient as evidence to support an application for the appointment of Mr Craig as administrator.

[95]The evidence with which I was presented at the hearing shows what I regard as insufficient investigation by Mr Craig. Perhaps, working under a very tight timetable, it was not possible to do as much as was desirable prior to the hearing on 2 November 2011; but there is nothing in the evidence before the court to show that since then he has carried out further appropriate investigations. All he says, in paragraph 25 of his witness statement dated 9 November 2011, is that he could report progress on refinancing and could ensure “that necessary steps are being taken and advise of any difficulties or delays”. He gave no detail at all about this suggested progress or the necessary steps, a matter which, I have to say, is surprising given the clearly expressed concerns of the Bank. It is even more surprising that no update on progress was given to me at the hearing and I can only assume, in the absence of contrary evidence, that there has been none.

[96]In contrast, the Bank and KPMG do have a clearly articulated strategy. They have put themselves in as good a position as they can until the Bank’s Nominees are actually appointed to put in place the building blocks of that strategy. They have ensured that financing will be available for the day to day operations pending sale, in which respect the Bank is willing to make available £150,000. Their background knowledge as a result of KPMG having prepared the reports which I have mentioned on the instructions of the Partnership and the Bank puts the Bank’s Nominees in a uniquely strong position to act as administrators; and the evidence of Mr Thornes (of the Bank) in his witness statement dated 4 November 2011 (the detail of which I do not propose to set out) at paragraphs 34 to 39, shows an advanced state of preparedness for the implementation of the strategy which I have described.The Bank’s Nominees are part of large firm able to provide the necessary skills for the purposes of this administration and the firm has considerable experience with this type of business. The Bank is, in my view, fully justified in having far more confidence in the Bank’s Nominees and their firm than in Mr Craig and his firm. Although Mr Craig’s position is that he has the necessary experience and skills, his firm is comparatively small – I understand there are about 20 practitioners – but I am told nothing about their skills-set or experience.

[97]The concerns are not, however, all one way. Miss Williamson says that the Partnership may have a claim against the Bank in relation to the alleged mis-selling of the SWAP agreement which I have mentioned. It is pointed out that there is an existing, and perhaps mutually important, business relationship between the Bank and KPMG. Without seeking to impugn in any way the professionalism of the Bank’s Nominees, it is said that this is a factor to be considered when weighing the merits of an administrator with no pre-existing relationship with the Bank. I do not propose to go into the merits of the mis-selling claim. I could not properly say on this application that the claim is hopeless and if it is not hopeless then the point which Miss Williamson makes is one to be taken into account. But this concern does not bring the case anywhere near the sort of conflict which was of concern to HH Judge Maddocks in Fielding v Seery

[2004] BCC 315

, referred to by Lewison J in Re Med-Gourmet Restaurants Ltd (unreported 15 October 2010). I attach very little weight indeed to it. I see no reason to think that the Bank’s Nominees will do anything other than investigate the claim properly. They would, I am sure, do so anyway, but with Mr and Mrs Keet in the background, they would befoolish not to be astute to investigate the claim carefully. Conflicts are regularly faced by administrators and other office holders and can be handled: see my own comments in [103] to [105] of my judgment in Sisu Capital Fund Ltd v Tucker

[2005] EWHC 2170

and 2321,

[2006] BPIR 154

. The present case comes nowhere near the sort of conflict I was addressing there.

[98]Neither side wishes me to provide time to seek an administrator who is acceptable to both sides or who is at least independent of both sides. I would not be inclined to take that course anyway. I am really faced with a choice of the Partnership’s favoured nominee and the Bank’s favoured nominees. Miss Williamson invites me, as I have said, to make a retrospective appointment of Mr Craig. If I considered that he was the preferred choice, that might be a course which I would take. But I do not consider that Miss Williamson can pray in aid of a choice in Mr Craig’s favour the fact that he was previously appointed, albeit invalidly. The question for me is simply which of these persons should be appointed.

[99]In the light of all the factors which I have discussed, I consider that the balance come down clearly in favour of the Bank’s Nominees. The balance is even further weighted by this consideration on which reliance does not need to be placed but which is of relevance. The Bank is the major creditor of the Partnership and the Group. Its views about who should be appointed ought to carry considerable weight; indeed, ordinarily, the creditors’ choice should prevail where there a contest between the directors and creditors: see for instance Oracle (North West) Ltd v Pinnacle Services (UL) Ltd

[2009] BCC 159

at [17] and [21]; Fielding v Seery as approved by Lewison J in Med-Gourmet (both referred to above).

Disposition

[100]The Bank’s Nominees should be appointed as administrators. I have already made an order to that effect.