MF Global Overseas Ltd [2012] EWHC 1091 (Ch)

Case Nos: 9585 & 9586 of 2011[2012] EWHC 1091 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue The Rolls Building, 7 Rolls BuildingsDate Friday, 23rd March 2012
London, EC4A 1NL
Before
MR. JUSTICE MANN
IN THE MATTER OF MF GLOBAL OVERSEAS LIMITED (In Administration) and IN THE MATTER OF MF GLOBAL FINANCE EUROPE LIMITED (In Administration)
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MR. MARTIN PASCOE QC and MR. DANIEL BAYFIELD (instructed by Weil, Gotshal & Manges LLP) for the Administrators
JUDGMENT

Introduction

[1]This is an application for a declaration that administrators have been validly appointed to two companies in the MF Global Group, namely MF Global Overseas Limited and MF Global Finance Europe Limited. I will call them Overseas and Finance respectively.[2]The point that has arisen concerns which of two or three potential forms is the correct form to use in order to appoint administrators in the circumstances of these companies, and it arises as a result of the structure and drafting of the Insolvency Rules and their associated forms, together with a division of judicial authority on the effect of getting the forms wrong. The simple facts on which this application is based can be illustrated by the facts of Overseas. The facts in relation to Finance are essentially the same.[3]On 2nd November 2011 the directors resolved that administrators should be appointed and identified them. There is no floating charge over the assets of the company, so there was no notice to be given to any floating charge holder. Notice of intention to appoint was given to the company on the same date in Form 2.8B and later the same afternoon a notice of appointment was given in Form 2.9B.[4]The administrators are about to complete a large sale of the company's assets and have taken advice on the validity of their appointment. Apparently there are degrees of nervousness about appointments in the administrator community these days which requires that to be done. They have been advised that there is a question mark which they feel they need to have removed before they sell, and they make this application to the court as a matter of some urgency in order to clarify the position.[5]The questions, albeit ones which cannot be fully understood without a recitation of the legislation, can be distilled as follows:(1) was a Form 2.8B necessary in the present circumstances? If so, there is no further problem.(2) if it was not, and given that one was served unnecessarily, was the correct form for the appointment Form 2.9B or was it in fact 2.10B?(3) if the answer to question (2) is in the terms of 2.10B, has there been sufficient compliance with the requirement to serve it? I will now put those questions in their context. The legislative background[6]This was an appointment under Insolvency Act Schedule B1, paragraph 22(2). It reads:
"The directors of a company may appoint an administrator"
. That generates an apparent requirement to serve a notice of intention to appoint under paragraph 26 of the same schedule:
"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 administrative receiver of the company, and (b) any person who is or may be entitled to appoint an administrator of the company 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 the prescribed form."
[7]Subparagraph (1) of that paragraph does not apply on the facts of this case because there was no person such as is described there. That throws one into the persons described under subparagraph 26(2). They are prescribed in Insolvency Rule 2.20 which starts by indicating the relevant form:
"2.20 Notice of Intention to Appoint (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."
[8]I do not need to read any more of that provision. None of the persons indicated under heads (a) to (c) exist so the only candidate for the service of such notice in this case is the company. Having done whatever might be necessary under that rule the next step in the appointment of administrators is the service of a notice of appointment under rule 2.23 which reads:
"2.23 Notice of appointment 2.23 (1) The notice of appointment for the purposes of an appointment under paragraph 22 shall be in Form 2.9B or Form 2.10B, as appropriate."
I do not need to read anything else in that rule.[9]One can only work out what is "appropriate" by looking at the prescribed forms which appear in Schedule 4 to the Rules, and the only clue one gets from the forms in question is from the words in the heading to each form. The heading to Form 2.9B reads as follows:
"Notice of appointment of an administrator by company or director(s). (Where a notice of intention to appoint has been issued)"
. The comparable heading for form 2.10B is this:
"Notice of appointment of an administrator by company or director(s) (Where a notice of intention to appoint has not been issued)"
[10]That strikes me as being a somewhat informal way of indicating which form is appropriate, but that seems to be the chosen mechanism. The word "issued" is plainly inappropriate. It must mean "served".[11]Thus far the position looks simple. If you have served a 2.8B notice you serve a 2.9B notice next time round; if you have not, you use 2.10B. Unfortunately, matters are not that simple. The question that arises, or may arise, in the present case is which form do you use if you serve a 2.8B in circumstances where it is not necessary? In other words, should the words "where a notice of intention to appoint has been issued" be glossed by the words "whether necessary or not", or should they be taken to be "where ... and was required"? This question arises out of a divergence on the authorities as to the extent to which the notices referred to in rule 2.20 are actually required. I therefore turn to those authorities. The authorities and the problem[12]There are diverging lines of authorities as to the effect of a failure to give notice of intention to appoint to persons who apparently require it under rule 2.20. Hill v Stokes [2011] BCC 473 and Virtualpurple Professional Services Ltd [2011] EWHC 3487 Ch are decisions of His Honour Judge McCahill QC and Norris J respectively to the effect that the absence of such a notice is not fatal to the appointment of the administrators who are subsequently ostensibly appointed. Minmar (929) Ltd v Khalatschi [2011] BCC 485 and National Westminster Bank plc v Msaada Group & Ors [2011] EWHC 3423 Ch are decisions of the Chancellor and Warren J which go the other way. Until there is clarification in the rules or a decision of the Court of Appeal the position will remain uncertain. If I had to choose which line to follow I would probably prefer the first of those lines. However, as will appear, I do not have to choose.[13]The significance of this divergence is as follows. If the Minmar line is correct and notice has to be served on the company in the present case under rule 2.20, it can only be a notice Form 2.8B. Such a notice was served in the present case. That means that the next proper notice is a Form 2.9B notice. That too was served. So on this line there is no difficulty in the present case. The administrators were validly appointed.[14]However, if the Virtualpurple line is correct, a form of 2.8B notice of intention to appoint was not necessary. If such a notice is not necessary and not served the obvious next form is form 2.10B, but that is not what happened in this case. On this hypothesis an unnecessary notice was served. That in itself would not be fatal but it is what happened next which causes potential difficulties, because a 2.9B notice was served; as if the 2.8B notice was valid and required. The fear of those advising the administrators is that the 2.9B notice could be said to be wrong. It might be thought to be a notice which could only be used if a valid and necessary 2.8B notice was served; otherwise Form 2.10B should be used. If that is right then the wrong form was used for the second stage, which imperils the appointment of the administrators.[15]One of the ironies of the present case is that the situation which the administrators find themselves in is, I am told, the result of caution. Because of the uncertainty which the above authorities have generated the cautious administrator will give a 2.8B notice to the company anyway, whether required (Minmar) or not, (Virtualpurple). That avoids any argument, at least at that stage of the reasoning.[16]What the present case demonstrates is that that particular frying pan is avoided only at the expense of braving the fire and having to work out what to do at the next stage in terms of choosing a form. I suppose the ultra safe course would be to serve a Form 2.9B and a form 2.10B in, as it were, the alternative, but that was not done and there may be other ramifications of adopting that course which it was not possible, or indeed relevant, to investigate at the hearing before me. I am told that the present uncertainties lead a significant number of insolvency practitioners to prefer not to take the risk and to get a court appointment instead. If true, that is very unfortunate. The resolution of the problem[17]The first submission of Mr. Pascoe QC, who appeared before me for the administrators, is that the Minmar line of authorities is correct and a Form 2.8B notice does have to be served on the company in these circumstances. One of the other ironies of this case is that the problem usually arises in the context of administrators being forced to argue that the rules are less strict then they may seem. In this case the administrators want to argue that the rules are strict. I suspect that the rest of the administrator community might not thank me for this answer but at least they have a line they need to adopt. If Mr. Pascoe is right about that then there is no problem. I prefer not to decide this application on the basis of having to choose which line of authority to follow but, as I have indicated, if I had to I would be less likely to go down the Minmar route.[18]His next line is that if the Virtualpurple line is right then his administrators are still entitled to use Form 2.9B because they have in fact served a notice of intention to appoint even though one was not necessary. In substance the literal wording of the condition contained in the brackets which I have identified has been fulfilled or, if you like, it could be read as if it contained the sort of words set out above, or in paraphrase "whether service (issue) of such a notice was required or not".[19]I think that this is a good argument. It is likely that the draftsman did not have this particular sequence of events in mind and was only actually contemplating cases where notices of intention needed to be served, because you would probably not be thinking directly about covering the situation of people serving unnecessary notices because people do not usually do that. However, a coherent scheme would and should allow for alternatives in the event of uncertainties and allow for courses of maximum safety to be adopted and, in a matter as important as the appointment of an administrator, rules should be construed in a manner which allows sensible alternatives, adapted to cover doubts about their intended effect.[20]If one looks at form 2.10B the only information or material which is not in Form 2.9B is its paragraphs 5, 6 and 9. The information in those provisions is provided in Form 2.8B in its paragraphs 3, 4 and 7. So there is no material difference communicated in toto if one serves a Form 2.8B followed by a 2.9B. It would in no way undermine the apparent policy of the rules to construe these forms as allowing Form 2.9B to be used where an unnecessary 2.8B has previously been served. Policy is not inconsistent with the construction of the relevant words in the heading of Form 2.9B which Mr. Pascoe needs if he cannot rely on Minmar.[21]In the circumstances, and looking realistically at the words in brackets, I find that it is appropriate to take them literally, at least to the extent of allowing them to apply to an unnecessary but actually served Form 2.8B. That being the case, that is enough to get Mr. Pascoe home.[22]However, he sought to put his case in another way assuming that he fails in the argument so far. He sought to develop part of the reasons that I have used in the preceding paragraphs and, in particular, the fact that if one marries forms 2.8B and 2.9B one comes up with a form which is the equivalent of 2.10B. He seeks to argue that if he needs to have served a form 2.10B he should be treated as having served one, because the precise form in terms of a piece of paper with all the relevant words on should not be taken as being absolutely required if the information is got over in another way.[23]In this context he relies on what was said in R v. Soneji [2006] 1 AC 340 by Lord Steyn at paragraphs 14 to the effect that one should not necessarily approach problems such as the use of a prescribed mechanism as being determined by merely applying labels “mandatory” and “directory”. A spectrum of descriptions might be appropriate and the relevant enquiry where an apparently important step has not been taken is to look more to substance than to apply labels. Mr. Pascoe sought to argue that that line could be seen to be reflected in an insolvency context in the judgments of Norris J in Re Bezier Acquisitions Ltd [2011] EWHC 3299 Ch and in Virtualpurple itself.[24]I am not convinced that this line of argument would get Mr. Pascoe home. He would need, I suppose, to argue that whilst some technical form is appropriate, what is really necessary is a piece of paper or pieces of paper with sufficient information on and that a failure to serve a single piece of paper in precisely the form of 2.10B should not be decided as ruling out the validity of the appointment because one could look to see what happened in substance. I am far from certain that Mr. Pascoe can get that sort of analysis into the wording of the Insolvency Rules, but in the light of the conclusion I have reached in relation to the true construction of the opening words of Form 2.8B it is not necessary for him to succeed on that point. He succeeds in any event.[25]I therefore determine that the appointment of the administrators in this case is not invalidated by reason of the fact that a Form 2.9B was used for their ultimate appointment rather than form 2.10B. I think the application before me invites me to make a broadly-based declaration that the appointment of the administrators is valid. If that is right, and subject to submissions, I decline to make such a broadly-based declaration. I should not be taken in this judgment as indicating there could be no other conceivable challenge to the appointment of the administrators. I hasten to add that no other possible challenge has ever been suggested to me and it should not be read into this judgment that there is some other lurking point. The purpose of this judgment is to deal with the one point which it addresses, and that point only, and to determine that the point which the administrators feared might invalidate their appointment does not in fact do so. I am prepared to grant a declaration to that more limited effect.

Cited in 3 later judgments