Notice of Intention to Appoint – 'strong and stable' guidance from the Court of Appeal
The Court of Appeal has recently had the opportunity to provide some certainty in relation to when it is appropriate to file a Notice of Intention to Appoint an Administrator ("NOI") – or rather, when it is not.
The case of JCAM Commercial Real Estate Property XV Limited v Davies Haulage Limited addressed a number of interesting issues concerning the filing of a NOI.
The outcome of the case again highlights why sections of the industry are calling for reform to provide a regime which is more fit for purpose to enable struggling companies to have some protection whilst they explore all options and consider a restructuring alternative to a terminal insolvency process. The headlines for office holders are:-
- Any remaining doubt about whether a NOI can be filed in circumstances where there is no QFC, has been put to bed. If there is no QFC then there is no person to whom notice must be sent a NOI under Paragraph 26(1) of Schedule B1 to the Insolvency Act. This fits with the primary purpose of the NOI – to give a QFC the opportunity to appoint its own administrator if thought appropriate. This means that the interim moratorium can only be achieved where there is a QFC and highlights the gap where a company needs time to explore restructuring options but cannot file a NOI because there is no QFC. The company may be able to enter into standstill agreements or other contractual arrangements with certain creditors but that may not be practical in many cases and is one reason why there is a call for legislation to create a wider moratorium giving breathing space to the company whilst it considers restructuring options.
- A NOI can only be filed if there is a settled intention to appoint an administrator (and there is a QFC) and it is not appropriate to be used to buy the directors time to explore the possibility of entering a CVA. That protection could be achieved if the company did in fact enter administration and a CVA was subsequently explored as an exit route but the Court of Appeal held that allowing a NOI for the purposes of considering a CVA would be contrary to the current legislation which does not generally allow a company proposing a CVA (in the absence of an administration) to obtain an interim moratorium.
The Court did not assess whether four successive NOIs was an abuse of process in this particular case. However, there is growing concern about the use of a number of successive NOIs and it should be remembered that they should only be filed where there is a settled intention to appoint an administrator and an extremely good (preferably documented) reason why a subsequent NOI is necessary.