Re LYHFL Limited
02 / 11 / 2023
The judgment of David Halpern KC, sitting as a High Court judge, in Re LYHFL Limited [2023] EWHC 2585 (Ch) adds to the number of cases that the courts have had to decide about the appointment of administrators but applies existing principles without adding to them; and in reality the nub of the case has more to do with the power of directors than the manner of appointing administrators, strictly understood.
Abigail Boura and Leigh Harmer were the sole directors and shareholders of LYHFL Limited. They were also in a personal relationship which had ended acrimoniously in around November 2021. The acrimony of the breakdown of their personal relationship also affected their relationship as directors: each claimed that the other had acted in breach of their fiduciary duties as a director. Ms Boura contended that the company was or was likely to become unable to pay its debts. Mr Harmer disagreed, accusing Ms Boura of attempting to use the appointment of administrators to engineer a quasi pre-pack without proper board approval.
Ms Boura’s application was made in her capacity as “the director of the company” under para 12(1)(b) Sch B1 Insolvency Act 1986. The company did not appear, but the application was opposed by Mr Harmer as the other director of the company. He opposed on two grounds: first, that one of two directors had no standing to apply for an appointment of an administrator; and secondly, that the company was able to pay its debts and was not likely to become unable to do so.
The deputy judge disposed of the application by reference to the first of those grounds only, concluding that one of two directors had no standing to apply to court for the appointment of an administrator in circumstances where there was no majority of the board and no valid resolution of the board in favour of the application.
The applicant relied on Re Brickvest Ltd and Re Nationwide Accident Repair Services Ltd in both of which the court had appointed administrators on the application of the sole director. The deputy judge had little difficulty in distinguishing the facts in those cases from those before him. In Re Brickvest, where the application was made on an urgent basis and was unopposed, although the company’s articles required there to be at least three directors, in fact there was only one. The judge had allowed the application on the basis that failure to comply with the company’s articles was an irregularity, which went to the exercised of the court’s discretion but did not operate as a jurisdictional bar going to the standing of the applicant. In Re Nationwide had also been an urgent application. The judgment in that case had been given in reliance on the citation to the judge of Re Brickvest. It had also been “expressly framed on very narrow grounds” which did not apply in the instant case. David Halpern KC followed Re Equiticorp International plc to the effect that under the then applicable provision the phrase “the directors” did not require unanimity on the part of the directors, but a resolution passed by a majority at a properly constituted board meeting was required. He further relied on Minmar (929) Ltd v Khalatschi and Re BW Estates Ltd which applied the reasoning in those cases.
Having concluded that one of two directors had no power to apply to court for an administration order under para12(1)(b) Sch B1 Insolvency Act 1986 without the approval of the majority of the directors and without a valid board resolution, the deputy judge dismissed the application with costs, which he summarily assessed.