Settled Intention is Pre-Condition to Valid Notice of Intention to Appoint Administrators: No Intention = No Validity and No Moratorium: Re: Seabrook Road Limited [2021] EWHC 436 (Ch)

22nd March 2021 Corporate Recovery and Insolvency

Amplifying JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd [2018] EWCA CIV 276 the court has again considered repeated Notices of Intention to Appoint (NOITA) and the effect on the interim moratorium.

Background

This case involved the Company filing 4 successive NOITAs although only two of them were the subject of these proceedings (NOITA 1 and NOITA 2).

The Company owned a Property which was subject to a legal mortgage and QFC. The secured loan was in default and the Company was seeking to delay enforcement whilst it refinanced.

On 16 November 2020 the QFC holder (‘QFCH’) sent the Company a default and demand letter.

On 27 November 2020, the Company filed NOITA 1 but despite discussions still taking place with the QFCH until 4 December 2020, the Company did not tell the QFCH about NOITA 1.

On 7 December 2020, the QFCH appointed receivers and notified the Company the same day. In response, the QFCH was told about NOITA 1 for the first time.

The solicitors for the QFCH responded stating that NOITA 1 was of no effect because it had not been served as required (as soon as practicable) and/or was an abuse of process.

By 15 December 2020 the receivers considered that an application to the court may be necessary, given the impact the uncertainty surrounding NOITA 1 would have on the receivers carrying out their functions.

The solicitors for the Company agreed to accept service of such application on 21 December 2020, and at that time disclosed for the first time the existence of NOITA 2 dated 10 December 2020.

The QFCH and receivers issued an application on 13 January 2021 seeking the removal of NOITAs 1 and 2 from the court file, and declarations that the receivers’ appointments and actions were valid.

It also transpired that the Company had filed NOITAs on 3 and 16 November 2020, although these were not in issue presumably because they had expired before the QFCH appointed receivers.​​​​​​​​​​​​​​​​​​​​​ 

Court Decision

The Court reviewed the Court of Appeal decision in JCAM, in particular that it had been held that in order to be able to file and give notice of a NOITA, the person had to propose or intend unconditionally to make such an appointment.

This was a pre-condition to validity of a NOITA filed at court.

The court found as a matter of fact that in these circumstances the Company was using the process, not to appoint an administrator, but to seek an interim moratorium to prevent receivers being appointed and give leverage in negotiations. The NOITAs filed at court were not valid and a moratorium never came into effect.

In addition, the NOITAs referred to the need to provide notice to the QFCH, and indeed said that notice was being given where it was not. That alone rendered the NOITAs an abuse of process.

Comment

A settled intention to appoint administrators is an essential pre-condition to a valid interim moratorium and indeed any subsequent appointment, which in fact takes place pursuant to that NOITA.

If a NOITA is filed at court simply to give the company breathing space to decide what options it wishes to pursue, then there is a real risk that any interim moratorium and subsequent appointment could be held to be invalid.

This case also underlines the importance of effecting service on any QFCH as soon as possible so as not to prejudice an intended appointment by allowing the requisite 10 business days to elapse without a QFCH having been afforded its five business days to grant consent.

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Cory Bebb is a Partner & Licensed Insolvency Practitioner located in Londonin our Corp. Recovery and Insolvency department

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