Re Tokenhouse VB Ltd (Formerly VAT Bridge 7 Ltd) [2020] EWHC 3171 (Ch)
The courts are no strangers to considering the question of the validity of appointments of administrators. Practitioners have found a myriad of ways to fail to comply with the specific Insolvency Act requirements and have required the courts to rule on possibly defective appointments. This case related to a notice of appointment filed by the directors of a company seeking to appoint administrators. In such cases of course, the law requires that the party seeking to make the appointment serves a notice of intention to appoint on the holder of any qualifying floating charge. In this case the company had granted a qualifying floating charge but by an oversight, no notice of intention was served.
The charge holder challenged the validity of the appointment of the administrators on the basis that the requirements of the Insolvency Act had not been complied with. The Court decided that the failure to give the notice of intention to the charge holder was a procedural breach but was not sufficient to render the appointment invalid.
On the face of it, that seems a somewhat surprising outcome given that the failure to give the notice of intention meant that the holder of the floating charge was deprived of the opportunity to intervene in the process and appoint its own choice of administrator (as Parliament had obviously intended should happen). In fact, in Tokenhouse the judge ordered that the original administrator be replaced with the charge holder's choice of administrators.
In deciding to uphold the validity of the appointment, rather than declaring it invalid, the court has come to a pragmatic outcome. The court would have recognised that in practice, little would have been gained by the administration having been declared invalid when the "relevant outcome" (i.e. the appointment of the charge holder's appointees) could be achieved without the disruption and uncertainty that would have ensued by declaring the administration invalid.
One word of caution regarding this case is that, it is only a first instance case and is therefore not particularly strong authority. This has been the case for many of the actions regarding validity of appointment of administrators and has meant that determining whether an administrator has been validly appointed where there has been a defect in the process, is sometimes more of an educated guess than a scientific appraisal.
