Davis Haulage Limited judgment

COURT OF APPEAL REJECTS THE PRACTICE OF FILING NOTICES OF INTENTION WHILE SEEKING A COMPANY VOLUNTARY ARRANGEMENT

 

The Court of Appeal recently released its judgment on the case JCAM Commercial Real Estate Property XV Limited v Davis Haulage Limited. HH Judge Bird had previously ruled that the director of Davis Haulage Limited (DH) could validly file a Notice of Intention to Appoint an Administrator (NOI), (or several successive notices in these circumstances) allowing the company to benefit from the interim moratorium, even though the appointment of an administrator was only one of at least two considerations being explored.

In this instance two successive NOIs had been filed whilst the director was exploring the possibility of selling the Company’s business and assets. A third NOI was filed shortly prior to a CVA being proposed and a fourth NOI was filed after the CVA proposal had been filed in Court but prior to the meetings of creditors and members to consider the proposal.

HH Judge Bird had ruled that it was valid for a director to file an NOI when the appointment of an administrator was one of the possibilities being considered even if he wanted to explore other options first. The Judge ruled that, whilst a director may, at the time of signing the statutory declaration on the NOI intend to appoint an administrator, they also continue to have a general duty to act in the best interests of creditors which may include continuing to explore other insolvency options. In coming to his decision he closely examined the use of the word “propose” in the director’s declaration and came to the conclusion that a proposal to appoint an administrator was less definitive that an “intention” to appoint. He disregarded the section labelling of “Notice of Intention to Appoint” in the Act and the title of the notice as simply short-handed references to a Paragraph 26 notice.

In the Court of Appeal, Lord Justice Jackson, Lord Justice David Richards and Lord Justice Flaux ruled that in signing a statutory declaration on a Notice of Intention to Appoint an Administrator, the director intends to do just that i.e. appoint an administrator. If the intention was to seek a CVA, then the small company moratorium procedure should be followed in accordance with Schedule A1. There is intended to be a limit to the size and type of companies that can benefit from a CVA moratorium and an NOI should not be used as a substitute by companies that don’t qualify.

The Court ruled that the primary reason for there being an interim moratorium is for the prescribed parties to be notified of a forthcoming administration and for them to have an opportunity to exercise their own powers of appointment. This is confirmed by the fact that an NOI cannot be filed when there is no party to notify, and so an interim moratorium is not automatically available.

The Court stated that, whilst the filing of an NOI whilst pursuing a CVA was an abuse of process, that was in a technical sense rather than as a deliberate abuse by the insolvency practitioner.

This is an important ruling clarifying guidance on the use of a Notice of Intention.