Re Globespan Airways: Administration, Liquidation and Registration

3 09 2012

Re Globespan Airways Ltd (In Liquidation) also called Cartwright & Anor v The Registrar of Companies [2012] EWCA Civ 1159 (24 August 2012), read judgment.

The Court of Appeal (Lord Neuberger MR, Arden and Moses LJJ) has unanimously held that it was not possible for an administrator of a company to convert administration into a creditors’ voluntary liquidation (CVL) by simply giving a conversion notice to the Registrar of Companies  (“the registrar”) because conversion only occurred once the registrar had registered a notice on the company’s file at Companies House.

In taking the above approach, the Court of Appeal has reversed Briggs J’s earlier decision that where a notice of movement from administration to CVL under Schedule B1 (“administration”) paragraph 83 of the Insolvency Act 1986 (“the IA 86”) was received by the registrar before the termination of the administration, paragraph 83(4) was to be interpreted as meaning that the date of receipt of the notice was the effective date of registration, regardless of whether the administrative steps necessary for registration had been completed.

Facts

Globespan Airways Ltd was placed in administration by court order with effect (after a further order varying the appointment date) from 17 December 2009 which was due to end on 16 December 2010, no order for an extension having been sought or made.

On 13 December 2010 the joint administrators, John Bruce Cartwright, Graham Douglas Frost and Ian Christopher Oakley-Smith signed a notice in the form prescribed for by paragraph 83 of schedule B1 to the IA 86 (Form 2.34B) giving notice that paragraph 83(1) was to apply and that it was proposed that Mr Cartwright and Mr Oakley-Smith (the respondents) should be the liquidators of the company. That notice (“the first notice”) was then hand-delivered to the registrar (the appellant) on 14 December, and stamped as having been received on that date.

The guidance notes printed in the margin of Form 2.34B required the administrators to provide their names and addresses in section (a) and the names and addresses of the liquidators to be inserted in section (e). Each of the three administrators provided their full names and addresses in (a) but only the names of the two of them to be proposed liquidators in section (e); they thought it unnecessary to repeat their addresses.

On 16 December 2010 the registrar rejected the first notice by letter on the grounds that the notice was incomplete, since it lacked the liquidators’ addresses in section (e). This letter of rejection reached the administrators only on 29 December, some 13 days after the end of their period of office.

On 6 January 2011 the administrators prepared and signed a fresh notice in Form 2.34B (“the second notice”). It differed from the first only in its date and in repeating the addresses of the then proposed liquidators in section (e). The registrar received the second notice on 8 January.

On 13 January the registrar wrote rejecting the second notice for the reason (which was later accepted to have been erroneous) that he had no record of the company ever having been in administration. The former administrators received the letter of rejection on 17 January and, on the same day, they sent an apparently identical further notice (“the third notice”) to the registrar, again dated 6 January, which was received by the registrar on 19 January.

Finally, the registrar registered the third notice on 4 February 2011. The searchable records at Companies House purported to show that the voluntary liquidation began on that day and also that the administration ended on that day, namely 4 February.

The Court of Appeal

Prior to giving judgment, Arden LJ explained that the essential differences between administration and CVL were that whist the former (administration) was “a relatively informal” method of dealing with an insolvent company to bar creditors’ claims to give the business “breathing space”, the latter (liquidation) was a “terminal process” and that an insolvent liquidation was subject to a CVL: paras 6 – 9 of judgment.

Observing that the date on which liquidation commences is important, Arden LJ highlighted that on the commencement of a winding up, the company ceases to be the beneficial owner of its assets, which are then held on ambulatory trust for creditors and, in case there is a surplus, for contributories: Ayerst v C & K Construction [1976] AC 167. By contrast, there is no change of ownership of a company’s assets on the commencement of an administration.

In relation to the significance of the conversion procedure, Arden LJ noted that if the debts which are preferential in the instant liquidation were calculated on the basis that the relevant date was 17 December 2009, the date of the start of the administration, they (the debts) would total £600,000. If the relevant date is the date of the commencement of the liquidation, the preferential claims will be different and decidedly much smaller in amount as preferential debts include certain debts owed to employees and the administrators will have substantially reduced the number of its employees.

Arden LJ explained that all parties to a liquidation following an administration needed to know exactly when the conversion date occurred. Explaining that certainty is an important consideration for practitioners, her Ladyship noted that they would no doubt prefer an outcome that achieves certainty in knowing when the conversion from administration to CVL would come into effect. Equally, the parties also need to know what happens if the term of office of the administrators comes to an end after the conversion notice is filed but before conversion occurs in law.

The Court said that the importance of publicity for important corporate events and the role of the registrar was subject to public law duties, which means that in general he must cause a document requiring registration to be so registered as soon as reasonably practicable. Administrators, on the other hand, are officers of the Court but they are not subject to public law duties and, therefore, it is appropriate to impose a duty on them to act reasonably quickly and efficiently. It was noted that such an approach was also consistent with obligations placed upon companies in primary legislation (such as the Companies Act 2006) and European law (Directive 2009/101/EC) that required notices in relation of appointments of companies to be published in the Gazette.

Enumerating eight reasons, Arden LJ held that a conversion notice takes effect when registrar registers it. Thus, the conversion trigger date is the date of registration of the conversion notice. Allowing the registrar’s appeal, her Ladyship clarified that:

(1)  A conversion notice took effect when it was registered by the registrar which was the natural meaning of paragraph 83(4) of Schedule B1 of the IA 86: para 42.

(2)  “Register” had to bear the same meaning in paragraph 83(4) as in paragraph 83(6): para 43.

(3)  Paragraph 83 should be interpreted with a view to achieving its statutory objectives where the wording permitted it, which included achieving a streamlined conversion from administration to a CVL: para 44.

(4)  The ordinary interpretation of paragraph 83(4) avoided a gap between a liquidator’s appointment and publication of that appointment on a company’s file: para 46.

(5)  The date of registration would almost certainly always be subsequent to the date of receipt and that underscored the need to interpret paragraph 83 in a way that treated those dates differently: para 47.

(6)  Prior to the registration of a conversion notice, a registrar would check the information in some way, and the court should prefer an interpretation that allowed that checking to happen prior to conversion: para 48.

(7)  Registration normally only took around three days and there was no practical difficulty which warranted giving the words in paragraph 83(6) a different meaning from their natural meaning. Registration of the third notice was not a valid conversion of the first notice as the administrator’s term of office had been terminated by the date it was filed and executed: para 49.

(8)  However, since the registrar had a statutory obligation to register the valid first conversion notice, the Court should, in order to give effect to Parliament’s intention, treat his registration of the third notice as amounting to effective registration of the first notice: para 52.

  • Accordingly, the Court ruled that the conversion notice filed by Globespan’s administrators was actually registered on 4 February 2011: paras 51 – 52.

Following on from Re E-Squared Ltd [2006] 1 WLR 3414 – where David Richards J did not find it necessary to consider whether, by necessary implication, the effect of sending a notice under paragraph 83(4) is to extend the administrator’s appointment until registration of the notice – Arden LJ also held that the administrator’s term of office is in general automatically extended if a conversion notice under paragraph 83 is duly filed for the following five reasons (paras 59 – 63):

  • Paragraph 76(1) of Schedule B1, IA 86 does not constitute a complete code for establishing the date on which an administrator ceases to hold office because it does not include a number of circumstances in which an administrator may cease to hold office under paragraphs 83(6) and 87 to 89 of schedule B1.
  • Whilst paragraph 76 lays down general rules about the end and extension of an administrator’s term of office, paragraph 83 deals with the specific case of conversion of an administration into a CVL which has the separate statutory purpose of facilitating a seamless conversion of an administration into a CVL. To allow the possibility of termination of the administrator’s term of office, by effluxion of time, in the period between the filing of a conversion notice and its registration, would, moreover, be wholly contrary to Parliament’s aim of providing this seamless conversion.
  • In many instances it would be impractical for the administrator to apply to the court at short notice for an extension for the limited purpose of registration of a conversion notice, and it remains difficult to see on what basis an extension in those circumstances would be refused.
  • Parliament could have imposed an obligation on administrators to file a conversion notice sufficiently far in advance of the conversion date to avoid expiry of their term of office before the conversion date. Paragraph 83 was construable that by implication the term of office is automatically extended in appropriate circumstances.
  • Some support of the above approach could be seen in the statutory language in paragraph 83(3) which reflected Parliament’s view as to the effect of paragraph 83. The use of that language is some indication that, all other things being equal, paragraph 83 as a whole is to have priority over other provisions of schedule B1 to the extent that those provisions are inconsistent with it. That indication provides a measure of additional support for saying that paragraph 83(6)(a) can qualify the provisions of paragraph 76(1).

In conclusion Arden LJ, ruled that an administrator’s term of office was extended by implication from the words in paragraph 83(6) filing a conversion notice from the date on which it would otherwise expire by effluxion of time until paragraph 83(6) came into effect upon registration of the conversion notice. Like paragraph 76(1), that automatic extension was subject to paragraphs 87 to 89. Thus, the term of office would end if an administrator resigned, died, was removed from office by court or ceased to be qualified before the conversion date occurred: para 64.


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