Dispute Resolution

It’s not just Santa and his elves who are busying themselves during this festive season. In Scotland, the Insolvency Profession are preparing in earnest because on 6 April 2019 the Insolvency (Scotland) (Company Voluntary Arrangement and Administration) Rules 2018 and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 (together “the New Rules”) will replace the current Scottish Insolvency Rules, which have been in place since 1986.

The key purpose of introducing the New Rules is to ensure that the insolvency procedure reflects modern business practice. Key changes include: allowing officer holders to communicate with creditors via electronic means; removing the need for physical meetings to be held and enabling small dividends to be paid by the officeholder without requiring formal claim forms to be lodged.  The changes are designed to streamline the insolvency process and make it more efficient.

The New Rules largely mirror the Insolvency (England and Wales) Rules 2016 (“the New English Rules”), which came into effect in England and Wales on 6 April 2017. Surely, this means it will be plain sailing when the New Rules come into effect?  Or not…

Following the introduction of the New English Rules there have been some teething issues. A particular issue which has arisen is in respect of Rule of 3.24 and 3.25 of the New English Rules, which require a company or director seeking to appoint an administrator using the out of court appointment route, to state the date and time of when the appointment is made in the Notice of Appointment (“NOA”) that they are filing.  This requirement did not exist under the previous rules.

The party filing the NOA is reliant on the Court determining when the appointment is made by processing and endorsing the NOA so (as one commentator has said), without a crystal ball, is it quite tricky to know the date and time of appointment.

In England, this has led to a number of different approaches being taken by practitioners.  Some have elected to complete the time and date at the moment immediately before filing.  Others have simply referred to the appointment being made at the date and time of filing, which is referred to as “referential wording”. The uncertainty caused by this new requirement has also led to some applications being made to the English Courts to confirm the validity of the appointment.  We know of three decisions so far, these are:

  • NJM Clothing Limited, Ross & Higgins v Fashion Designs Solutions Limited and Asis Couture [2018] EW HC 2388 (Ch);
  • Orton & Ors v Towcester Racecourse Company Ltd (In Administration) [2018] EWHC 2902 (Ch); and
  • Re Spaces London Bridge Limited [ChD] [2018] EWHC 3099 (Ch) (Unreported)

NJM caused a good deal of consternation for practitioners as the judge, HHJ Klein, appeared to be concerned that the NOA did not accurately record the precise moment of the appointment.   There was a concern therefore than any appointment made using “referential wording” would be defective.

A collective sigh of relief was heard when HHJ Matthews gave his opinion in Towcester Racecourse, in which he confirmed that: (i) that there is no reason why NOA cannot be filed on a referential basis; and (ii) there is no need to state “to the very second” the time when the appointment takes place.

Practitioners were further relieved when, in Spaces London, the English High Court held that the statutory requirement would be met where the NOA referred to the date and time that the notice is endorsed by the court.

Why does this matter? The New Rules (Rules 3.24 and 3.25) also contain the same requirement for the date and time of appointment to be specified in the NOA. These developments in English case law will be helpful, and should be persuasive, should the Scottish Courts have to consider this same issue in relation to the New Rules.

Lucy McCann

Lucy McCann

Associate at Brodies LLP
Lucy is an associate of the Corporate Restructuring and Insolvency team at Brodies. She acts on behalf of a wide range of clients, including lenders, insolvency professionals, commercial creditors, directors and individuals.
Lucy McCann