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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Minmar (929) Ltd & Anor v Khalatschi & Anor [2011] EWHC 1159 (Ch) (08 April 2011) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2011/1159.html Cite as: [2011] BCC 485, [2011] EWHC 1159 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		8 April 2011

THE CHANCELLOR:

1. This an application by Mr Paul Chohan, a director of Minmar (929) Limited, for an order setting aside the appointment of Mr Kalatschi and Mr Atkins, insolvency practitioners with Harris Lipman LLP, as administrators of Minmar purportedly made on 16 March 2011 by the first three interveners, Clemantine Limited, Grantday Limited and Osterwood Limited, to whom I shall refer as "the Intervening Directors", under paragraph 22(2) in Schedule B1 to the Insolvency Act 1986. The interests of the fourth intervener, Baleday Ltd, will become apparent later. At the start of the hearing I directed that all four interveners should be added as defendants to the application.
2. The administration of Minmar pursuant to the appointment was stayed by order of Lewison J made ex parte on 18 March 2011 and continued by Arnold J on 25 March 2011. The formal respondents, the administrators, are neutral but need to know whether they are duly appointed or not. Thus the dispute is between Mr Chohan who claims that the administrators were not validly appointed and the four interveners who claim that they were; but, even if they were not, they contend that Mr Chohan has no standing to complain. Each side has filed a number of substantial witness statements, not all of which are relevant to the issues I have to determine, to which some substantial exhibits are attached.
3. Minmar was incorporated in January 2010 to carry on gambling businesses. Rockstone Securities Limited was its only shareholder and, at that stage, Mr Malizia was its only director. Later Mr Mark Harris and Mr Paul Chohan were made additional directors. There are a number of provisions in the Articles of Association to which I should refer. They are Articles 8, 9, 10, 12, 14, 18, 20 and 21. Article 8 is headed "Directors to take decisions collectively" and 8.1 provides:

"The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with Article 9."

I omit 8.2

4. Article 9 is headed "Unanimous decisions" and reads as follows:

"9.1 A decision of the directors is taken in accordance with this Article when all Eligible Directors indicate to each other by any means that they share a common view on a matter.

9.2 Such a decision may take the form of a resolution in writing, signed by each Eligible Director (whether on the same or one of several copies) or to which each Eligible Director has otherwise indicated agreement in writing.

9.3 A decision may not be taken in accordance with this Article if the Eligible Directors would not have formed a quorum at a directors' meeting."

5. Article 10 is headed "Calling a directors' meeting" and provides:

"10.1 Any director may call a directors' meeting by giving notice of the meeting to the directors or by authorising the company secretary (if any) to give such notice.

10.2 Notice of any directors' meeting must indicate: (a) its proposed date and time; (b) where it is proposed to take place; and (c) if it is anticipated that directors participating in the meeting will not be in the same place, how it is proposed that they should communicate with each other during the meeting.

10.3 Notice of a directors' meeting must be given to each director but need not be in writing."

I omit 10.4.

6. Article 12 deals with the quorum for directors' meetings and provides in Article 12.2:

"The quorum for directors' meetings shall be one Eligible Director if the Company has only one director and two Eligible Directors if the Company has more than one director."

7. Then in Article 14, 14.1 provides:

"Subject to the Articles, a decision is taken at a directors' meeting by a majority of the votes of the Eligible Directors who are participating and each Eligible Director participating in a directors' meeting has one vote."

8. Then Article 18, which is headed "Records of decisions to be kept", reads as follows:

"The directors must ensure that the Company keeps a record, in writing, for at least ten years from the date of the decision recorded: (a) of every unanimous or majority decision in whatever form taken by the directors ..."

I need not read (b).

9. Article 20 is headed "Appointment of directors" and continues in 20:

"Methods of appointing directors

20.1 Any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director: (a) by ordinary resolution; or (b) by a decision of the directors."

10. Finally, in Article 21(f) it is provided that a person ceases to be a director as soon as:

"(f) notification is received by the Company from the director that the director is resigning from office as director, and such resignation has taken effect in accordance with its terms."

11. In order lawfully to carry on a gambling business, it is necessary to have both an operating licence granted by the Gambling Commission and a premises licence granted by the Local Authority in respect of each place where the gambling activity is to be carried on. Under sections 159 and 188 of the Gambling Act 2005, a premises licence may only be granted or transferred to a holder of an operating licence.
12. In October 2010, Minmar obtained an operating licence and entered into negotiations with a number of companies then in administration, collectively called Agora, for the acquisition of their gambling businesses. It expected to obtain finance from a third party. In the event, such finance was not forthcoming and the assets of Agora were acquired by the fourth intervener, Baleday Limited. That company had been incorporated on 17 November 2010 and it was and is effectively controlled by Mr Toby Hunter.
13. On 30 November or 1 December, it matters not which, 2010 three relevant agreements were concluded. The first was an Asset Sale Agreement made between Agora and Baleday whereby the former sold to the latter its gambling businesses for £6 million, of which £1.5 million had in fact been paid by Minmar as a non-refundable deposit and was taken into account. The second was an Option Agreement made between DS2 Limited, the parent company of Baleday, and Minmar Properties Limited, conferring on the latter the option to acquire the shares in Baleday for £10 million payable by weekly instalments of £48,077 each commencing on 1 December 2011. The third was an Operator Agreement made between Baleday and Minmar whereby the latter operated the business of the former under its own operator and premises licences and paid the net profits to Baleday for credit to its liability under the Option Agreement.
14. I comment that both the Operator and the Option Agreements were extended, both in writing and orally, from time to time down to 26 February 2011 and then both of them expired. They were effectively alternatives to each other.
15. On 3 December 2010 there was concluded what is called the Rockstone Option Agreement made between Rockstone Securities Limited, as owner of the shares in Minmar, and Boliari (UK) Limited, a company owned by Mr Papourov, a Bulgarian national. As varied on 3 February 2011, in consideration of £199,999, Rockstone granted to Boliari an option to buy its shares in Minmar on written notice and payment of £1. The Rockstone Option provided for payment to Rockstone of a 50 per cent profit share in the event of any resale by Boliari for more than £200,000. In addition, as varied, it included the following material terms:

"4.4 Upon entering into this Agreement the Grantor agrees that, until the exercise or expiry of the Option [for such period as is reasonably necessary after the exercise of the option], it will execute such further documents and do such further acts and things (insofar as it may be reasonably able and empowered to do so) as shall be necessary for the purpose of transferring the Option Shares to the Purchaser [and/or registering the Option Shares in the name of the Purchaser] and/or to preserve the rights and/or value of the Option Shares including for the avoidance of doubt [so far as it is able] passing such resolutions as the Purchaser shall direct [at the Purchaser's cost, taking steps to remove or appoint directors of the Company at the behest of the Purchaser] provided that nothing in this clause shall oblige the Grantor to become a party to any litigation or arbitration proceedings without prior written consent from the Grantor."

16. Then in clause 6.1 it is provided:

"The Grantor undertakes to the Purchaser that for so long as the Option Shares are registered in the name of the Grantor, it will exercise its voting rights and all other rights relating to the Option Shares strictly in accordance with the written directions of the Purchaser."

17. On 17 February 2011 Rockstone, at the request of Mr Papourov, purported to suspend Mr Malizia as a director of Minmar on grounds of gross misconduct. It is not suggested that this had any direct effect on his directorship. On 26 February 2011, £1 million had been paid by Minmar to Baleday under the Operator Agreement in reduction of its debt due under the Option Agreement. Both the Operator Agreement and the Option Agreement had expired by effluxion of time and Baleday and Cashino Limited, to whom an operating licence had been issued by the Gambling Commission on 18 February 2011, entered into a new Operator Agreement in relation to the gambling business bought by Baleday from Agora.
18. On 8 March Baleday commenced proceeding for specific performance of a provision in the Operator Agreement obliging Minmar to transfer to Baleday the benefit of the premises' licences and on 10 March applied for a summary order on Minmar for the licences to be transferred to Cashino. On 15 March Mr Chohan signed form 288(b) for registration at Companies House recording the termination of the appointment of Mr Mark Lewis as a director of Minmar on 16 March.
19. On 16 March there occurred a significant number of relevant events. The order in which I describe them is not necessarily the order in which they occurred. In the absence of cross-examination I cannot reach any definite conclusion on that order but the events in question were as follows. First, an assignment by Boliari to Baleday of its rights to acquire the shares in Minmar under the Rockstone Option Agreement, as varied, for £200,000 conditional on Rockstone procuring the appointment of the Intervening Directors as directors of Minmar. Second, a resolution appointing the interveners as directors of Minmar was signed on behalf of Rockstone as the sole shareholder in Minmar. Third, the transfer of 500,001 shares in Minmar in favour of Boliari was executed by Rockstone. Fourth, the transfer of 500,001 shares in Minmar in favour of Baleday was executed by Boliari and, fifth, the interveners purportedly appointed the administrators under paragraph 22, Schedule B1 to the Insolvency Act 1986 and, sixth, at a meeting of the Intervening Directors, the two share transfers to which I have referred were approved.
20. In relation to the purported appointment of the administrators, the record of the decision indicates that the so-called meeting was attended by one individual, Mr Toby Hunter, and on behalf of only one of the Intervening Directors, namely Clemantine Limited. It indicates that Mr Hunter took the chair, declared the presence of a quorum and that the meeting was open. The record then continues as follows:

"1.2 It was noted that a written resolution had been passed by the company's sole shareholder and that Clemantine Ltd, Grantday Ltd and Osterwood Ltd had been appointed as directors.

2. Appointment of Administrators

2.1 The chairman proposed that, given the present financial difficulties of the company, appropriate action was required. In particular the chairman requested that the board consider whether it was appropriate to appoint administrators to the company. The chairman reported that Freddy Khalatschi and Martin John Atkins of Harris Lipman LLP, licensed insolvency practitioners, had agreed in principle to act as administrators of the company should the meeting resolve to place the company into administration.

2.2 The chairman produced to the meeting, in draft form, a notice of appointment of administrators, in form 2.10B.

2.3 After consideration, it was resolved that:

2.3.1 having regard to the financial position of the company, it would be in the best interests of the company and its creditors for the directors to place the company into administration and appoint Freddy Khalatschi and Martin John Atkins as administrators of the company;

2.3.2 the notice of appointment of administrators be approved."

I need read no further.

21. On the following day, 17 March, notice of the appointment of Mr Khalatschi and Mr Atkins, as joint administrators of Minmar, was filed with the Companies Court as required and at 1550 hours on that day an email was sent to the solicitors for Minmar notifying them of that fact to which were attached copies of the form 2.10B, being the Notice of Appointment of the joint administrators, form 2.2B, being their consents to act, the statement of the administrators' powers and the record of the decision of the directors from which I have just quoted. On the same day the administrators agreed to sell the operator and premises licences vested in Minmar to Baleday for £10,000 and notice of the assignment by Boliari to Baleday of the benefit of the option over the shares in Minmar, granted by Rockstone to Boliari, was given to Rockstone.
22. On the next day, 18 March, which was the return date of Baleday's summary judgment application for an order on Minmar to transfer the licences, the proceedings were effectively stayed because of the effect of the appointment of the administrators. But also on that day Minmar and Mr Chohan obtained the ex parte order from Lewison J staying the administration on the ground that the administrators had not been validly appointed. Whether before or after that I know not, but Baleday exercised the Rockstone option to acquire the shares in Minmar on that day, the benefit of the option having been assigned to Baleday by Boliari on 16 March.
23. Finally, on 22 March 2011, Companies House rejected the notices of appointment of the interveners because it was in paper, not electronic, form. The notice of rejection added that the company had been hijacked, but I do not think that any reliance can be placed on that statement.
24. On 25 March the application notice now before me to set aside the appointment of the administrators was issued. The evidence before me in respect of that application now consists of three witness statements of Mr Connerty, the solicitor for Mr Chohan, a witness statement of Mr Reeves, a director of Rockstone, a witness statement of Mr Khalatschi on behalf of himself and his co-administrator, a witness statement of Mr Malizia, a witness statement of Mr Paul Chohan and two witness statements from each of Mr Hunter and his solicitor Mr Avram Kelman. There has been no cross-examination of any maker of any of the witness statements.
25. I turn then to the case for Mr Chohan. Counsel on his behalf contends that the purported appointment of the administrators on 16 March was invalid for any one or more of six reasons. In logical order they are as follows: (1) the Intervening Directors were not themselves validly appointed as directors of Minmar; (2) even if the Intervening Directors were validly appointed, they did not form a majority of the board because Mr Chohan, Mr Malizia and Mr Harris were already duly appointed as directors of Minmar; (3) no notice had been given to any of the existing directors of any meeting or of any resolution to appoint the Intervening Directors as required by Article 10.3; (4) the meeting was inquorate; (5) the decision of the Intervening Directors was not made in the interests of Minmar but of Baleday and should not be given effect; and (6) no such notice as is required by paragraph 26, Schedule B1 to the Insolvency Act 1986 was given to Minmar by the Intervening Directors.
26. Each of those submissions needs some further explanation. As to the validity of the appointment of the Intervening Directors, the evidence indicates that Mr Reeves of Rockstone thought that in appointing the Intervening Directors, he was performing his obligations under the Rockstone Option Agreement. It seems that he did not know of the assignment of the benefit of that Option Agreement to Baleday until the following day. Boliari's rights to require Rockstone to do as it asked were limited by clause 4.4 to preserving "the rights to and value of the option shares". Unbeknown to Rockstone, that was not the object of the request. Therefore, the appointment of the Intervening Directors was procured by misrepresentation or breach of duty and all that followed was similarly invalid.
27. Counsel for Mr Chohan then says that it is a matter of simple arithmetic to demonstrate, in respect of the subsequent submission, that the Intervening Directors did not form a majority of the board. Before 16 March the board comprised Messrs Chohan, Harris and Malizia. The purported suspension of Mr Malizia had no effect on his office as a director and Mr Harris did not resign until after the relevant resolution had been passed. He then goes on to submit that no notice was given of any directors' meeting of Minmar or of any intention to resolve to appoint administrators. He points out that it is not suggested that any such notice was given. Indeed, before me the Intervening Directors rely on paragraph 105 of Schedule B1 to which I shall refer later. Mr Chohan's response to that submission is that paragraph 105 of Schedule B1 does not dispense with the need for meetings and Mr Hunter purported to hold a meeting but it was not validly convened.
28. Counsel for Mr Chohan submits that the meeting was obviously inquorate because Mr Hunter claimed to represent only one of the three Intervening Directors and, finally and in any event, the appointment of the administrators was part of the scheme to frustrate the defence of Minmar to the specific performance action and was plainly in breach of the fiduciary duties of the Intervening Directors in that, first, they acted in the interests of Mr Hunter and/or Baleday, not of Minmar, and, second, if Minmar was insolvent as suggested, why did Baleday buy its shares for £200,000, engineer the appointment of the Intervening Directors or of the administrators or sell the licences for £10,000?
29. The case for Baleday and the Intervening Directors is to challenge all or most of those submissions. They contend that Mr Chohan is only one of five or six directors. As such, he has no standing to make this application but, in particular, it is not open to him to rely on any misrepresentation or breach of duty which may have underlain Rockstone's resolution as the sole shareholder of Minmar to appoint the Intervening Directors. They rely on the witness statement of Mr Reeves, the controlling director of Rockstone, in which he makes no such claim. Indeed, he appears to accept that the resolution to appoint the Intervening Directors was validly passed.
30. In similar vein, they contend that even if the appointment of the Intervening Directors and the appointment of the administrators was part of a conspiracy to deprive Minmar of its licences, only Minmar, through the administrators or Rockstone as its sole member, can complain. They maintain that the Intervening Directors did form a majority of the board because Mr Harris had already resigned as recorded on the return to Companies House signed by Mr Chohan himself on 15 March. This left two directors, Mr Chohan and Mr Malizia.
31. But they do not contend that there was a valid meeting of the board on 16 March for all or any of the reasons relied on by Mr Chohan, i.e. no notice, no meeting, no quorum. As I have indicated, in this respect they rely on paragraph 105 of Schedule B1 to the Insolvency Act 1986. That provides as follows:

"Majority decision of directors

105 A reference in this Schedule to something done by the directors of the company includes a reference to the same thing done by a majority of the directors of a company."

32. They contend that if, as they maintain, they constituted a majority, it matters not that there was no meeting of the directors duly convened and held in accordance with the Articles. Finally, they contend, for reasons I shall explain later, that Mr Chohan's reliance on paragraph 26(2) of Schedule B1 to the Insolvency Act is misplaced because, they submit, properly construed, no obligation arises under that subparagraph unless there is also an obligation under paragraph 26(1), which in this case there is not.
33. I turn now to my conclusions. In these circumstances I should first decide the two points of law, namely the effect of paragraphs 105 and 26(2) of Schedule B1. If I decide either in favour of Mr Chohan then the appointment of the administrators was invalid. If I decide both in favour of the interveners then I shall need to consider the remaining points relied on by Mr Chohan.
34. I turn then to paragraph 105. I have already quoted its terms and will not do so again. I am grateful to all counsel for their researches, at my request, into the antecedents of this provision. It is clear that there is no pre-legislative aid to its construction in the form of either a White Paper, Explanatory Notes or Ministerial Statement admissible under the rule in Pepper v Hart [1993] AC 593.
35. I start with three cases decided before Schedule B1 was enacted by the Enterprise Act 2002. The first is a decision of Brightman J in Re Emmadart Ltd [1979] Ch 540. He concluded that the practice by which the board of directors of an insolvent company resolve to present a petition for the winding up of that company under Section 222 to the Companies Act 1948 and then presented it in the name of the company was not authorised by the terms of Section 224 to the Companies Act 1948. The latter section provided that a winding up petition might be presented by the company, a creditor or a shareholder. Brightman J concluded that, absent a specific provision in the Articles, a board of directors was not entitled to present a petition in the name of the company without the sanction of the members of the company in general meeting.
36. In consequence of that decision, when the provisions of Section 224 to the Companies Act 1948 were brought forward into Section 124(1) of the Insolvency Act 1986 authority to present a petition for the winding up of the company was conferred on, omitting immaterial words:

"… either the company or the directors or by any creditor or creditors ... contributory or contributories ... or by all or any of those parties together or separately."

37. The second case is the decision of Mervyn Davies J in Re Instrumentation Electrical Services Ltd [1988] 4 BCLC 550 on the proper construction and application of that part of Section 124(1) of the Insolvency Act 1986 I have just quoted. He concluded that a petition might only be presented by all the directors. Accordingly, a petition presented by two out of three directors of a private company without any pretence at a meeting of the board was not authorised by Section 124. Before the introduction of Schedule B1 into the Insolvency Act 1986, the provisions relating to the administration of the affairs of a company were contained in Sections 8 to 27 of the Insolvency Act 1986.
38. Section 8 enabled the court to make an administration order in relation to a company in certain specified circumstances. The procedure for obtaining such an order was laid down in Section 9 and that provided that the application to the court should be made by petition:

"… presented either by the company or the directors or by a creditor or creditors ... or by all or any of those parties together or separately."

39. The third case is the decision of Millett J in Re Equiticorp International Plc [1989] 1 WLR 1010. In that case a petition had been presented by the directors pursuant to a resolution of the board passed at a properly convened meeting attended by eight out of the ten of them. The question was whether the absence of two directors from the meeting meant that the petition was not presented by "the directors". Millett J concluded that the petition was properly presented. He referred to the decisions of Brightman J in Re Emmadart and of Mervyn Davies J in Re Instrumentation Electrical Services Ltd and then continued as follows (quote from page 10-13):

"It is not necessary to depart from Mervyn Davies J's analysis of the language of the section in order to uphold the petition in the present case. It is true that nothing is known about the attitude of one of the directors of the company, and it may be that he is strongly opposed to the making of the application -- though that is doubtful. I am perfectly prepared to read the words 'the directors' in section 9 as meaning all the directors. Once a proper resolution of the board has been passed, however, it becomes the duty of all the directors, including those who took no part in the deliberations of the board and those who voted against the resolution, to implement it; and even in the absence of the specific authorisation to any and every director to take such steps as are necessary to implement it, which is contained in this particular resolution, that remains the legal position.

In my judgment, therefore, once a resolution of properly convened board of directors to present an application under section 9 for the making of an administration order has been passed, any director has authority to make the application on behalf of all of them. Accordingly, in my judgment, this is a properly presented application, made on behalf of the directors, and the court has jurisdiction to entertain it."

40. Before leaving Equiticorp I would observe that the application was effectively ex parte, the only counsel appearing before the judge being counsel for the company in question.
41. Accordingly, in the light of those judgments, a petition was presented by the directors if it was either presented by all of them or pursuant to a resolution of the board passed by a majority at a properly convened meeting of the board. As I have indicated, Schedule B1 was introduced into the Insolvency Act by the Enterprise Act in substitution for the regime of administration orders formerly provided for by Section 8 to 27. There are many differences. Paragraphs 1 to 9 deal with the nature of administration, including its purposes and the qualifications required for appointment as an administrator. Paragraphs 10 to 13 provide for the appointment by the court, paragraphs 14 to 21 by the holder of a floating charge and paragraphs 22 to 34 by the company or the directors.
42. There follow provisions for special cases in paragraphs 35 to 39, the effect of administration in paragraphs 40 to 45, the process of administration in paragraphs 46 to 58, the functions of an administrator in paragraphs 59 to 75, the ending of the administration in paragraphs 76 to 86, replacing the administrators in paragraphs 87 to 89 and there then follows a section entitled "General" comprising paragraphs 100 to 116. In that section there are a number of provisions of general application. Paragraphs 100 to 103 contain detailed provisions to cope with situations where there are joint or concurrent administrations.
43. Paragraph 104 provides for the validity of the acts of administrators notwithstanding a defect in their appointment. Thus the provision on which the Intervening Directors rely is intended to be of general application. As such, paragraph 105 applies to paragraph 12(1)(b), 18(4), 22(2), 29(4), 91(1)(c) and 94(1). For present purposes, paragraphs 18(4) and 29(4) may be ignored. The remaining four deal with applications by the directors either to apply to the court for an administration order, that is to say paragraph 12(1)(b), or to appoint administrators out of court, that is paragraphs 22(2), or to apply for the replacement or to replace administrators appointed by the court or the directors respectively as provided in paragraphs 91(1)(c) and 94(1).
44. Plainly, in each of those cases the relevant operation may be performed if authorised by a majority of the board at a duly constituted directors' meeting. The question is whether they may be performed by a group of individuals who are in fact directors and together constitute a majority of the board but who have not complied with the provisions of the company's Articles so as to have the authority of the company. Counsel for Mr Chohan submits that the answer to that question is in the negative. He points out that the decision of Mervyn Davies J in Re Instrumentation Electrical Services Ltd still stands.
45. He points out that the terms of paragraph 105 only provide that a reference to something done by the directors includes something done by a majority of the directors. It does not obviate the need of either body to comply with the rules of internal management of the company. In any event, as he observes, Mr Hunter intended to hold a meeting. If he failed to observe the rules of internal management, he should not be entitled to fall back on the terms of paragraph 105.
46. Counsel for the intervening directors submits that the terms of paragraph 105 are clear and should be given effect. He suggests that the paragraph was intended to go further than the decision of Millett J in Re Equiticorp International Plc and to give effect to the views of the majority, however reached. He relies on the commentary by the editors of the Annotated Guide to the Insolvency Legislation, 13th edition: Professors Sealy and Milman to both paragraphs 22(2) and 105. In the case of the former they state:

"Para 22(2): The directors for this purpose may act by a majority and it doesn't appear to be necessary that they should do so at a formal meeting: see paragraph 105. This is confirmed by Insolvency Rule 2.2(2) which refers to a copy of the resolution of the company but a record of the decision of the directors."

(Quote unchecked)

47. The reference there is to Insolvency Rule 2.2(2). That is part of a section in the Rules dealing with the appointment of an administrator by the court, specifically the requirement under paragraph 26 of a prior notice of intention to appoint. In that connection it provides:

"2.2(2) The notice of intention to appoint shall be accompanied by either a copy resolution of the company to appoint an administrator (where the company intends to make the appointment) or a record of the decision of the directors (where the directors intend to make the appointment)."

48. In the case of paragraph 105, the editors add this:

"General note: this is a novel and welcome provision. References in earlier legislation to an act done by the directors have been construed as requiring either that the directors should act unanimously or that a meeting be duly convened at which a decision is reached by the requisite majority: see the notes to Section 9(1) and 124(1). Under the present provision a meeting is not required."

(Quote unchecked)

49. I have come to the conclusion, with the greatest respect to Professors Sealy and Milman, that the submissions of counsel for Mr Chohan are to be preferred. First, I do not think that Insolvency Rule 2.2(2) will bear the weight put on it. I have already quoted its terms shortly before I referred to paragraph 105. Although the Insolvency Rules may be regarded on questions of construction of the terms of Schedule B1, they themselves recognise that minutes should include a record of any resolution passed: see Insolvency Rule 2.44A(4)(c). So the distinction drawn in Insolvency Rule 2.2(2) between the resolution of the company and the decision of the directors does not appear to me to import any notion of informality to the decision of the directors. Whether a minute or a record, it must still be of a decision of the directors as such.
50. Second, the terms of paragraph 105 give to an act of the majority the same validity as would be accorded to an act of the directors as a whole but if the act in question must still be an act of the majority of such directors, I see no reason why the reduction in the requisite number of directors should also dispense with the usual rules of internal management. To do so appears to me to be giving greater effect to a provision of general application than is to be derived from either the words used or the context in Schedule B1 in which they are used or in the previous case law to which I have referred.
51. Third, in Re Equiticorp International Plc, Millett J was at pains to point out that the observations of Mervyn Davies J in Re Instrumentation Electrical Services Ltd were confined to a case in which the majority had failed to observe any of the usual formalities. Accordingly, his own decision is to be read in the context of a proper resolution of a majority of the board. Clearly, paragraph 105 gives statutory force to that decision but I do not accept that it goes further. Had it been intended to do so, I would have expected some clear statement to that effect in the White Paper which preceded the Enterprise Act of which paragraph 105 was originally enacted as paragraph 103 or in the explanatory notes to that Act. There is none.
52. Accordingly, I conclude that paragraph 105 does not validate the appointment of the administrators on 16 March. It is plain that the so-called meeting was not a valid meeting of the board. No notice had been given to the existing directors. Indeed, it is plain that they were deliberately kept in the dark. There was only one person present, so there was no quorum or indeed any meeting. It follows that the appointment of the administrators was invalid and ought to be set aside.
53. I turn then to paragraph 26 of Schedule B1. In the light of my conclusion on paragraph 105, the point of law arising in respect of paragraph 26 does not arise, but in case this case goes further, I should indicate my conclusions. Paragraph 26 of Schedule B1 provides as follows:

"26(1) A person who proposes to make an appointment under paragraph 22 [and 22(2) is the paragraph which authorises the directors to make the appointment] shall give at least five business days' written notice to -

(a) any person who is or may be entitled to appoint an administrative receiver of the company, and

(b) any person who is or may be entitled to appoint an administrator of the company under paragraph 14.

(2) A person who proposes to make an appointment under paragraph 22 shall also give such notice as may be prescribed to such other persons as may be prescribed."

54. I need read no more of paragraph 26 but I should refer to paragraphs 28 and 30. Paragraph 28(1) provides as follows:

"An appointment may not be made under paragraph 22 unless the person who makes the appointment has complied with any requirement of paragraphs 26 and 27 and -

(a) the period of notice specified in paragraph 26(1) has expired, or

(b) each person to whom notice has been given under paragraph 26(1) has consented in writing to the making of the appointment."

55. Then paragraph 30 provides:

"In a case in which no person is entitled to notice of intention to appoint under paragraph 26(1) (and paragraph 28 therefore does not apply) -"

Then it goes on about statutory declarations which I need not read.

56. Insolvency Rule 2.20 provides, in subparagraph (1) for the form of the notice to be in form 2.8(b). That is the notice of intention to appoint an administrator for the purposes of paragraph 26. Then in subparagraph (2) it provides:

"(2) A copy of the notice of intention to appoint must, in addition to the persons specified in paragraph 26, be given to -

(a) any enforcement officer who, to the knowledge of the person giving the notice, is charged with execution or other legal process against the company;

(b) any person who, to the knowledge of the person giving the notice, has distrained against the company or its property;

(c) any supervisor of a voluntary arrangement under Part I of the Act; and

(d) the company, if the company is not intending to make the appointment."

57. Then subparagraph (3) provides:

"The provisions of Rule 2.8(2) to 2.8(5) shall apply to the sending or giving of a notice under this Rule as they apply to the manner in which service of an administration application is effected under that Rule."

Thus Insolvency Rule 2.20(2) is the provision to which paragraph 26(2) referred and reading the two together requires notice of an intention to appoint an administrator to be given to the company itself.

58. Insolvency Rule 2.2(3) provides that notice of appointment for the purposes of appointment under paragraph 22 shall be in form 2.9(b) or 2.10(b) as appropriate and then goes in subparagraph (2):

"The copy shall be accompanied by -

(a) the administrators' written statement in form 2.2(b), and

(b) the written consent of all those persons to whom notice was given in accordance with paragraph 26(1) unless the period of notice set out in 26(1) has expired."

Then there is a provision for a statement to be provided as well.

59. Counsel for Mr Chohan submits that paragraph 26 requires directors who are intending to appoint an administrator under paragraph 22 to give notice to the company pursuant to Insolvency Rule 2.20(2)(d). In the absence of any suggestion that such a notice was given, then, he submits, paragraph 28(1) precludes the appointment of the administrators.
60. This is disputed by counsel for the Intervening Directors. He submits that the obligation under paragraph 26(2) on which Mr Chohan relies only arises if there are persons within the description of paragraphs 26(1)(a) or (b) on whom a notice must be served. He submits that this interpretation is supported by both the insertion into paragraph 26(2) of the word "also" and the terms of paragraph 30 which indicate that paragraph 28 only applies where there is an obligation under paragraph 26(1).
61. Once again, I prefer the submissions of counsel for Mr Chohan. I can see no reason why all those enumerated in Insolvency Rule 2.20(2), namely bailiffs, process servers, distrainers, supervisors or the company itself, should receive notice of an intention to appoint administrators if there is a floating charge over the assets of the company in respect of which there is someone entitled to appoint an administrative receiver or an administrator but not otherwise. Prima facie, each of them is concerned, whether or not there is a floating charge over the property of the company.
62. The use of the word "also" shows that it is an additional obligation. That it is not dependent on the existence of an obligation under paragraph 26(1) is demonstrated by the use of the words "any requirement" in paragraph 28. The difference in treatment between those entitled to notice under paragraph 26(1) and those so entitled under paragraph 26(2) lies in the fact that, in the case of the former, the period of notice is prescribed by paragraph 26(1). An administrator may not be appointed unless either the notice period has expired or all the persons on whom the notice was served under paragraph 26(1) consent.
63. In the cases of notices under paragraph 26(2), both the period of notice and the identity of the person to be served is left to be prescribed by regulations. Those are the Insolvency Rules. By paragraph 2.20(3) the giving of such notices is to be as laid down by paragraph 2.8(2) to (5). As the latter provisions do not specify any notice period, presumably it must be a reasonable period. The only contra-indications are the words in the parentheses in paragraph 30 and the prescribed forms 2.8(b), 2.9(b) and 2.10(b).
64. So far as the parenthetical phrase is concerned, it appears to express the draftsman's understanding of what he has already provided. Unless and until such regulation as paragraph 26(2) refers to is made, such understanding was no doubt correct, but when such provision was duly made by the Insolvency Rules, the draftsman's understanding of the effect of paragraph 26 became incorrect. But that cannot alter the plain meaning and effect of the earlier provision.
65. So far as the forms are concerned, forms 2.8(b) and 2.9(b) apply where there is someone on whom to serve a notice of intention under paragraph 26(1). Form 2.10B applies where there is no such person. There is no form for cases where notice of intention is required to be given to those indicated in Insolvency Rule 2.20(2) nor is there any space on forms 2.8(b), 2.9(b) and 2.10(b) for recording the notices given to those mentioned in Insolvency Rule 2.20(2). In these circumstances, the inconsistency lies between the words in paragraphs 26 and 28 on the one hand and the parenthetical phrase in paragraph 30 on the other. No form supports either view.
66. I am unable to reconcile the inconsistency. In the circumstances, the appropriate course, in my judgment, is to follow the clear words of paragraphs 26 and 28. It is not suggested that any notice of the intention of the Intervening Directors to appoint the administrators was given to Minmar. Accordingly, I uphold this objection to the appointment of the administrators also.
67. Given my conclusion on the two points of law I summarised earlier, it is unnecessary to deal with any of the other grounds on which counsel for Mr Chohan relied for contending that the appointment of the administrators was invalid, but I shall deal with two further submissions of counsel for the interveners. The first is that there is no point in setting aside the appointment of the administrators because Baleday now controls the shares in Minmar and the Intervening Directors can procure the re-appointment of the administrators at a duly convened meeting of directors.
68. There are, I think, at least two answers to that objection. First, Rockstone is the registered holder of all the shares in Minmar and I cannot rule out the possibility of the appointment of further directors or further litigation challenging the rights claimed by Baleday. Second, if, as I consider, the appointment of the administrators was invalid, the invalidity should be recognised even if it is "cured" by a further appointment as was done by Hart J in Re G-Tech Construction Ltd [2007] BPIR 1275.
69. The second objection is to the standing of Mr Chohan to raise the issue of the validity of the appointment of the administrators. Counsel for Mr Chohan submitted that although he was but one of five or six directors and had no interest in any shares in Minmar, a single director does have standing to challenge the appointment of administrators. He relied on the terms of Insolvency Rule 2.12(c), which confers on one or more directors an entitlement to appear on the hearing of an application for the appointment of administrators by the court. If a single director can appear in those circumstances, then, he submits, a parallel right should be recognised in relation to a challenge to an appointment by other directors out of court.
70. I see the force of that submission but I am reluctant to accept it if there is an alternative way in which I may record the invalidity of the appointment and set it aside. In my view there is. By Civil Procedure Rule 3.3(4) I am entitled to make an order on my own initiative without a hearing or giving parties an opportunity to be heard. In fact, there has been a full hearing and I have reached my conclusions in the light of all the evidence and all the arguments presented to me by all interested parties. In those circumstances, I can see no reason to accede to any objection to the standing of Mr Chohan. Either he has standing and I make the order on his application or he does not, but I make it on my own initiative so as to give effect to the true legal position. For those reasons, I will grant the relief sought by this application.