Re Euromaster Ltd

Factual and Procedural Background

Euromaster Limited ("Euromaster") was a company engaged in manufacturing and installing structural steelwork for the lift industry and producing architectural products. In early 2012, Euromaster experienced financial difficulties. In April 2012, its directors consulted insolvency practitioners to advise on rescuing the business through a "pre-pack administration" by selling the profitable part of the business to a new company ("Newco").

On 2 May 2012, the directors resolved to appoint two administrators. Lloyds TSB Bank Plc held a qualifying floating charge over Euromaster's assets, but there was no indebtedness secured by that charge at the time. The directors gave the required written notice of intention to appoint administrators to the bank and filed a copy of this notice with the High Court on 3 May 2012. Under Schedule B1 of the Insolvency Act 1986, an appointment must be made within 10 business days of filing this notice.

Lloyds TSB did not exercise its power to appoint an administrator and consented to the sale of Euromaster's assets to Newco. On 18 May 2012, the directors filed notice of appointment of the administrators and executed an Asset Sale Agreement with Newco. The agreement included immediate payment, deferred consideration by instalments, director personal guarantees, and a license for Newco to occupy Euromaster's premises. Euromaster retained its book debts but appointed Newco as agent to collect them.

During a regulatory review on 10 July 2012, it was discovered that the appointment of administrators was made on the 11th business day after filing the notice of intention, exceeding the 10-day window. This raised the question whether the appointment was a nullity or merely irregular, and what the consequences would be for past and future acts.

Legal Issues Presented

1. Whether the appointment of administrators made outside the 10-business-day period prescribed by paragraph 28(2) of Schedule B1 to the Insolvency Act 1986 is a nullity or an irregularity.
2. If the appointment is irregular, whether the irregularity can be cured and with what consequences for past acts.
3. What relief, if any, is available under Insolvency Rule 7.55 for defects or irregularities in the appointment.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the statutory provisions governing the appointment of administrators under Schedule B1 to the Insolvency Act 1986, focusing on the requirement that an appointment must be made within 10 business days after filing the notice of intention to appoint. The purpose of this 10-day window was interpreted as protecting the interests of qualifying floating chargeholders by providing a limited interim moratorium and a fair opportunity to decide on their course of action.

The court examined whether an appointment made outside this 10-day window is a nullity (having no legal effect) or an irregularity (defective but potentially curable). The court noted that similar language in the statute is used for both substantive powers and procedural requirements, and cautioned against assuming identical consequences for all breaches.

Drawing on authorities distinguishing nullity from irregularity, the court concluded that non-compliance with the 10-day limit is not a fundamental defect rendering the appointment void. Instead, it is an irregularity that does not invalidate the appointment. The court emphasized the legislative intent to streamline out-of-court appointments and avoid technical traps that would frustrate business rescue.

The court further reasoned that if the appointment were a nullity, it would create artificial and undesirable consequences, including issues with retrospective effect and insolvency transaction reviews. The court also applied Insolvency Rule 7.55, which protects insolvency proceedings from being invalidated by formal defects or irregularities unless substantial injustice is caused that cannot be remedied.

Since no party, including the qualifying chargeholder, alleged substantial injustice caused by the late appointment, and given that the appointment had not been challenged, the court held that the administrators' appointment was valid and that past acts were not invalidated by the defect.

However, the court declined to grant a waiver of the defect beyond declaring the administrators validly appointed, noting procedural fairness and the rights of creditors to challenge the appointment in due course.

Holding and Implications

The court held that the appointment of the administrators outside the 10-business-day window was not a nullity but an irregularity, and therefore valid under the law.

The direct consequence of this ruling is that the administrators' appointment stands, and their prior acts in the administration are not invalidated by the timing defect. The court extended the time for holding the initial creditors' meeting by 28 days to accommodate procedural fairness. No broader precedent was established beyond the facts of this case. The ruling underscores a pragmatic approach to statutory construction in insolvency proceedings, favoring substance over form and protecting the continuity of business rescue efforts.