If the sole director is not authorised by company articles to act alone, can the Court make the order anyway?

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The Applicant director applied, in breach of the company’s articles, to Court for administration orders regarding Brickvest Limited and three group companies.

The Court was satisfied that the jurisdictional requirements set out in paragraph 11 of Schedule B1 to the Insolvency Act 1986 were made out, namely that:

1.     The company is or is likely to become unable to pay its debts.

2.     The administration order is likely to achieve one of the purposes of administration.

The difficulty facing the Court was that the Applicant was the sole director and the company articles contained conflicting provisions about whether he could act alone. On balance, the Court found that the articles could not be read as entitling the Applicant to properly act on his own.

The Court recognised, however, that administration applications are made in circumstances of urgency and that to delay making the order (to allow the irregularity to be rectified) could cause risk of trading whilst insolvent or the purpose of administration order being thwarted.

The Court concluded that it should approach the matter of standing as a discretionary issue, rather than a mandatory jurisdictional requirement.  In the situation here, where the director was left alone through no fault of his own, a refusal to grant the orders would be a grave injustice. Accordingly the Court made the Administration Orders sought.

It is established that an out-of-court appointment of administrators will be defective if the resolution in support is invalid (albeit that the defect may be cured on an application to Court). This is understandable since the out of court process naturally proceeds without the additional scrutiny of the Court. The present decision provides a welcome pragmatic approach where the Court is faced with a meritorious application but where there are potential irregularities in the Applicant’s standing.

 Lumineau v Berlin Hyp AG (Re Brickvest Limited and others) [2019] EWHC 3084 (Ch)

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