The 10 day Notice of Appointment Moratorium: When does the bell toll?
Rollits' Insolvency Team regularly assists Companies, Directors and Insolvency Practitioners in relation to the appointment of an Administrator. This frequently involves advising a Company or its Directors upon the "Out of Court" appointment process in circumstances where there are unsatisfied Floating Charges, necessitating the filing at Court, and the subsequent service upon all Qualifying Floating Charge holders, of a Notice of Intention to Appoint an Administrator ("NOI") prior to any further action being able to be taken by the Company or its Directors to appoint an Administrator.
When the NOI procedure is followed, an NOI is filed at Court, following which it is sealed by the Court and endorsed with the time and date that the NOI has been filed. Once the NOI has been filed, the Company receives the benefit of an interim moratorium lasting 10 business days which prevents any action being taken against the Company by its creditors to enforce any debts against the Company or its assets.
One issue that often arises in the course of a matter involving the NOI procedure is that there can be some confusion as to when the 10 day moratorium expires. Upon the expiry of the 10 day period, the moratorium provided by the filing of the NOI automatically terminates, following which the Company is exposed to third party action once again. It is important to know, therefore, when the moratorium both starts and comes to an end, so as to ensure that prior to the shield provided by the moratorium disappearing, either
- a Notice of Appointment of Administrator ("NOA") is filed; or
- if it is not possible to file a NOA, a further NOI is filed, creating a new 10 day moratorium (the filing of successive NOIs is a subject that will be covered by a further article)
Para 44(4) of Schedule B1 Insolvency Act 1986 states that the interim moratorium "applies from the time when a copy of notice of intention to appoint an administrator is filed with the Court" .
When filed at Court, the NOI is both sealed by the Court and also endorsed with the date and time that the NOI is filed. It is at this time that the moratorium begins.
Para 28(2) Schedule B1 Insolvency Act 1986 states that an NOI expires "after the period of 10 business days beginning with the date in which the NOI is filed".
But is that literally a 10 business day period later - that is, 240 hours after the time endorsed on the NOI - or is it at 11:59:59pm on the tenth business day?
The High Court has previously held that a period of administration ends on its final day at the same time at which a Company originally entered administration. As the wording of paragraph 28(2) Schedule B1 Insolvency Act 1986 is similar to paragraph 76 Schedule B1 Insolvency Act 1986 (which deals with when a period of administration ends), it had long been considered that the 10 business day NOI moratorium expired 240 hours (not including non-business days) at the time the NOI was previously endorsed by the Court. This, in my experience, is the approach adopted by lawyers and Insolvency Practitioners in the past when calculating when the moratorium expires, as it is the earliest point in time that the 10 business day period could expire.
However, in the 2017 case of JCAM Commercial Real Estate Property XV Ltd v Davis Haulage Ltd (which dealt with the filing of successive NOIs and the requirement for the Company/Directors to have a genuine intention to appoint when using the out of Court NOI procedure), the Court of Appeal commented that an NOI filed by directors in that case (but it would apply equally when the NOI was being filed by the Company) during the course of a Friday expired "at the end [of the second following Friday] by operation of paragraphs 44(4) and 28(2) of Schedule B1".
The judgment does not record what time the NOI in that case was first filed, nor did the Court of Appeal explain what they meant by "the end" of the Friday in question. Some commentators have interpreted this as meaning just before midnight on the day the NOI expires. If that is correct, an NOI filed on Thursday 10 January 2019 would expire at 11:59:59pm Thursday 24 January 2019.
For my part, I am not sure whether that is correct, not least because the filing of NOIs occurs, in my experience, during 10am - 4pm, being the standard Court opening hours, wit the Court Rules making no provision for the filing of an NOI 'out of hours'.
Personally, I would be wary of proceeding on the basis that an NOA, or a further NOI, can be filed at any time of the tenth business day. If an NOI was endorsed "10:05am 10 January 2019", it would, in my view, be advisable to calculate exactly when 10 day business days measured from 10:05am on 10 January 2019 expired - 10:04:59am 24 January 2019 - and then look to file
- in the case of an NOA, an NOA before 10:05am on 24 January 2019;
- in the case of a further NOI, another NOI just before, or no later than, 10:05am on 24 January 2019;
This approach relies both on a literal interpretation of Para 28(2) Schedule B1 Insolvency Act 1986, and, in the case of the filing of successive NOIs, upon it also being possible for a further NOI to be filed before the 10 business day moratorium created by a previous NOI expires. The widely held view is that this is possible, although again this is not a result of a clear unequivocal judgment by the Court. Instead, the absence of criticism by the Court of Appeal of the directors in the JCAM case who had, based on the Court of Appeal's view on when NOIs expired, filed new NOIs before previous NOIs expired, has been inferred to be judicial validation of the notion that a new NOI can be filed before the 10 business day moratorium created by a previous NOI expires. The risks associated with a third party challenging the validity of an Administrator's appointment on the basis that an NOA was filed after 10 day moratorium expired, due to concerns connected to the filing of successive NOIs, or a third party filing a Winding Up Petition between the time the expiry of a literal 10 day period and the end of the day on which the 10 day period expires, can all be avoided by
- the appointment of an Administrator prior to the expiry of the 10 business day moratorium; or
- filing a formal application at Court for an Administration Order (in which case an interim moratorium is in place until the application is determined) It is appreciated, however, that for one reason or another, neither of these options may be appropriate.
A further article will follow shortly which will cover whether, in light of JCAM, it remains possible to file more than one NOI. In the meantime, if you have any queries arising from this article, or would like to suggest a topic for a future article, please contact Chris Drinkall, Partner and part of Rollits' Insolvency Team, on 01482 337367 or firstname.lastname@example.org. Chris can also be followed on Twitter at @drinkall_chris and on LinkedIn
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.