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Indecent Proposals: Tenants giving notice of intention to appoint administrators

It has long been a bone of contention for landlords that tenants can simply file a notice of intention to appoint administrators in order to get an automatic moratorium against any enforcement action.  This prevents a landlord from forfeiting, suing or exercising CRAR irrespective of whether the tenant goes into administration and, seemingly, whether it ever really had such an intention.

Not anymore.  On 11 April 2017, the Court of Appeal handed down judgment in JCAM Commercial Real Estate Property XV Limited v Davis Haulage confirming that any notice filed without a settled and unconditional intention to appoint administrators was an abuse of the court’s process, and liable to be struck out.  It is a welcome decision for landlords concerned about tenant companies playing the insolvency process for their own ends.

The case was about warehouse premises in Crewe where the tenant, Davis Haulage, had built up considerable arrears.  By January 2016, the landlord had had enough and issued forfeiture proceedings.  Unknown to the landlord, the tenant had shortly beforehand filed at court a notice of intention to appoint administrators.  The result was that, under paragraph 44 of Schedule B1 to the Insolvency Act 1986, forfeiture was a breach of the statutory moratorium and the landlord could not continue the proceedings without the court’s permission.  This moratorium lasted 10 business days, but the tenant went on to file three further notices giving it a much longer period of protection.

By the time the tenant filed the fourth notice, it had proposed a company voluntary arrangement (CVA) to compromise its debts.  The tenant’s justification was that, if the CVA was not approved by its creditors, then it would have to consider selling the business through a “pre-pack” administration.

The landlord made an application to have the fourth notice struck from the court’s file on the basis that the tenant did not have a fixed or settled intention to appoint administrators.  The decision turned on the wording in paragraph 26(1) of Schedule B1, which requires anyone who “proposes” to appoint an administrator to give notice of intention to certain parties.  At first instance, the judge found for the tenant, saying that someone can propose to do something without having any settled intention.

This has now been overturned on appeal.  The Court of Appeal said that if “propose” did not mean “intend” in this context then it would not be called a “notice of intention”.  The real issue, however, was whether that intention could be conditional, and the court said that it could not.  This followed from the facts that a company proposing to appoint was obliged, not just entitled, to give notice and that the purpose of it was to give qualifying floating charge holders and others a chance to exercise their prior right to appoint.  It was also relevant that a process was available for small companies proposing a CVA to obtain a moratorium; if the tenant was right then this would be redundant and any company, large or small, could file a notice to get a moratorium.

Whilst the court stopped short of saying that the tenant or its advisers had filed notices without believing it was entitled to do so, it made clear for the future that any notice filed with only a conditional intention to appoint administrators would not be validly given.

JCAM Commercial Real Estate Property XV Limited v Davis Haulage [2017] EWCA Civ 267