This is the curious case of Christopher Brooksbank, who applied for sanction to sell various assets of Business Dream Ltd in his capacity as liquidator prior to a creditors’ meeting, only to find he was no such thing ([2011] EWHC 2860 (Ch)). Judgment was given on 2 November. The full (but succinct) case report is here:

http://www.bailii.org/ew/cases/EWHC/Ch/2011/2860.html.

In brief, Mr Brooksbank was purportedly appointed CVL liquidator at a creditors meeting called following a members meeting which took place at a time when not only was there an outstanding winding up petition against the company (of which everyone was unaware) but also there was a 2-day old Notice of Intention to appoint him as administrator. Sitting in the High Court in Leeds, His Honour Judge Behrens held, inter alia, that:

  1.  The convening of the members’ meeting and its resolution was void because of the moratorium created by the Notice of Intention;
  2.  The existence of the winding up petition did not save the meetings by retrospectively invalidating the Notice of Intention;
  3.  Notices of Intention alone in the face of a winding up petition were not necessarily an abuse of process.

It followed that the Judge concluded Mr Brookshank was not validly appointed by the members of the company. He did not need to consider the application for sanction to sell, although he did so obiter suggesting that evidence of consent to sale by the largest unconnected creditor might well have persuaded him to sanction it (although that evidence was not immediately available). He did not seemingly have the benefit of detailed argument and authority. The Judge gave permission for the application before him to be amended to join the directors of the company so they could apply to withdraw the Notice of Intention, thus to clear the way for a valid members meeting to take place before the scheduled creditors meeting. An assumption seems to have been made that the pre-existing notice to creditors could stand as valid, probably assuming the Notice of Intention would by then have been withdrawn.

This is just the latest in a string of cases which should remind insolvency practitioners and those appointing them of the importance of getting the correct ducks in the correct rows before an appointment is made. Acts and applications done or made by IPs in the absence of a valid appointment are normally undertaken at their own risk (subject of course to any indemnities they may have from the directors), but acts may also be invalidated and/or sales lost if one does not proceed with caution as well as speed. If not, we risk turning our Business Dream into a Business Nightmare!

For more information on this topic please contact our specialist insolvency partner Mike Pavitt.