Invalid appointment of administrators

Senior solicitor Emma Gifford raises awareness of a recent concern regarding the invalid appointment of administrators. If you are a company director, beware of acting in a way that is contrary to the articles of association of your company, even if the action may on the face of it seem logical. This was a point discovered, to his cost, by the director of BW Estate Ltd.

The company had two registered members, one of which was its sole director and the other was a dissolved company. The director decided to put his company into liquidation and accordingly appointed an administrator. However, the articles of association for the company required a quorum of two directors at board meetings and creditors of the company challenged the appointment.

The first point addressed was whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986 (as inserted by section 248 of the Enterprise Act 2008). The creditors contended that the sole director was not entitled to make any valid appointment, when there was no second director to make up a valid quorum of two directors and the court agreed.

The second point addressed was whether the company could have a quorum of one for a members meeting, given that the sole director owned 75% of the shares and the other 25% of the shares were owned by a dissolved company.

On the second point, the court referred to the companies register which still showed the (dissolved) company as a shareholder. The word “member” in the articles of association and in the Companies Act 2006 includes “any member registered on the company’s register, whether alive or dead, and, if corporate, whether subsisting in an insolvency procedure or dissolved”. As such the court ruled that BW Estate Ltd was still a two-member company.

The court concluded that the appointment of the administrators was invalid.

If you would like assistance in relation to a company commercial matter, call Emma on 01983 817060 for further information.

 

 

 

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