UK court approves the appointment of administrators even when the secured creditor was not notified

Re Zoom UK Distribution Ltd (in administration); Wessely and another (in their capacity as joint administrators of Zoom UK Distribution Ltd (in administration)) v Rubra and others

The UK courts' latest attempt to grapple with the effects of a defect in the way administrators are appointed was recently resolved in favour of the administrators.

The UK system is unusual internationally because administrators can be appointed "out of court", without the need for the approval of a judge. However, a weakness in this procedurally "lite" approach is that problems with the way the administrators are appointed may only be unearthed weeks or even months afterwards, with the administrators and the company left to apply to court for a ruling, with the risk that their appointment is declared invalid.

In the case of Zoom UK Distribution Limited, months after the administrators were appointed they discovered that, due to an error in a filing at Companies House, the secured creditor had not been given prior written notice of the intention to appoint administrators. This meant that the secured creditor had not had the opportunity to nominate an alternative administrator.

The secured creditor, when it was finally approached, consented to the appointment and the administrators applied to the court for a ruling on whether their appointment was valid.

What did the court decide?

• The court held that the administrators' appointment was not void, but rather defective and capable of cure. The breach was not fundamental and had not caused substantial injustice, and the importance of there being an administration ranked above the importance of receiving notice. 
• It followed that the acts of the administrators since the date of appointment were valid despite the defect.

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.