Can one director appoint administrators where the other opposes?

Overview

In this case, the Court ruled that one of two directors of a company has no standing to apply to court for the appointment of an administrator in circumstances where there is no majority of the board and no valid resolution of the board in favour of the application.

Background

Ms Abigal Boura (the “Applicant”), a director and shareholder of LYHFL Limited (the “Company”), brought an application seeking the appointment of an administrator in respect of the Company. She sought the application as "the director of the company under paragraph 12(1)(b) of Schedule B1". The Company was not represented, but the application was opposed by Mr Leigh Harmer (the “Opposing Director”), the other director and shareholder of the Company, on the principal ground that one of two directors has no standing to apply for an administrator.

The relationship between the Applicant and the Opposing Director became acrimonious after their personal relationship ended. Each side argued that the other had acted in breach of their fiduciary duties as a director. The Applicant argued that the Company was already or was likely to become unable to pay its debts. The Opposing Director denied this and accused the Applicant of attempting to use the application to engineer a quasi pre-pack without board approval.

The Court’s Decision

Paragraph 12(1) of Schedule B1 provides that an application to the court for an administration order in respect of a company may be made only by the company or the directors of the company. The Opposing Director argued that “the directors" in paragraph 12(1)(b) means all or a majority of the directors acting pursuant to a valid board resolution, and that the word "only" means that the court has no power to hear the application unless it is made by a person or persons who fall within one of the categories in paragraph 12(1).

The Applicant took the position that the court had the power to make the order, citing the decisions of Re Brickvest Ltd [2019] EWHC 3084 (Ch) and Re Nationwide Accident Repair Services Ltd [2020] EWHC 2042 (Ch). In both cases the Court appointed administrators on the application of the sole director.

The Court examined the case law on the issue, including the following:

• Re Equiticorp International plc [1989] 1 WLR 1010, which decided in relation to the predecessor to section 12 that the phrase "the directors" does not require unanimity among the directors; nevertheless it is necessary to have a resolution passed by a majority at a properly constituted board meeting.

• Minmar (929) Ltd v Khalastchi [2011] BCC 485, which makes it clear not only that a decision of the directors must be made by all or a majority or the board, but also that it must be at a properly convened board meeting.

The Court then turned to the decisions cited by the Applicant and found that they may be able to be distinguished on the basis that the issue was whether “the directors” includes the sole director where there is only one director, in breach of the quorum provision in the articles. Even if the decisions cannot be distinguished, the Court was satisfied that this was one of those rare cases where it should depart from those decisions.

Conclusion

As a result, the Court concluded that one of two directors has no power to apply to court under paragraph 12(1)(b) for an administration order without the approval of the majority of the directors and without a valid board resolution.

Judge: Mr David Kalpern KC

Counsel: Mr James Knott of 4 Stone Buildings (instructed by PDT Solicitors) for Mr Leigh Harmer (the Opposing Director)

Mr Geoffrey Zelin of Enterprise Chambers (instructed by HCR Hewitsons) for Ms Abigal Boura (the Applicant)