Notice punctuality is much more than a virtue for IPs.
Many actions by office-holders (or directors in respect of prospective appointments) require the delivery of a notice to categories of persons (typically creditors), providing certain specified notice periods.
The Insolvency (England and Wales) Rules 2016 formalised the rules around notice, deemed date of delivery and calculation of time periods. The Scottish equivalents of these rules came into force in April of this year, and the issues discussed below are of equal application to appointments in Scotland.
Working in the world of compliance, we are frequently invited to review clients’ case files. On a number of occasions in recent months, we’ve seen files where insufficient notice has been given to persons entitled to receive it. The legal effects of short notice are debatable, but what is certain is that any doubt about the validity of a resolution will be extremely unwelcome.
In many cases, we are talking about simple and avoidable calculation errors resulting in short notice by a single day. In this article we will examine what difference a day can make. The criteria are all clearly set out, so why are we seeing so many instances of short notice?
One area of confusion seems to be that delivery is itself subject to rules around when it is deemed to have taken place. The deemed date of delivery is calculated with reference to the delivery mechanism employed and is based on business days. It does not, therefore, include weekends and UK Bank Holidays.
The deemed date of delivery is not included within the calculation of the notice period, so is effectively day zero, not day one. By way of example, if you mail by first-class post on the Friday before a Bank Holiday weekend, the deemed date of delivery is not until the following Wednesday and day one of the notice period does not commence until the Thursday.
Notice periods in excess of five days are based on calendar days, not business days, and the default position for notice periods is 14 clear days, unless specified to the contrary. Clear days means including neither the day of delivery, nor the day of the event. So, when fixing a decision date, you must typically add 15 days to the date of deemed delivery, not 14 (as we frequently see).
It’s well known that proposals must be sent to creditors within eight weeks of appointment and, where a decision on those proposals is sought, for the initial decision date to be within ten weeks.
However, the rules require 14 days’ notice of the decision date to be given. So, if you exclude the date of the decision itself, the date of delivery and the deemed delivery period, sending out proposals on the last day of the eight weeks necessarily means the initial decision date will not fall within the ten weeks and an extension will be required. We’ve seen a number of cases where practitioners have sent their proposals out on the last day of week eight, seeking to hold the decision on the last day of week ten, with the effect that creditors have received short notice of the decision.
The legal effect of short notice is debatable. Some comfort can certainly be drawn from rule 12.64 – ‘Formal defects’ (Scottish equivalent: rule 1.56), which provides that
‘No insolvency proceedings will be invalidated by any formal defect or any irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court.’
But that comfort might be rather cold if the defect is in the appointment process. In Pui-Kwan v. Kam-Ho it was held that the predecessor of this rule (r7.55) was only available once there was a valid insolvency appointment (and not in that case, to cure a defect in an inquorate board meeting at the inception), and in Minmar we saw an administrator’s appointment held to be invalid for a lack of notice to the company. Although in a recent and more encouraging decision, Cash Generator Ltd v. Fortune and others, the liquidators’ appointment was held valid despite a failure to give all creditors notice of a deemed consent procedure.
Short notice will necessarily give rise to rights of challenge by those affected, even if not the automatic invalidity of the process. The consistent message from regulators is that they expect any defects on the approval of remuneration to be remedied (and remuneration to be repaid in the meantime).
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