MVLs: QFC holders – take no notice?
Insolvency Bitesize - April 2018
A recent High Court decision suggests that an accidental failure to give notice of a winding-up resolution to a qualifying floating charge holder will not invalidate the appointment of a members’ voluntary liquidator. But, you should still take care to ensure this step has been carried out or risk seeing your well-planned MVL strategy unravel.
The Insolvency Act provides that a company “must” give written notice of a proposed winding-up resolution to any QFC holder. The winding-up resolution may be passed only after the end of the period of 5 business days beginning on the day the notice was given; or earlier with the written consent of the security holder.
In a recent case, no notice had been given to HSBC as QFC holder. The MVL liquidator had since converted the MVL into a creditors’ voluntary liquidation, but the joint CVL liquidators applied to court to determine if they had been validly appointed. That depended on whether the original MVL liquidator had been validly appointed, despite the failure to send HSBC the required notice.
The High Court confirmed that notice should be given to a QFC holder, even if the charge is not yet enforceable. But, the failure to notify the QFC holder was not necessarily fatal to the appointment. The validity of the winding-up resolution could not be impugned if it was passed in accordance with the company’s articles of association. Case law suggesting that such notice in an administration context would invalidate an administrator’s appointment was of limited assistance.
The High Court came to this conclusion because it considered that the power to wind-up voluntarily is vested in the members, derives from legislation pre-dating administration and requires only a special resolution. As such, it could not have been Parliament’s intention to render a resolution ineffective simply by inserting a requirement of notice to a third party, even where that party is unaffected and did not object.
What does this mean for the obligation to notify QFC holders of an MVL?
- failure to give notice to a QFC holder is not fatal: accidental failure will likely not invalidate the MVL liquidator’s appointment for the reasons given in this case; but
- giving the QFC holder notice remains significant: a dissatisfied QFC holder could petition for the compulsory winding-up of the company or even apply for a stay of the MVL to enable the appointment of an administrator.