Patisserie Valerie and clarifying non-compliance

15 April 2022

The decision in a case involving the Patisserie Valerie chain's insolvency takes a pragmatic approach to the issue of non-compliance with the requirements of Sch B1 of the Insolvency Act 1986 (IA 86) and the Insolvency (England and Wales) Rules 2016.

The court applied the 'fundamental breach/injustice' test approved in Re Zoom UK Distribution Ltd (in administration) which, in fact, largely approved ICC Judge Jones's summary of the law in Re Tokenhouse. This test provides that when assessing the result of non-compliance with a procedural rule due to failure to do something in a prescribed manner, then the court should decide whether Parliament's intention was that such failure would be a fundamental breach or merely an irregularity capable of remedy provided that no substantial injustice has been caused. That approach is in contrast to one which would ask whether the relevant act was a nullity because it was purportedly carried out on the basis of a power which did not exist (eg where there is no power to appoint).

On the facts, ICC Judge Jones held that the failure by the administrators to comply with a rule for nominating a liquidator was not fundamental and did not cause injustice. There were several breaches leading to that point, but ICC Judge Jones found that none were fundamental and none caused injustice:

• the administrators' initial proposals were rejected by the creditors. The administrators presented modified proposals to the creditors' committee that approved them - it was accepted that it had no power to do so. The failure by the administrators to apply to court on rejection of their proposals was in breach of para 55 Sch B1;

• when initially forming the creditors' committee, the administrators had not sought a decision from all the creditors as to the membership of that committee. That was a breach of rule 17.5;

• the administrators acted on the proposals approved by the creditors' committee (as above, such approval being in breach of the IA 86) and exited administration into creditors' voluntary liquidation pursuant to para 83 Sch B1. However, the liquidators were not nominated by the creditors as a whole which was a breach of para 83(7) and rule 3.60(6); and

• given they had not been nominated by the creditors as a whole, the subsequent liquidators should have been the former administrators but they were not. That was a breach of para 83(7)(b).

Applying the 'fundamental breach/injustice' test, none of the breaches above affected either the validity of the administrators' appointment or that of the subsequent liquidators. This is a useful decision emphasising a real-world approach to non-compliance with procedure. See in Re Patisserie Holdings Plc (in liquidation) [2021] EWHC 3205 (Ch).

This article first appeared on the Linklaters Insolvency Bitesize blog.

Paul Sidle is counsel PSL in the restructuring and insolvency group at Linklaters.