This High Court case provides a modern interpretation of Rule 12.64 of the Insolvency Rules 2016, which allows courts to overlook technical errors in the appointment of administrators.

Facts:

Mrs. Perhar developed an innovative electric toothbrush and, despite personal financial constraints, secured a major distribution agreement with the retailer Aldi for over a thousand stores across Europe. The Sustainable Bathroom Company Ltd. was incorporated on 11 January 2019 as the vehicle through which to “grow and develop” what was then just an idea.

To fund the production of this order, the company entered into a facility agreement in March 2022 with Synergy in Trade Ltd., which was secured by a debenture which included a floating charge over the company’s assets and strict trust obligations requiring all customer payments to be directed into a specific account controlled by the lender. However, when Aldi finally began paying for the toothbrush orders in early 2023, the funds – totalling hundreds of thousands of Euros – were mistakenly paid into a Revolut account rather than the designated trust account.

Rather than transferring these funds immediately to the lender as required by contract, Mrs. Perhar treated the money as if it were her own share of the profits. Throughout this period, she provided the lender with “filtered” bank statements that obscured these withdrawals, leading the lender to grow increasingly suspicious. Despite attempts by Synergy’s directors to reconcile the accounts and stabilise the business through several meetings and a third-party consultant, Mrs. Perhar failed to provide unredacted financial records or return the missing funds.

The situation reached a breaking point on 5 June 2023, when Synergy issued a formal demand via email and appointed administrators just hours later. Mrs. Perhar challenged the validity of these appointments, alleging that the lender had an “improper motive” to destroy her business and that the notice of enforcement was technically defective.

Decision:

The High Court dismissed the application. Ultimately, the Court found that the company had committed serious breaches of trust by diverting the Aldi money and was effectively insolvent. The Judge concluded that the lender was fully entitled to protect its interests. The central pillar of the Court’s reasoning was that the floating charge became enforceable the moment the contract was breached. Under Paragraph 16 of Schedule B1 to the Insolvency Act 1986, an administrator cannot be appointed unless the charge is enforceable. Because Mrs. Perhar had diverted Aldi funds to her personal accounts, thereby breaching the “trust clauses” in both the facility letter and the debenture, the right to appoint administrators had already arisen.

Even if the email was a technical breach of the debenture’s notice terms, the Court applied Rule 12.64. This rule states that a technical defect does not invalidate an insolvency proceeding unless it causes “substantial injustice”. Since the company was insolvent and Mrs. Perhar had no means of raising the sum of almost £400,000 required to stop the enforcement, the lack of a two-day “buffer” made no practical difference, as the company would have ended up in administration regardless.

The Judge followed the Aartee Bright Bar precedent, which asks: (1) was there an improper motive? and (2) whether the Court should exercise its discretion to stop the administration? The Court found Synergy’s motive to have been purely commercial. The Judge noted that, even if the motive had been slightly improper, the Court would not have handed the company back to Mrs. Perhar as the business was already “finished” professionally, had no up-to-date accounts, and had significant liabilities. As a consequence, simply handing it back would have led to a second insolvency process within days.

Implications:

A fundamental principle of company law is that a company is a separate legal entity from its directors and shareholders. This case has restated that, even in a “one-man” company, a director cannot treat corporate funds as a ‘personal piggy bank’.

Doing so is not only a breach of fiduciary duty but also a “misapplication of company property,” which justifies immediate intervention by creditors.

Trust clauses in lending agreements are not merely “bureaucratic” requirements. For directors, this means that “robbing Peter to pay Paul” – even if done with the intent of saving the company or supporting the director’s survival – is a terminal event. Once a trust is breached, the lender’s right to enforce its security becomes absolute, regardless of the company’s future potential.