Hyde and another (as joint liquidators of One Blackfriars Ltd) v Nygate (as representative of estate of Bannon, former joint administrator of One Blackfriars Ltd) and another – Company – Insolvency – Breach of duty – Claimant joint liquidators of company claiming damages from defendant former administrators alleging loss resulting from mishandling of administration – Whether defendants failing to act independently and in accordance with legal duties – Whether defendants failing to properly assess value of development site – Whether site sold at undervalue – Claim dismissed
A syndicate of banks provided the company with a facility to refinance a loan which the company used to purchase a plot of land at 1-16 Blackfriars Road, London. In September 2010, the company defaulted on its obligations under the facility and demand was made for immediate repayment of the then outstanding sum (£61.4m). When the sum was not repaid, the syndicate appointed the defendants as administrators under a legal charge held as security for the facility.
The site was marketed on behalf of the defendants and ultimately sold in December 2011 for £77.4m. Having obtained permission from the local planning authority to vary a previously approved scheme, the purchaser developed the site as a 50-storey 170 m high tower containing 274 residential flats and two smaller buildings, containing a 161-room hotel and retail units.
The claimants were appointed as the joint liquidators of the company in March 2016. They alleged that the administration had been mishandled by the defendants from the outset. The claimants alleged that the site was sold at an undervalue and that, had the defendants complied with their statutory and common law obligations, the company could have been saved as a going concern. The claimants contended that the defendants had failed to act independently and in accordance with their legal duties; and failed to properly assess the value of the site, in particular its planning potential.
The defendants argued that by the time the company fell into administration the scheme for which it had obtained consent was no longer financially viable and the company was hopelessly insolvent. Therefore, it was reasonable to sell the site in the interests of all the creditors. Further, they took appropriate planning advice from a leading planning consultant and sold the site for its then market value.
Held: The claim was dismissed.
(1) Pursuant to para 3 of schedule B1 to the Insolvency Act 1986, the administrator of a company had to perform his functions with the objective of: rescuing the company as a going concern (objective 1); achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration) (objective 2); or realising property in order to make a distribution to one or more secured or preferential creditors (objective 3). An administrator would usually take an initial view before being formally appointed as to which objective (or objectives) might be practical to pursue. In many cases, it would be obvious even before appointment that objective 1 was not reasonably practicable. The decision as to which objective was reasonably and practicably achievable was a matter for the judgment of the administrator. Whether a court order was made at the outset or not, all the options remained open and the administrator might have to change tack: Key2Law (Surrey) LLP v Gaynor De’Antiquis [2011] EWCA Civ 1567 followed.
It was clear from the terms of para 3 that one of the main duties of an administrator was to form a judgment as to which of the statutory objectives of the administration he or she was going to pursue. That was a dynamic and iterative process which involved the exercise of commercial judgment. It began before, and continued after, appointment. An initial view would almost always be formed and pursued in the early stages of any administration. That would then be followed by a firm decision. That decision was required to be taken at the latest after the expiry of eight weeks from the day the company entered into administration and had to be expressed in a formal statement to creditors as to which statutory objective was being pursued. However, that choice had to be kept under review because the appropriate objective might change in the course of the administration (as circumstances changed or further information emerged). The duties and responsibilities of the administrators took effect from the moment of appointment and not before.
(2) In the present case, the defendants had fully complied with their statutory and other duties throughout the course of the administration. They had due regard to the interests of all the creditors and the company, in the light of the circumstances as they reasonably perceived them to be and the advice which they received. The defendants gave proper and genuine consideration to the statutory objectives of the administration and gathered sufficient information to determine which statutory objective to pursue. The statutory proposals accurately identified objective 3 as the objective the defendants were pursuing; and they reasonably left it to the joint venture partners and the directors of the company to seek out potential investors (which they did albeit unsuccessfully); and they appropriately took, and gave proper consideration to, the advice they received on planning, marketing and sales matters.
(3) It was reasonable for the defendants to leave it to interested purchasers to decide with the benefit of their own expert advisors what extra value might be generated from an amendment to the planning consent, given their intended reconfiguration and what the chances were of obtaining the necessary permission. Having received expert advice, the defendants decided that the appropriate strategy to pursue was to implement the permitted scheme (albeit with modified conditions), explore with expert architectural assistance potential reconfigurations for the site, obtain some reassurance from the local authority in the form of comfort letters about the prospects of obtaining an amended planning consent and to use the letters and configuration ideas to assist with the marketing of the site.
In all the circumstances, it was reasonable to allow a properly conducted marketing and bidding process to determine the value of the site. The defendants reasonably decided to give preference to an unconditional sale of the site without overage provisions but did not preclude bidders from making conditional offers. The bidding process was appropriately conducted and the defendants took reasonable steps to obtain the best reasonably obtainable price for the site and the price obtained was its then market price.
Simon Davenport QC and Tom Poole (instructed by Humphries Kerstetter LLP) appeared for the claimants; Justin Fenwick QC and Ben Smiley (instructed by Mayer Brown International LLP) appeared for the defendants.
Eileen O’Grady, barrister
