One Blackfriars is an asymmetrical tower overlooking the Thames, which has been nicknamed “The Boomerang” due to its shape. The land was sold to a company (which subsequently took its name from the site) for £52m in 2006. But the worldwide economic climate changed dramatically and, when the company defaulted on its obligations, its lenders appointed administrators. They instructed selling agents to market the land with the benefit of a planning permission for development secured by the company, and sold the site to a developer for £77.4m at the end of 2011.
Key points
- The High Court has dismissed claims that administrators sold a development site in London at an undervalue
- The decision confirms that administrators cannot be held liable in negligence if they reasonably rely on advice from selling agents who appear to be competent
- The court noted that valuations are necessarily hypothetical and highlighted the importance of a sound marketing process to determine whether land is being sold at the best price
The developer applied for permission to vary the approved scheme and construct the development that exists today. Consent was granted in December 2012 and, when the developer filed its accounts four months later, it valued the site at £238m, causing the liquidators of the company to criticise the administrators for failing to obtain an independent valuation and to claim that the land, which the directors had valued at £135m, was sold at an undervalue – even though a sale at £82.5m had fallen through. The subsequent 132-page judgment in Hyde and another v Nygate and another [2021] EWHC 684 (Ch); [2021] PLSCS contains useful guidance for those involved in such sales.
Professional advice
Administrators must exercise reasonable care and skill in the performance of their functions to the standard of ordinary, reasonably skilled and careful insolvency practitioners. And, when selling, the judge ruled that they must obtain the best reasonably obtainable price that the circumstances, as the administrators reasonably perceive them, permit.
The administrators relied on a ruling in Davey v Money and another [2018] EWHC 766 (Ch) that administrators could not be held liable for a sale at an undervalue if they reasonably relied on professional advice that appeared to be competent. The liquidators argued that this was wrong.
They pointed to Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 and Raja v Austin Gray [2003] 1 EGLR 91 – which confirm that mortgagees and their receivers cannot escape liability for sales at an undervalue by claiming that they entrusted the sale to apparently competent professionals – and claimed that the obligation to sell at the best price reasonably obtainable is non-delegable.
The judge decided to follow Davey. He explained that administrators act as agents of a company in administration and are liable for any negligence in their choice of agent. And, if an apparently competent agent causes loss to a company while acting on its behalf, that too is a cause of action that vests in the company. So the liquidators could have sued the selling agents themselves, but chose not to, and there was no need to extend the strict liability that applies to mortgagees and receivers to administrators, too.
Was it appropriate to appoint selling agents who had previously advised the company’s lenders? They knew the site and its planning history, had the skills to bring it to market and effect a sale, and had a duty to advise the administrators competently.
Furthermore, there was nothing to suggest that there was a conflict of interest between the interests of the lenders and other creditors, or that the agents had continued to advise the lenders after the administrators were appointed, or that their views were unreliable. Consequently, the judge was not persuaded that no reasonable insolvency practitioner would have appointed them, or relied on the advice given.
Administrators’ duties
An administrator, as an agent for the company, owes it a duty of care when choosing when to sell and, by parity of reasoning, according to the Court of Appeal in Silven Properties v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2003] 3 EGLR 49, in deciding whether to take pre-marketing steps to achieve the best price. The liquidators did not refer to that analysis, which was also cited in Davey, but did suggest that the administrators should have sought an amended planning consent for the site.
However, such an application would have cost between £500,000 and £1m and delayed matters considerably, while the company’s debt continued to accumulate. A refusal might have tainted the price and, because the bidders were sophisticated developers with ideas of their own, it had been reasonable to implement the permitted scheme, highlight the planning potential (providing such comfort as could be obtained about the prospects of obtaining an amended planning consent) and seek bids with an element of hope value, rather than pursue an application for permission that bidders might consider unsuitable.
It was not wrong to sell the site unconditionally. Bidders could have submitted conditional offers, although a sale subject to planning permission would have caused delay and uncertainty and been complicated to document. Nor would an overage provision have answered.
It would have elicited lower bids, been difficult to agree, created uncertainty about the amount due, if any, and deferred payment in full.
Price
The site was fully exposed to the market, both in the UK and internationally. The bidding process was open and fair and there was no better evidence of the market value of land on the day of sale than the price achieved following a sound marketing and sale process. The company’s directors had worked tirelessly, but had not found an investor to outbid the developer, or to take it out of administration.
So, if the developer had secured a bargain, that was because it had seen something that no-one else with the resources to develop the site had spotted.
Allyson Colby is a property law consultant
