UK: High Court Approves 'Light Touch' Administration And Clarifies Administrators' Duties

Last Updated: 26 April 2018
Article by Tom Withyman

Originally published by Out-Law.com

  • High Court approves 'light touch' administration
  • Provides guidance to administrators when realising company assets
  • Julie Anne Davey v James Money & Jim Stewart-Koster (as former joint administrators of Angel House Developments Limited); Dunbar Assets plc v Julie Anne Davey [2018] EWHC 766.

Speed Read

LEGAL UPDATE:  A High Court ruling has given administrators guidance on "light touch" administrations, and on how they can minimise their risk of liability for breach of duty when selling company assets.

It has also opened up the possibility for the first time that a charge-holder can be liable for an administrator's breach of duty if the administrator is acting as an agent of the charge-holder.  The possibility of such liability for charge-holders has existed where receivers are appointed but the judge's suggestion that it might arise in an administration is a new concept.


Julie Davey, the sole director and shareholder of Angel House Developments Ltd (AHDL), alleged extensive breaches of administrators' duties. The High Court found in favour of the administrators and dismissed Davey's counter-claim that the charge-holder Dunbar Assets plc was liable for alleged breaches by the administrators.

Davey alleged that the administrators of AHDL breached their duties as administrators by:

  • conducting a "light touch" administration in which they failed to exercise independent judgment;
  • instead paying excessive regard to the interests and wishes of Dunbar;
  • failing to take steps to involve Davey in the administration; and
  • selling the property of AHDL at an undervalue in reliance on unsuitable agents and an improper marketing campaign.

Davey also alleged, amongst other allegations, that Dunbar directed or interfered in the conduct of the administration so as to make the administrators its agents and that Dunbar was therefore liable for their alleged breach of duty.

General guidance for administrators when realising company assets

The High Court said that the administrators had not breached their duties in this case. However, in addressing all of Davey's allegations it highlighted a number of guiding principles that apply to administrators when realising company assets:

  • administrators are required to have regard to the interests of all the company's creditors, and they can only limit their ambition to seek to realise assets to repay the charge-holder if they think that it is not reasonably practicable to achieve anything else;
  • it is not necessary for administrators to appoint property agents who are independent of the charge-holder;
  • administrators may agree to an 'incentive fee' payable to the agent if the price achieved on the sale of the property exceeds the amount of the secured debt;
  • administrators are not required to conduct a 'beauty parade' of agents and select 'one of the big boys' to sell real estate company assets because, as a matter of principle, the 'big boys' do not have a monopoly on competence or the relevant knowledge for realising real property assets;
  • administrators will not necessarily breach their duties by selling real property following a 'soft marketing' campaign where only particular specialised and complex potential purchasers are targeted and contacted. However, administrators should ensure that both local and overseas potential purchasers are targeted.

Approval of 'light touch' administrations

The administration of AHDL was a 'light touch' administration because the administrators were not heavily involved in the day-to-day running of the business, instead relying from the outset of the administration on employed property agents to manage the operational aspects of the continuation of the business.

The High Court concluded the light touch administration of AHDL was appropriate in the circumstances. However, it confirmed that it is necessary for light touch administrators to thoroughly consider the objectives of company administration  (i.e. rescuing the company as a going concern or achieving a better result for the company's creditors as a whole than would be likely in a liquidation scenario) and to only act for the benefit of the charge-holder if they think that these objectives cannot be reasonably be achieved.

Therefore, administrators, especially in a light touch administration, should be explicit in their statement of proposals about why a proposed course of action will be unlikely to rescue the company as a going concern or achieve a better result for the company's creditors as a whole than would be likely in a liquidation scenario.

Charge-holder liability for breach of duty by an administrator

Although not applicable on the facts of this case, the High Court suggested that a charge-holder can make an administrator its agent and thus make itself liable, together with the administrator, for any sale at an undervalue or other breach by an administrator when acting as the charge-holder's agent. This position is established law as applicable to mortgagees and receivers but this is an entirely new suggestion as applicable between an administrator and charge-holder.

The High Court suggested that if the charge-holder gave directions which the administrator unquestioningly followed or if the charge-holder misled the administrators or exerted sufficient pressure on them so as to defeat their free will, then the court may hold the charge-holder liable if the property was sold negligently for an undervalued price. Conversely, it is unlikely that an agency relationship would be established merely because the charge-holder gave its consent to a sale of charged property that had been organised by an administrator or simply because an administrator had consulted the charge-holder and taken account of its wishes.

This analysis by the High Court should be considered by charge-holders as it indicates that courts may be prepared to hold charge-holders liable for the actions of a company administrator, which courts have not done in the past. However, charge-holders should be comforted by the suggestion of the High Court that the charge-holder would need to be heavily involved in the decisions of the administrators and would effectively need to be controlling the administrators for a court to find a charge-holder liable for any breach of duty by the administrators.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances,

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions