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Think twice: High Court finds administrator personally liable for loss of over £700,000

In Richard Brewer v Iqbal [2019] EWHC 182 (Ch), the High Court found an administrator personally liable for breach of the fiduciary duty owed as an administrator, and failing to exercise reasonable care and skill in the sale of assets.

Summary

This case reinforces the need for Insolvency Practitioners (IP) to seek expert advice for market valuations and proper marketing strategy as well as engaging specialist valuers to ensure a reasonable result for creditors. 

The case also highlights the need to keep a detailed record of the reasons why decisions are taken.

The Facts

Brewer concerns the administration of ARY Digital UK Limited (the “Company”), a specialist broadcaster of Asian satellite television channels. 

The Respondent is the former administrator (the “Respondent”) appointed on 19 May 2011. The applicants are the joint liquidators that replaced the Respondent (the “Applicants”). 

On his appointment in 2011, the Respondent decided that the best course of action was to sell the assets of the Company rather trade out of administration. 

The Company owned intangible assets - ‘Electronic Programming Guides’ (“EPG”) – in effect, the right to broadcast on a certain channels. The EPGs were licensed from broadcaster British Sky Broadcasting Limited (“BSB”). 

There was a risk that if broadcasting was not continued value would be reduced, as well as a further risk that BSB would suspend the channels as there was an outstanding debt due to them. 

The Respondent was informed by the Company’s accountant that the EPG’s would be worth £10,000. The Respondent then approached Edward Symmons (“Symmons”) on 24 May 2011 to advertise the EPGs at £35,000. 

The EPGs were placed on a website that was unlikely to attract purchasers of EPGs, the advertisement failed to refer to the EPGs themselves and gave little detail about their content, viewer statistics and special features. 

The respondent ended the sale of the EPGs on the 27th of May due to pressure from the Company’s directors to sell to them. The directors purchased them for £40,000 plus VAT.

Following the sale, the Respondent sought a desktop valuation from Symmons. Symmons reported that they were unable to produce a comparable market figure considering the short time the assets were sold in.  

The Responded sought approval of his proposals from the creditors but they were unanimously rejected and the Applicants were appointed. 

Judgement

Judge Briggs ruled that the Respondent had breached his duty of care to the Company and his fiduciary duty. 

Supported by an expert report commenting on the code of ethics applicable to office-holders, the judge summarised the basis on which the Respondent breached his duty of care in that he:

  1. Failed to take specialised independent advice from someone in the EPG industry
  2. Failed to advertise the assets in the relevant publications to attract interest
  3. Failed to follow the processes set out in the relevant SIPs
  4. Failed to expose the assets to a proper market for a reasonable period of time
  5. Failed to recognise that the directors (or their accountant) could not provide independent advice to him on advertisements, asset prices and matters concerning the Company, yet he used their advice
  6. Failed to comply with the code in establishing through his own enquiries an understanding of the nature of the asset which led to the failure to properly market. 

As to his breach of fiduciary duties, the judge held that the Respondent failed to act with a “single-minded loyalty” to the Company. He relied completely on the facts given to him by the directors without making his own enquiries and failed to market the assets in a way that ensured he knew he was getting the right price.  

It would have been a full defence to the claim if the administrator had sold the assets relying on apparently competent advice, so long as his action does not fall outside the scope of his powers as administrator. 

Comment

This case serves as a reminder to IPs to always seek an independent valuation when realising Company assets, and to be wary of the information handed to them on appointment. It is also vital to understand what the assets are.

Key Contact

Edward Judge