Wade & Anor v Poppleton & Appleby

An insolvency adviser’s duty is defined by the scope of the engagement and requires reasonable skill and care in the advice actually undertaken. Where a proposed rescue transaction is ineffective without substantial additional funding, the adviser is not negligent merely for failing to suggest that shareholders provide it, where that possibility is obvious and the clients were actively seeking finance themselves. Loss is not recoverable without proof that the breach caused the relevant outcome. A professional adviser may accept a subsequent receivership appointment where the clients consent and the appointment does not create a conflict with the earlier advisory work.

The claimants, shareholders and directors of a corporate group, claimed damages from an insolvency-practitioner firm for breach of contract, negligence and fiduciary duty. The firm had advised them and the companies during a brief period when the trading company was insolvent and the holding company faced possible receivership.

The claimants alleged that the firm should have secured time for the holding company to sell property, promoted a proposed property-finance transaction, or advised the claimants to provide additional funds. They also challenged the firm’s later acceptance of appointment as administrative receivers. The central issues were the scope of the engagement, breach, causation and the existence of any fiduciary bar to the receivership appointment.

1. Duty and scope of engagement. There was a contractual relationship between the defendants and the companies, including an implied term to exercise reasonable skill and care. The defendants were also engaged to advise Mr and Mrs Wade personally, and owed them a contractual duty of care. The engagement principally concerned insolvency advice, dealing with the winding-up petition, preparing proposals for the Bank and advising on the proposed finance.
2. No negligent failure to raise finance. The proposed transaction with Mr Lavin was open to challenge as a transaction at an undervalue under Insolvency Act 1985, section 238, unless all the holding company’s liabilities were discharged. The necessary additional funds were therefore substantial. Mr Wade was already actively seeking finance and knew that the shortfall could only realistically be met by himself and Mrs Wade. The defendants were entitled to assume that, if they were willing and able to provide it, they would say so. No breach was established.
3. Causation. The Bank would have appointed receivers over both companies once receivership of the trading company was inevitable. Neither the omission from the letter to the Bank nor the failure to put the Lavin offer before the Bank would have altered that decision. The negligence claim therefore failed for want of causation as well as breach.
4. Fiduciary duty. The claim concerning receivers’ fees failed because Mr Wade knew and consented to the resolutions inviting the appointment. In any event, the advisory engagement did not impose a fiduciary obligation requiring the firm to decline appointment as receivers. The subsequent appointment did not undermine the earlier work or create a relevant conflict.
5. Damages. The court’s observations on damages were unnecessary to the result. A claim for loss of a chance requires proof that the claimants would have taken the necessary steps and that there was a substantial, rather than speculative, chance of success. On the evidence, no substantial prospect of a successfully revived business was shown.

The claims for breach of the duty of care and breach of fiduciary duty were dismissed.