Goel & Anor v Grant & Anor (As Joint Administrators of Meem SL Ltd) & Anor

An administrator may sell a company’s bare cause of action where authorised by the statutory power of sale. Contractual negotiations conducted through a solicitor may remain impliedly subject to contract where the other party intends to instruct solicitors and formal documentation is contemplated.

Under paragraph 74 of Schedule B1 to the Insolvency Act 1986, unfair harm is not confined to differential treatment between creditors. It may include an asset sale which harms creditors generally. However, where creditors are not treated differentially, the court should interfere with an administrator’s commercial decision only where it cannot withstand logical analysis. An auction of a difficult-to-value claim may be a reasonable method of testing its market value.

The applicants, majority shareholders and alleged creditors of a company in administration, claimed that the administrators had agreed to assign the company’s conspiracy claim to them for £5,000 plus costs and an indemnity.

Alternatively, they sought relief under paragraph 74 of Schedule B1 to the Insolvency Act 1986, arguing that an auction of the claim would unfairly harm their interests, particularly because the alleged wrongdoer might acquire it to stifle the litigation.

The issues were whether a binding assignment contract had been formed and whether the proposed auction constituted conduct causing unfair harm.

1. Contract. The email correspondence did not contain an offer capable of acceptance. Objectively construed, it was tentative negotiation about a possible transaction. It was impliedly subject to contract from the outset because the administrators intended to instruct a solicitor, formal documentation was contemplated, and the solicitor for the applicants knew that the transaction was required to be unimpeachable by creditors and members.
2. The court applied the objective contractual principles stated in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG [2010] 1 WLR 753. Had a contract been formed, the £750 legal fee would have been a condition of performance rather than formation; the essential terms were sufficiently agreed; the alleged misrepresentation was not established; and the applicants had not clearly renounced the agreement.
3. Had an agreement existed, its enforcement would nevertheless have caused unfair harm because it would have enabled one creditor to acquire the company’s only remaining asset at a considerable undervalue when the existence of other creditors was uncertain.
4. Paragraph 74. The provision is not limited to unequal treatment of creditors. It may apply where an administrator’s decision to sell an asset at an undervalue harms all creditors. In such a case, however, the court will interfere with a commercial decision only if it fails logical analysis, which probably amounts to perversity. Administrators retain a wide latitude and must act as quickly and efficiently as reasonably practicable.
5. A cause of action is ordinarily difficult to value. An administrator should not sell a potentially substantial claim for a fixed price without properly considering its value or finding a sensible way to avoid that difficulty. An auction may itself be a reasonable method of testing the market, particularly where valuation is difficult. The public interest in preventing a defendant from stifling a claim is relevant but normally marginal, absent an extreme case amounting to abuse.
6. The applicants failed to establish either a binding contract or unfair harm. The application was dismissed. Costs and consequential matters were reserved.

First-instance decision. No prior appellate decision is stated in the judgment.