Davey v Money & Anor

An administrator must select and pursue the statutory objective in Insolvency Act 1986, Schedule B1, paragraph 3 through an honest and rational commercial judgment. The court will not second-guess that judgment with hindsight, although the means used to pursue it remain subject to objective scrutiny.

In selling company assets, an administrator must take reasonable care to obtain the best price which the circumstances permit. The standard is that of a reasonably skilled insolvency practitioner. There is no inflexible requirement to conduct a competitive appointment process, use a large investment agent, advertise publicly, or delay a sale for planning permission. The question is whether the chosen process and professional advice were reasonable in the circumstances.

Julie Anne Davey, the sole shareholder and former director of Angel House Developments Ltd, brought a misfeasance claim against its joint administrators under Schedule B1 to the Insolvency Act 1986. She alleged that they had improperly pursued a light-touch administration, appointed and relied on APAM, allowed a planning application to lapse, sold Angel House at an undervalue, and failed to pursue a funded rescue.

Dunbar Assets plc separately sought enforcement costs under Ms Davey’s personal guarantee. Ms Davey counterclaimed, following an assignment from the company’s liquidator, alleging that Dunbar had interfered with the administration, procured breaches of duty, and conspired with APAM to depress the sale price.

The central issues were whether the administrators had complied with their statutory objectives and sale duties, whether the company had suffered loss, and whether Dunbar was responsible for any wrongdoing.

1. The misfeasance claim and counterclaim were dismissed. Judgment was entered for Dunbar on its claim for contractual enforcement costs, subject to agreement or assessment.

2. Under paragraph 3 of Schedule B1 to the Insolvency Act 1986, the administrators were entitled to conclude that a rescue or a better result for unsecured creditors was not reasonably practicable. Their assessment was subject to review for good faith and rationality, not a more intrusive hindsight review. A rescue as a going concern required retention of the company’s business and restoration of solvency. For this one-asset company, that required new money to refinance it without selling Angel House.

3. The administrators had reasonably relied on the Savills valuation and the director’s statement of affairs when assessing the likely absence of a surplus for unsecured creditors. Their proposals to creditors were defective because they did not expressly explain why Objectives 1 and 2 could not be achieved. That reporting failure did not invalidate the subsequent administration.

4. There was no rule requiring a beauty parade, a recognised international investment agent, public advertising, or a particular form of marketing. The administrators could reasonably appoint APAM, rely on its apparently competent advice, target serious purchasers, and accept that public advertising might deter credible bidders or risk blighting the asset. Applying Re Charnley Davies (No 2) [1990] BCLC 760, the relevant duty was reasonable care to obtain the best price which the circumstances permitted. That duty was met.

5. The administrators reasonably permitted the existing planning application to lapse after Dunbar declined to fund it. They lacked an alternative source of funding and reasonably pursued soft marketing alongside work towards a revised scheme. They also properly facilitated Ms Davey’s later funded-rescue proposal, but were entitled to require credible proof of funding and a non-refundable payment before risking the sale process. Blackcube did not provide either in time.

6. The administrators retained independent judgment. They could consult Dunbar and required its consent to a sale of property subject to its fixed charge. They did not surrender their discretion. Although an administrator’s assistance to Dunbar in pursuing Ms Davey’s guarantee was outside the proper purposes of the administration and was a fiduciary breach, it caused no pleaded or material loss to the company.

7. Angel House was sold for its true market value. There was no conspiracy between Dunbar and APAM, no improper interference by Dunbar, and no basis to discharge Ms Davey’s guarantee.

High Court (Chancery Division): First-instance trial of the misfeasance claim and the guarantee-enforcement proceedings, which had been ordered to be heard together. Dunbar had previously obtained summary judgment against Ms Davey under the guarantee; this judgment dismissed her challenge and declared Dunbar entitled in principle to its post-judgment enforcement costs.