Brewer & Anor v Iqbal

The administrator, Mr Iqbal, sold the company's three Sky Electronic Programme Guide slots (EPGs) shortly after his appointment to a company associated with the company's former management. The court found he failed to take reasonable care and skill in valuing and marketing those intangible assets, failed to make adequate inquiries (including about black-out risk and specialist market practice), and improperly deferred to the company's directors rather than exercising independent judgment.

The judge held these failures amounted both to professional negligence in the exercise of the administrator's statutory and common law duties to obtain a proper price for company assets and to breaches of fiduciary duty in his decision-making process and loyalty to the company. The administrator also misled creditors in his report about valuations and timing. Applying expert valuation evidence and a discount to reflect the administration context, the court awarded equitable compensation for the loss arising from the breaches.

Background and parties. The respondent, Mr Iqbal, an insolvency practitioner, was appointed administrator of ARY Digital UK Limited on 19 May 2011. He instructed agents to market the company's assets, continued broadcasting for a short period and sold three Sky EPG slots to ARY Network Limited (a company associated with the former management). The company subsequently entered insolvent liquidation. The joint liquidators later sought permission under paragraph 75(6) of Schedule B1 to the Insolvency Act 1986 to investigate and pursue claims about the administrator's conduct; permission was given and this trial followed.

Nature of the claim / relief sought. The joint liquidators alleged that the administrator was negligent and breached equitable/fiduciary and statutory duties by effecting a sale on inadequate marketing and without an independent valuation, by preferring information and timing advanced by the directors (management) and by failing to act in the interests of creditors.

Issues framed. The court addressed whether (i) the sale to the associated purchaser was pre-arranged; (ii) the administrator breached his duty of care (common law/equitable) and/or fiduciary duties in the sale; (iii) he improperly relied on the directors and failed to obtain or follow suitable professional advice; and (iv) if breaches were established, the appropriate remedy and quantum of loss.

Key findings and reasoning. The judge found no reliable evidence of a secret pre-appointment agreement to sell to the directors' vehicle, but concluded on the facts that the administrator:

• failed to obtain a proper valuation of the specialised intangible EPG assets before sale, and did not appreciate the specialised market;
• failed to expose the assets to an appropriate specialist market or market them for a reasonable period and used an inadequate advertisement;
• placed disproportionate reliance on officers of the company and on purchasers' figures, did not keep contemporaneous attendance notes, and made misleading statements to creditors about estimated values;
• did not obtain or materially rely on competent professional advice in the sale process, and failed to make straightforward inquiries (for example about Sky's black-out practices).

These failures amounted to negligence and breaches of fiduciary decision-making duties (including failure to take relevant matters into account and taking account of irrelevant matters). The judge applied authority on administrators' duties, the role of reliance on professional advice (Pitt v Holt), and principles relating to equitable compensation (AIB Group v Mark Redler & Co and related authorities).

Remedy and quantum. Expert evidence on value produced widely differing figures. The judge accepted the established specialist expert's valuation range for the three EPGs, adjusted that valuation to reflect the distressed/administration context (applying a 65% discount to reflect a buyers' market and other factors) and awarded equitable compensation in the sum of 743,750 for breach of fiduciary duty. The order was made in favour of the joint liquidators.

First instance: the court found that the administrator breached his duty of care and fiduciary duties in the sale of the company's EPGs and was liable to equitable compensation. The court rejected an inference of a pre-appointment secret agreement to sell to the directors' company but held that the administrator had failed to take independent specialist advice, had not properly valued or marketed the assets, had relied on the directors, and had misled creditors about valuations. On expert evidence the judge assessed equitable compensation at 743,750.