Brewer & Anor v Iqbal

An administrator owes the company and its creditors concurrent common-law, equitable and statutory duties to exercise reasonable care and skill and to obtain a proper price for company assets. Reliance on apparently competent professional advice may protect an administrator where the advice is followed conscientiously and the decision is within the administrator’s powers and lawful. It does not justify reliance on an interested company director’s valuation, marketing instructions or timing directions, nor failure to investigate an unfamiliar specialist market. An administrator also owes fiduciary duties in the decision-making process, including duties to act loyally, consider relevant matters and disregard irrelevant interests. Equitable compensation for breach is assessed at judgment with the benefit of hindsight and without applying foreseeability or mitigation principles.

The applicants were the joint liquidators of ARY Digital UK Limited. The respondent had acted as the company’s administrator and, shortly after his appointment, sold three electronic programming guides to an associated company for £40,000 as part of a wider sale for £57,000.

The liquidators alleged that the respondent had failed to obtain a proper valuation, had inadequately marketed the assets, had allowed the company’s directors to influence the sale, and had breached duties of care, skill, loyalty and proper decision-making. The respondent relied on the company’s financial difficulties, the risk of the channels being taken off air, and advice from an insolvency agency. The issues were whether the duties were breached and, if so, the appropriate measure of compensation.

1. Duties of an administrator. The administrator owed concurrent common-law and equitable duties of care and skill, together with statutory duties arising under Insolvency Act 1986. The duty was to take reasonable steps to obtain a proper price for the company’s assets. The professional-negligence standard was that of an ordinary skilled insolvency practitioner, not the most meticulous practitioner: Re Charnley Davies (No 2) [1990] BCLC 760.
2. Reliance and decision-making. An administrator may rely on apparently competent professional advice, provided the decision is within the scope of his powers and lawful. The respondent could rely on the directors for information about the company’s finances and assets, but he crossed the permissible line by relying on them for value, marketing and timing. He failed to investigate the specialist market, obtain a proper valuation, obtain suitably qualified advice, or market the assets for a reasonable period.
3. Fiduciary duties. The respondent breached the wider fiduciary duty concerning decision-making. He took account of the interests of the associated purchaser and the ARY brand, and failed to give proper consideration to creditors’ interests and the availability of sufficient time to market the assets. The proper-purpose doctrine controlled the exercise of fiduciary powers, although it was not itself a duty special to fiduciaries: Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71.
4. Compensation. Equitable compensation was assessed at the date of judgment with the benefit of hindsight. The court accepted that the assets had a specialist market and valued them at between £1.9m and £2.35m, applying a 65% discount for the distressed circumstances. Compensation was assessed at £743,750. Judgment was accordingly entered for the applicants.