One Blackfriars Ltd, Re

An administrator must exercise independent commercial judgment within the statutory hierarchy of administration objectives, while acting in the interests of creditors as a whole. The choice of objective is reviewed on grounds of good faith and rationality, subject to the objective requirement that pursuing Objective 3 must not unnecessarily harm creditors as a whole. An administrator is not subject to the mortgagee’s or receiver’s strict non-delegable liability for an agent’s negligence, but must reasonably rely on advice which appears competent. Where a sale is justified, the duty is to take reasonable care to obtain the best price which the circumstances, as reasonably perceived, permit. A properly conducted open marketing and bidding process may establish market value without a further independent valuation.

The joint liquidators of One Blackfriars Ltd brought a claim under paragraph 75 of Schedule B1 to the Insolvency Act 1986 against the former administrators. They alleged that the administration had been conducted as a “light touch” process controlled by the secured lenders, that the administrators had failed to assess the Site’s value and planning potential independently, and that the Site had been inadequately marketed and sold at an undervalue.

The administrators denied breach of duty. The central issues were whether they had properly selected and reviewed the statutory objective, whether reliance on CBRE and DP9 was reasonable, whether a revised planning consent or overage arrangement should have been pursued, and whether the marketing and bidding process obtained the best reasonably obtainable price.

1. Disposition. The claim was dismissed in its entirety. The liquidators failed to establish any breach of statutory, fiduciary, common-law or professional duty.
2. Under paragraph 3 of Schedule B1 to the Insolvency Act 1986, the administrator must form a judgment about the appropriate objective. The process is dynamic and iterative. An initial strategy may be formed before appointment, but the administrator must retain the ability to change course as information and circumstances develop. The statutory objectives remain distinct, although steps may be consistent with more than one objective.
3. The general duty is to act in the interests of the company’s creditors as a whole. In an Objective 3 administration, the secured creditors’ interests may be prioritised, but the administrator must avoid unnecessary harm to creditors as a whole. Objective 3 is not a liquidation and must be pursued using the powers and duties of an administrator.
4. The selection of the statutory objective is reviewed for good faith and rationality. The court should allow latitude for commercial judgment and should not substitute its own view with hindsight. The requirement not to cause unnecessary harm under paragraph 3(4)(b) invites a more objective assessment.
5. The administrators were not subject to the strict non-delegable rule applicable to mortgagees and receivers. They could rely on an apparently competent agent, provided that they reasonably relied on the agent’s advice. CBRE’s prior advice to the Syndicate did not create a disqualifying conflict on the facts. The administrators reasonably relied on CBRE and DP9.
6. The administrators reasonably decided not to obtain a further independent valuation. A properly conducted market exposure could provide a more direct indication of actual value than a hypothetical valuation, particularly where existing professional valuations diverged and the asset was complex.
7. The administrators reasonably implemented the existing consent, explored reconfiguration options, obtained planning advice and marketed the Site internationally. They were entitled to reject a late proposal to pursue revised planning permission themselves because of cost, delay, funding, planning risk and the likelihood that bidders had already assessed the potential uplift.
8. An unconditional sale without overage was reasonably preferred. Conditional bids and overage proposals were considered, but the evidence did not establish that they would produce a better or sufficiently secure return.
9. The marketing and bidding process was open, fair and appropriately conducted. The price of £77.4 million was the market value because it followed proper international marketing and competitive bidding. It was unnecessary to decide loss, causation or damages.