Fitzroy Street Capital Inc & Anor v Lee Antony Manning & Anor

An administrator must take reasonable care to obtain the best price reasonably achievable in the circumstances as reasonably perceived. The court will not lightly interfere with commercial judgment, particularly where the administrator has relied reasonably on competent professional advice. Market value may be established through an effective marketing process rather than a formal Red Book valuation, especially where historic valuations have proved unreliable. An administrator may conclude that no distribution to unsecured creditors is likely where that conclusion is made honestly and rationally. However, the statement of proposals must accurately explain the administration objective being pursued and why a creditors’ meeting is unnecessary.

The applicants were unsecured and junior secured creditors of two companies whose principal assets were two large residential properties in Avenue Road, London. Administrators were appointed after the properties had remained unsold despite extensive marketing. The properties were eventually sold for approximately £62 million, leaving Barclays, the senior secured creditor, substantially unpaid beyond its secured recovery and leaving the applicants with no distribution.

The applicants alleged that the administrators had exceeded their powers by contracting to sell the properties without an order under Insolvency Act 1986, Schedule B1, paragraph 71. They also alleged breaches concerning valuation, marketing, creditor engagement, the statement of proposals and the decision not to call a creditors’ meeting.

1. Primary claim dismissed. The exclusivity agreements and sale agreements did not themselves dispose of the properties free from the junior creditors’ charges. Properly construed, completion depended on creditor consent, an order under Insolvency Act 1986, Schedule B1, paragraph 71, or a sale by Barclays as mortgagee. No immediate equitable interest free of the charges was created.
2. The applicable standard was reasonable care to obtain the best price reasonably achievable in the circumstances as reasonably perceived. The administrator was entitled to exercise commercial judgment and to rely on competent professional advice where that reliance was reasonable.
3. A Red Book valuation was not required. The historic valuations had not reflected actual market interest, and the unusual properties were difficult to value by estimation. Exposing them to the market and generating competitive tension was a reasonable method of testing market value. The guide prices were also reasonable as starting points for competitive bidding.
4. The administrators acted unreasonably in shortening the agreed 28-day marketing period to 21 November 2013. Nevertheless, the agents later confirmed that the properties had been adequately exposed to the market and that the accepted offer represented market value. The administrators were entitled to rely on that advice.
5. The administrators were required in principle to engage with the junior secured creditors, but sufficient engagement occurred through Mr Pheysey and information available to the creditors. The failure to send the statement of proposals to certain creditors and the inaccuracies concerning creditor identities and debts were deficiencies, but caused no loss.
6. The administrators were justified in not calling a creditors’ meeting under Schedule B1, paragraph 52(1)(b), since it was rational to conclude that no distribution to unsecured creditors was likely other than through the prescribed part. However, the statement of proposals should have explained that rescue as a going concern was not reasonably practicable, rather than presenting a CVA as a continuing administration objective without qualification.
7. The alternative claim therefore failed. Although deficiencies existed, the properties were sold for market value or the best price reasonably achievable, and the applicants suffered no recoverable loss. The claims were dismissed.