Stephen Louis Nardelli & Ors v Daniel Richardson & Anor

Administrators must pursue the statutory objective selected under Schedule B1 to the Insolvency Act 1986 in the interests of creditors as a whole. Where a company is balance-sheet solvent, or a return to members is likely, they must also have regard to members’ interests. Where creditors’ interests may be affected, those interests ordinarily have primacy; where creditors are unaffected, members’ interests assume greater weight.

Removal requires good cause measured against the interests of the insolvency process. The court should respect a properly informed commercial judgment by an independent administrator, even if another administrator might have acted differently. Applications concerning conduct should generally be considered in three stages: findings on the allegations, whether they establish good grounds for removal, and whether removal is appropriate in all the circumstances.

The applicants challenged the conduct of joint administrators appointed to three inter-linked property companies in February 2022. The companies held land and contractual rights connected with the Himley Village development. The challenge concerned alleged failures to pursue refinancing, shortcomings in marketing and sale decisions, and increases in the secured lender’s profit share in transactions completed in January 2023.

The continuing applicant, a shareholder in two of the companies, sought removal and replacement of the administrators under paragraphs 74, 88 and 95 of Schedule B1 to the Insolvency Act 1986. The central issues were whether the administrators had breached their duties, caused unfair harm, or otherwise shown good cause for removal.

1. The Removal Application was dismissed. The allegations of breach of duty, unfair harm and improper preference for the secured lender were not proved.
2. Under paragraph 3 of Schedule B1 to the Insolvency Act 1986, administrators must act in the interests of creditors as a whole whatever statutory objective is pursued. In an administration where the company is balance-sheet solvent or a return to members is likely, they must also have regard to members’ interests. Where creditors’ interests may be affected, creditors ordinarily have primacy. Where creditors are unaffected, members’ interests should receive greater weight.
3. The administrators were entitled to recognise the secured lender’s proprietary rights and involve it in the sale process. They were also entitled to decide, on professional advice and commercial modelling, that continued support and further lending justified an increased profit share, even though this reduced the prospective return to shareholders.
4. The administrators’ decision to proceed with the Cala transaction was a commercial judgment supported by Savills’ advice and rational analysis. The court would not substitute its own view merely because another office-holder might have chosen a different course.
5. Paragraph 74 requires unfair harm, not merely loss or harm. Paragraph 88 gives a broad removal jurisdiction, but good cause must be shown by reference to the interests of the insolvency process. Removal is not justified simply because an office-holder’s conduct was imperfect, provided the office-holder has acted honestly, independently and generally effectively.
6. Applications based on conduct may conveniently be addressed in three stages: findings on the allegations; whether those findings establish good grounds for removal; and whether removal or some lesser remedy should be ordered in all the circumstances. No further investigation or replacement was justified on the evidence.