In Uralkali v Rowley and another [2020] EWHC 3442 (Ch), the High Court has confirmed the position in relation to the duties that officeholders owe to third parties involved in the sale process of a business and assets out of an insolvent estate.
The case concerned the Force India F1 racing team. The company which operated the team went into administration in July 2018 and a number of parties expressed interest in acquiring the team or its business and assets. The Administrators had sought to achieve a rescue of the company through a share sale or, alternatively, a sale of the business and assets. Subsequently, two interested parties submitted competing bids, but these bids differed in that one bid included a rescue plan with a fall-back option of a business and asset sale, whereas the other offer (made by the Claimant in this case) did not include a rescue plan. The Administrators proceeded with the bid containing the rescue plan of a lower value than the Claimant’s, although the plan was subsequently withdrawn. The Claimant accused the Administrators of negligently failing to conduct a fair and proper sales process and of negligently misrepresenting the criteria that would be followed in assessing bids. In a lengthy and complex judgment, the Court dismissed the Claimant’s claims against the Administrators.
Not only did the Court find that the representations had not been made, but it was also decided that, even if they were, it was unlikely that the necessary duty of care required to establish negligence on the part of the Administrators existed in favour of the Claimant. The Court rejected the assertion that administrators assume personal liability in these situations and noted that they are expressly appointed as agents of the company. In so discussing, the Court compared the role of an administrator to that of a director and outlined how a director in the same position would not be deemed to have assumed personal liability through a duty of care owed to potential bidders, without additional complicating factors.
The Judge noted that administrators are required to act “single-mindedly” in the interests of the creditors and the company, and that they are also under a statutory duty to perform their role as quickly and efficiently as is reasonably practicable. On this basis, the Judge stated that he considered that to impose a personal duty of care on the administrators in this situation would be “inimical to the single-minded duty placed on administrators to act in the interests of the company’s creditors”. The Judge did note that you “can never say never”, but without additional complicating factors in exceptional cases, it is unlikely that administrators will ever assume personal responsibility to third parties in cases such as this.
Tim Carter, co-head of restructuring and insolvency at Stevens & Bolton LLP, comments that:
"This judgment should assure administrators that they are able to perform their duties without having to “look over their shoulders for personal claims by bidders”, insofar as they do not owe a personal duty of care to potential purchasers. It is of course true that there may be specific (but probably exceptional) circumstances in which a duty of care may be found, but this case should provide some comfort, especially where often administrators have to act quickly and to juggle a number of factors when trying to rescue a business and/or obtain the best outcome for creditors. With all the issues that an office holder has now to contend in any administration, including the impact of the recent return of Crown preference, this decision will be welcomed by insolvency practitioners in not adding to, or hindering the performance of their, statutory duties especially when trying to achieve a business sale."
Tim Carter