Administrator breach of duty claim dismissed

The administrators were appointed over two property development companies owning high-value properties in Primrose Hill, London. The properties were sold for c.£62m resulting in the first-ranking secured lender being largely repaid. The applicants were a lower ranking secured lender.

The applicants alleged the administrators exceeded their powers because they contracted to “dispose of property” secured by fixed charges without obtaining the chargeholders’ consent (namely, the applicants) or the court’s permission per paragraph 71, Schedule B1, Insolvency Act 1986.

The administrators and a purchaser entered exclusivity agreements (containing a sale option) and later exchanged a contract for sale. The court held neither constituted a “disposal” of property under paragraph 71. The court acknowledged contracts for sale often granted the purchaser an equitable interest and this amounted to a “disposal”. However, the contractual terms here did not. Sale completion was still conditional on (i) chargeholders’ consent, (ii) paragraph 71 court order, or (iii) first-ranking secured lender transferring the property as mortgagee in possession.

The applicants also argued the administrators breached their duties in failing to sufficiently (i) regard the applicants’ interests (as junior secured creditors) and (ii) market the properties resulting in a sale at undervalue.

The court held the administrators’ conduct had deficiencies but did not breach their duties. For example, the administrators’ statement of proposals understated the applicants’ indebtedness and was not sent to various creditors. However, the conduct did not cause loss to the applicants (the court’s focus) as the sale had been for market value. If the administrators had complied fully with their duties, the applicants’ financial outcome remained unchanged. 

Re Swiss Cottage (38) Properties Ltd (In Liquidation) [2022] EWHC 1495 (Ch)  

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