Administrator Who Neglected Creditors’ Interests Receives Six-Figure Bill

Administrators of insolvent companies are obliged to focus on creditors’ interests and can be found personally liable if they fail to do so. In a case on point, the High Court ruled that the administrator of a troubled broadcasting company had breached his duty of care and ordered him to pay more than £740,000 in damages.

The company suffered heavy losses before falling into administration. Its directors set up a fresh corporate vehicle which acquired its assets from the administrator. The administrator was discharged after the company entered liquidation. On behalf of the company’s creditors, its liquidators subsequently launched proceedings against the administrator on the basis that he had sold certain of the company’s intangible assets to the directors at a considerable undervalue.

The liquidators argued that the administrator had acted negligently and in breach of duty in failing to obtain the best price for the assets. In doing so, he was said to have relied on the advice of the directors, who had an interest in acquiring the assets at a low price. Her was alleged to have failed to exercise his independent judgment and to have deferred to the directors’ views.

The administrator, however, submitted that he had relied on professional valuation advice and that the offer from the directors was the only one on the table. Given the commercially perishable nature of the assets, he had been justifiably concerned that the sale might be lost if he did not agree to it immediately.

In ruling on the matter, the Court rejected claims that the administrator had reached an under-the-table agreement with the directors prior to the company’s insolvency and that he had secretly sold the assets to them for an improper purpose. There was no suggestion that, with the exception of his fees, the administrator had benefited personally from the administration.

In upholding the liquidators’ claim, however, the Court found that the administrator had not in fact relied on professional advice before making the sale. In failing to expose the assets to the open market, and in placing excessive reliance on the directors’ views, he had breached the fiduciary duties he owed to the company’s creditors and had effectively been serving two masters. Based on the Court’s assessment of the open market value of the assets, the administrator was ordered to pay £743,750 in compensation to the liquidators.