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Officeholders beware – breach of duty

25 Apr 2019

 

The 2019 ARY Digital UK Limited case concerned the conduct of an administrator and will no doubt now serve as a stark reminder to officeholders of their duties, particularly in relation to getting in and realising a company’s assets.

 

Mr Iqbal was appointed administrator of the company, which was a broadcaster.  The company owned three “electronic programming guides”, which display the forthcoming content on a TV screen in a TV guide style.  For all intents and purposes, these three EPGs were assets of the company.

 

The directors offered to purchase the EPGs for £40,000.  The administrator chose to advertise the EPGs for sale on the website of a specialist plant and machinery sales company, for only seven days.  The sale particulars were very limited.

 

Nevertheless, the administrator was advised by the sales agents to market the EPGs for a longer period, but the administrator declined to follow that advice and sold the EPGs to the directors.  The explanation given for the decision was because the EPGs may have become worthless if Sky removed the channels.  It is noteworthy that this information was given to the administrator by the directors, and later turned out to be an unlikely situation.

 

The company ultimately ended up in liquidation with other officeholders appointed as joint liquidators.  They brought breach of duty proceedings against the administrator for various breaches of duty including failing to obtain a valuation of the EPGs and failing to properly market them.  They said this was tantamount to acting without due care and skill.

 

The court agreed and the administrator was held to have acted in breach of duty.  It turned out the EPGs were actually worth in the region of £2m, and on the basis that a discount would have likely have been given to reflect the company insolvency and other circumstances, the administrator was ordered to pay the sum of circa £750k as compensation for his breach of duty.

 

Therefore the importance of properly valuing and marketing assets for sale – and keeping written contemporaneous records of decision making and reasoning – cannot be understated.  Further, using specialist agents should be standard procedure where appropriate, rather than sticking with general asset sales agents.

 

This, along with remembering the duty to act in the best interest of creditors – and actually doing so – puts an officeholder in the best position to avoid breach of duty claims.

 

The team at Short Richardson & Forth are experienced in advising officeholders on their duties and assisting with prepack administrations and SIP 16 compliance.  Contact us on 0191 232 0283 for further assistance.

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