Case study: One Blackfriars Limited (In Liquidation)
This is an informative and positive judgment for administrators selling high-value property in distressed and complex scenarios. In summary, the judgment: (i) dissects the duties of administrators in such scenarios; (ii) examines in detail their relationship with professional property agents; and (iii) charts a course for discharging their duties and ensuring that marketing and sales processes are fit for purpose.
The applicants were appointed as joint liquidators (“JLs”) of One Blackfriars Limited (“the Company”) on 30 March 2016. The respondents were the former administrators (“FAs”) of the Company and were appointed on 14 October 2010 by a syndicate of banks (“The Syndicate”). The Syndicate had provided the Company with a facility to refinance a loan, which the Company had used to purchase a plot of land (“the Site”). After the Company had defaulted on its obligations under the facility, the Site was marketed on behalf of the FAs and sold in December 2011.
Issues in dispute
In this case, amongst other things, the JLs alleged that the Site was sold at an undervalue. More specifically, the JLs’ alleged:
- the FAs failed to act independently and in accordance with their duties;
- the FAs failed to properly assess the value of the Site, in particular its planning potential; and
- the FAs failed to market the Site and sold it at an undervalue.
The FAs denied any breach of duty and / or that the sale was at an undervalue. Their case was that at the time the Company entered administration, the development scheme was no longer financially viable and so it was reasonable to decide to sell the Site in the interests of the creditors as a whole. They argued that they took appropriate advice in respect of planning (and relied upon that advice), that the Site was marketed properly and that the bidding process was properly carried out. The FAs’ case was that, having followed that process, the Site was sold at its then market value.
The JLs’ claims were rejected in their entirety.
Deputy High Court Judge John Kimbell QC found that the FAs had complied fully with their duties throughout the course of the administration. Specifically:
- The FA’s had no reason to doubt the competence of their property agents at any stage. As such, they were entitled to rely upon the advice received as to how to market the Site and their agents appeared entirely competent to do so.
- The FA’s appropriately took and gave proper consideration to the advice they received on planning, marketing and sales matters from their property agents.
- On the facts of the case and relying upon advice from their agents, it was reasonable for the FAs to decide not to pursue an amended planning permission for a particular reconfiguration of the Site themselves, but instead to leave it to interested purchasers to decide, with the benefit of their own expert advisors:
a) what extra value might be generated from an amendment to planning permission based on their intended reconfiguration; and
b) what the chances of obtaining that planning permission would be.
- It was reasonable in all the circumstances for the FAs to decide not to obtain an independent valuation of the Site (the retained agents had previously advised the Syndicate), but instead to allow a properly conducted marketing and bidding process to determine the Site’s value. Any valuation is necessarily hypothetical and extremely sensitive to a large number of potential assumptions. By contrast, exposing an asset to market is a more direct and definitive way to ascertain its actual value.
- The Site had been appropriately marketed. Neither the FAs or their agents “re-educated the market down” to the level of the Company’s debt to the Syndicate or otherwise. The FAs reasonably decided to give preferences to an unconditional sale of the Site without overage provisions but the FAs did not preclude bidders from making conditional offers.
- The bidding process was appropriately conducted. There was no reason for the FAs to abandon it at any stage. The FAs’ agents took time to consider all the available options and advised the FAs as to the advantages and disadvantages of each option, eventually advising that the FAs accept the purchaser’s offer.
- The FAs took reasonable steps to obtain the best price reasonably obtainable for the Site in the circumstances as they appeared to be. The price obtained for the Site was its then market price.
- It was reasonable in the circumstances to allow a properly conducted marketing and bidding process to determine the Site’s value (without obtaining multiple valuations). Any valuation is necessarily hypothetical and extremely sensitive to a large number of potential inputs and assumptions.
The judgment is fact-specific but reaffirms that administrators cannot be liable in negligence if they reasonably rely upon advice from their professional agents who appear to be competent. Merely following advice is not a defence and underlines the need for active interrogation of (i) the choice of professional agents; and (ii) the advice received to assess whether it is reasonable to rely upon the advice.
In relation to the question of undervalue, the Judge made a cautionary observation to potential claimants. The Judge commented that the value subsequently attributed to the Site by the purchaser in its own financial accounts, following its successful application for planning permission, might suggest that the purchaser obtained a bargain. However, the Judge stated that there was no better evidence of the Site’s market value on the day of sale than the price that was achieved following what was found to be a properly conducted free and open marketing and sale process. The fact that no other party outbid the purchaser or was able to rescue the Company suggested that if the purchaser did obtain a bargain, it was because it could see something which no one else with the resources necessary to develop the Site could.