Claims against Negligent Administrators

An administrator, liquidator or insolvency practitioner owes a duty to the company which he has been appointed to take steps to obtain a proper price for its assets (Re Charnley Davies Ltd (No.2) [1990] BCLC 760). Therefore, where the insolvency practitioner has failed to take reasonable care in the sale of company assets, a claim for professional negligence may arise against them.

Do you have a claim against a professional? If you want expert legal advice, do not delay in instructing us so we can assess the legal merit of your case.

We can often take on such claims on a no win no fee basis (such as a Conditional Fee Arrangement) once we have discussed the claim with you and then assessed and advised you on the merits of the proposed professional negligence action.

Examples of administrator negligence?

Under the Insolvency Act 1986 Sch.B1 para.3(1), an administrator has to perform their functions with the objective of, in order of priority:

  • rescuing the company as a going concern;
  • achieving a better result for the creditors as a whole than would be likely if the company had been wound up; or
  • realising property to make a distribution to secured or preferential creditors. The company’s sole asset was a site with development

Therefore, a breach of any of the above duties could give rise to a claim in professional negligence against the administrator.

Sale at undervalue

The most obvious and common breach of an administrators duty is a sale of company assets at undervalue, as was the case in Re Charnley Davies Ltd (No.2) [1990] BCLC 760 where Millet J held that:

An administrator must be a professional insolvency practitioner. A complaint that he has failed to take reasonable care in the sale of the company’s assets is, therefore, a complaint of professional negligence and in my judgment the established principles applicable to cases of professional negligence are equally applicable in such a case. It follows that the administrator is to be judged, not by the standards of the most meticulous and conscientious member of his profession, but by those of an ordinary, skilled practitioner. In order to succeed the claimant must establish that the administrator has made an error which a reasonably skilled and careful insolvency practitioner would not have made.

Re Charnley Davies Ltd (No.2) [1990] BCLC 760, Millet J

This has been looked at again in the more recent matter of Hyde v Nygate [2020] EWHC 1516 (Ch) where in 2010 BDO became the administrators for One Blackfriars, which at that time had planning permission for 64 luxury apartments and a 261 bedroom hotel. BDO sold this site for £77.4million to the Berkeley Group, who valued the site 18months later for £232million.

There is currently a five-week trial of liability and damages issues on-going in this matter and we shall provide an update upon the judgment being published.

Realising value from causes of action

If an insolvent company has any causes of action, these are deemed to be assets of the company. Therefore, just as above, the administrators have an obligation to obtain a proper price for the cause in action. Of course the administrator could pursue simple claims themselves, such as debt claims, however where more complex claims exist the administrator may be risk averse and avoid pursuing litigation.

In these instances, the administrator may assign the cause of action to a third party, to realise value. How the administrators value causes in action was looked at in LF2 v Supperstone [2018] EWHC 1776 (Ch) where Morgan J held:

  1. The administrator’s power to assign a cause of action is conferred by paragraph 2 of schedule 1 to the 1986 Act, as a cause of action is “property” within that paragraph. That paragraph is not limited by any words which require the administrator to satisfy himself as to the arguability of an alleged cause of action.
  2. A viable claim by the company against a third party is an asset of the company. A claim which is arguably viable, is a potential asset of the company. In principle, an administrator ought to be ready to investigate whether such an asset should be preserved and pursued. Of course, there may be obstacles in the way of doing so. The administrator may have no funds with which to take legal advice. In such a case, it may be open to the body of creditors to provide the necessary funds.

What happens if I do not have a written agreement with my administrator?

If there is no express contractual written agreement between you and your administrator, then the standard of work is implied by section 13 of the Supply of Goods and Services Act 1982, where it states:

‘in a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill’.

Section 13, Supply of Goods and Services Act 1982

How can I prove that my administrator has been negligent?

In order to sue an administrator for negligence, a claimant must establish three essential elements to the civil standard of proof (on a balance of probabilities, i.e. it must be proved by the claimant that the financial adviser’s breach of duty caused the claimant to suffer loss).

  1. Demonstrate that the administrator owed you a duty of care: the boundary lines between when a tortious duty of care is owed or not owed is subject to tests that are being continuously evolved by the courts. A duty of care exists where the administrator can be shown to have objectively assumed responsibility.
  2. Establish that the administrator has breached the duty of care owed to you: proving breach will obviously vary depending on the individual circumstances of the case. A claimant needs to demonstrate that the breach shows that the administrator fell below the standards of a reasonably competent adviser in that speciality.
  3. Prove that the administrator’s breach caused loss to you: you must prove both factual and legal causation. The test for factual causation is that “but for” the administrator’s breach you would not have suffered loss. Legal causation must also be proved i.e. the loss must be reasonably foreseeable at the time when the relevant duty was breached.

What is the time limit for commencing a claim against my administrator?

Time limits and limitation periods are essential to adhere to in litigation. Missing a limitation period is fatal to the chances of success of any claim and will leave a claim statute barred.

When it comes to ascertaining the limitation date for a particular claim, there are a number of factors to consider. In simple terms, the limitation period is six years from the accrual of the cause of action (section 2, Limitation Act 1980). However, if the six year time limit has passed but you have only just discovered the effect of any latent damage, then the limitation period may be extended to three years from the date of knowledge (section 14A, Limitation Act 1980).

If you have a complaint against an administrator, then our advice is that you take independent legal advice as soon as possible.

Book an Initial Consultation with our Professional Negligence Lawyers

Do you have a claim against a professional? If you want expert legal advice, do not delay in instructing us so we can assess the legal merit of your case.

We can often take on such claims on a no win no fee basis (such as a Conditional Fee Arrangement) once we have discussed the claim with you and then assessed and advised you on the merits of the proposed professional negligence action.

Our expert legal team of leading Professional Negligence Solicitors & Barristers can provide urgent help, advice or representation to you. Just call our Professional Negligence Lawyers on 02071830529 or email us now.

Instruct Specialist Professional Negligence Solicitors

We are a specialist City of London law firm made up of Solicitors & Barristers operating from the only law firm based in the Middle Temple Inn of Court adjacent to the Royal Courts of Justice. Our team have expertise in advising on claims for compensation against professionals that have fallen below the standard expected, which causes clients financial or personal loss. We are experienced in bringing successful claims against negligent solicitors, barristers, financial advisers, surveyors, administrator, architects, tax advisers and IFAs.

Want legal advice on the merits of your case?

Your legal enquiry goes immediately to our PN litigation team in Middle Temple, London. We can’t take on low value cases or give free legal advice – our minimum fee is £1500 +VAT for a conference with a solicitor and barrister. Call us on +442071830529.

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