Our Insolvency Litigation Solicitors Secure a Successful 6-figure Sum from Former Administrators on behalf of our Liquidator Client
How often do you hear an aggrieved Creditor moan that the Insolvency Practitioner didn’t do his/her job! Working closely with our team of Insolvency Litigation Solicitors, headed up by Neil Davies, our Liquidator Client has recovered a 6-figure sum (plus legal costs), following heavily contested litigation against the former Administrators of a failed company. This case study looks at the details of a case in which we acted on behalf of the Liquidator against the Joint Administrators of the failed company. It was believed that the Joint Administrators had acted negligently and sold company assets at undervalue.
Background to this Insolvency Litigation Case
In this case, the aggrieved Creditor was our Property Developer and Machine Tool Specialist Client, in its capacity as:
- A secured Creditor of the failed company,
- An unsecured Creditor of the failed company,
- The Landlord of the failed company’s trading premises.
The Liquidator concluded that the Joint Administrators who were appointed (in extreme haste) over and in respect of the failed company, had sold company assets at undervalue, and otherwise acted negligently, with the consequence that the Creditor Client could not and would not receive payments pursuant its security or receive an anticipated Dividend as an unsecured Creditor of the company.
What to do? Our Insolvency Litigation Solicitors advised the appointment of an Independent Liquidator
The first move by our Insolvency Litigation Solicitors was to advise the Creditor, by far the single largest Creditor of the failed company, to seek the appointment of an independent Liquidator, using its decisive vote to appoint its own choice of Liquidator.
We investigated with the Liquidator what had gone before and what the Administrators had done/not done, in their disposing of extremely valuable company plant and equipment, at significant undervalue. The NDP team, led by Neil Davies, represented the Liquidator. We assisted the Liquidator in obtaining a retrospective valuation of that machinery and equipment. This confirmed a very large sale at undervalue by the Administrators.
Meetings with the Administrators and their Solicitors
Acting for the Liquidator and having failed to persuade the former Administrators in correspondence and in face to face meetings, of the need for them to make financial recompense to the company, litigation inevitably followed.
With the assistance of a specialist Chancery Barrister, we drafted and issued proceedings against the former Administrators in the name of the Liquidator. Liquidator pursued the case with the benefit of After the Event Insurance (‘ATE’) in place, to protect the Liquidator.
The Basis of the Liquidator’s Claim – Issuing Proceedings
The Claim was founded – and relied upon – the provisions of the Insolvency Act 1986, which permits and authorises this very type of claim.
The commencement of the proceedings was a two-stage process:
- Stage 1
Was for our Liquidator Client to obtain the permission of the Court to commence the Action. Our Liquidator Client had to demonstrate to the Court that the proposed causes of action were ‘reasonably meritorious’ and that the granting of the permission was likely to result in a benefit to the estate of the Company in Liquidation.
A date was set for the hearing of that application before the Chancery Judge of the High Court. The former Administrators however consented to that permission being given, obviating the need for a hearing.
- Stage 2
Proceedings were issued by the Liquidator against the former Administrators, pursuant to Schedule B1 paragraph 75 of the Insolvency Act 1986. Section 75 (2) states:
‘The Court may examine the conduct of a person who has been the administrator of a company (where it is alleged) that the administrator
a.) Has misapplied or retained money or other property of the Company
b.)Has become accountable for money or other property of the Company
c.) Has breached a financially or other duty in relation to the Company or;
d.) Has been guilty of misfeasance.’
So, proceedings were issued and pursued, seeking Orders from the Court that the former Administrators (paragraph 75(4)):
a.) Repay, restore or account for money or property
b.) Do pay interest
c.) Do contribute a sum to the Company’s property by way of compensation for breach of duty or misfeasance.’
History of the Action
Proceedings were commenced in mid-2016. They were heavily contested by the former Administrators. Witness Statement evidence had to be obtained by NDP’s insolvency litigation solicitors on behalf of our Liquidator Client from former employees, the company’s Bookkeeper, Directors of the company and other witnesses.
Expert valuation evidence had to be obtained. Leading Counsel was employed to take the Action through to Trial.
The matter was listed for Trial to take place over 15 days in March 2019, after an unsuccessful Mediation in 2017.
The Outcome – A 6-Figure Payment to our Liquidator Client
The case has recently been settled, on confidential terms. We can, however, say that the settlement involves a large 6-figure payment to our Liquidator Client, together with an Order that his legal costs be paid. All in all, a good outcome for the Liquidator and the company’s Creditors.
What Were the Lessons Learned?
Hard fought litigation is always worth reflecting on. Lessons can always be learned by both sides. The lessons learned here include:
- If you are going to take on and pursue an insured Defendant, ensure (as we did here) that you have your evidential ducks lined up on day one of the case.
- Be prepared for the fight, and the time that fight will take, especially when dealing with Solicitors appointed (as here) by an insurance company on behalf of the former Administrators. What might seem an obvious, ‘open and shut’ case can be made to look something very different by those Insurer appointed Solicitors.
- Keep reviewing your case and your strategy and be prepared to blink last.
- If settlement seems inevitable, then make protective Part 36 Offers as soon as practicable.
Comment by Insolvency Litigation Solicitor, Neil Davies
NDP Director, Neil Davies, who led the NDP team that ran the successful case had this to say:-
“Running such complicated litigation against professional Respondents, requires, in-particular, insolvency and strong litigation expertise, tenacity and a very good Barrister.
The outcome represents a good result for the Liquidator and the creditors of the company.”
At Neil Davies and Partners, our mantra is that ‘no hole is too deep’ for us not to be able to make a difference. The sooner we are instructed the more likely we can help. Contact us or call us on 0121 200 7040 for a FREE initial discussion of your case.