Party interfering with administrators’ powers and duties reprimanded by the High Court

The Insolvency Act 1986 grants various powers and duties to office-holders – such as administrators – including the collection and sale of an insolvent company’s assets for the benefit of the estate. Regrettably, it is not uncommon for company directors or employees to obstruct the fulfilment of these obligations, potentially causing harm to the company’s creditors. Fortunately, however, courts have jurisdiction to assist office-holders by restraining parties attempting to interfere with their duties, as confirmed by the High Court in the matter of (1) Jacob Beake (2) Paul David Allen (Acting As the Joint Administrators of London South West Sw Limited) and – (1) Jamie Richard Chapman (2) Bodman House Management Ltd [2023] EWHC 1986 (Ch).

The details

In this case, the Applicants were appointed as joint administrators of a Company that had been incorporated as a special purpose vehicle to develop and sell 26 residential flats (the “Property”). Leaseholds for 25 of these flats had been sold at the time of their appointment and an offer for the last one was accepted. The First Respondent served the sole director of the Company and was also the sole director and shareholder of the Second Respondent which was incorporated to manage the Property.

Shortly after their appointment, the administrators signed and circulated a contract for the sale of the remaining flat. The First Respondent refused to sign the lease on behalf of the Second Respondent, despite having signed all other leases and facilitating the sales of the 25 flats sold prior to the administration. The prospective buyers, who had waited nearly five months since expressing their readiness to proceed with the sale, were threatening to withdraw their offer should the parties not exchange and complete in a prompt manner. The administrators decided to instruct HCR to file an urgent application restraining the First Respondent from refusing to sign the remaining lease.

The judgment

ICC Judge Barber was satisfied that the matter was sufficiently urgent to warrant immediate disposal and accepted the Applicants’ evidence that the First Respondent’s refusal to sign was a deliberate attempt by him to use the remaining lease as leverage against a personal dispute with the administrators of a connected company who had issued a bankruptcy petition against him. Given that the First Respondent held shares in the Second Respondent on trust for the Company, his refusal to sign amounted to a breach of his fiduciary duties to the Company and to the Second Respondent. Any further delay in executing the lease carried a substantial risk of the buyers withdrawing from the sale which would likely result in a reduced return for the Company’s creditors, as evidenced by the Company’s sales agents’ confirmation that the prospective purchasers’ offer was unlikely to be matched or beaten.

The Judge accordingly ordered the First Respondent to sign the sale documents on behalf of the Second Respondent and to deliver up the originals. The First Respondent was also ordered to pay the Applicants’ costs of the application, summarily assessed at £20,000 plus VAT.

Key takeaways

This judgment serves as a stark warning to parties interfering with office-holders in the discharge of their duties under the Insolvency Act 1986. It emphasises the importance of timely and transparent dealings in such situations, as any unjustified delay or interference may result in losses for creditors and legal consequences for those responsible.