Mercer & Hole’s Expert Witness team acts in a variety of situations. Recently one of our partners, Chris Laughton, was the expert insolvency practitioner in the case of Brewer & Anor v Iqbal  EWHC 182 (Ch), where the liquidators of ARY Digital UK Ltd successfully brought breach of duty claims against the former administrator.
The following provides an overview of the case, some interesting points that arose from it, comments from the Judge relating to Chris’ contribution to the case, the Judge’s findings and compensation awarded.
The administrator had sold the company’s business and assets back to the directors in a pre-pack. The valuable assets were EPGs (Sky TV Channels), which the administrator had sold at an undervalue.
Expert Witness Evidence
Chris gave evidence in court about what a reasonably competent administrator would have done. ICC Judge Briggs found that “Mr Laughton made clear that he was not seeking to usurp the function of the court by stating what a reasonably competent administrator would have done, but merely offering an opinion based on his substantial experience, the statements of insolvency practice and code of ethics applicable to office-holders.”
Interesting points from the judgment are:
- “What is surprising is the admission by Mr Iqbal that he kept no attendance notes of any kind in respect of any meeting”
- “He knew of SIP 16 but thought that it did not apply and accepted, again with candour, that he did not consider SIP 13.”
- “It is apparent that the statements made in the report [to creditors in his proposals], regarding the sale of the Company’s assets while the Company was in administration, bore no resemblance to the truth.”
On breach of duty of care and skill the judge said “I have taken account of Mr Laughton’s report and in a similar way to the negligence of the receiver in American Express International Banking Corp v Hurley, negligence is manifest in Mr Iqbal’s failure to (i) take specialist advice from a person in the EPG industry; (ii) advertise in publications or websites likely to attract purchasers of EPGs and not plant and machinery; and (iii) expose the assets to a proper market for a reasonable period of time.
Breach of fiduciary duty arose through the administrator failing “to act with ‘single-minded’ loyalty to the Company”. The judge also found that the administrator “failed to take account of matters that he should have when deciding on the timing of the sale of the EPGs, namely the best interest of creditors, and took account of matters that he should not have, namely (i) the perceived risk that BSB might take the EPGs off-air without any inquiry from BSB whether that was in fact the case; (ii) a concern that even though the Company was in administration it may be wound up; and (iii) the directors’ need to transfer money from abroad before the bank holiday weekend.”
Outcome and award
As a result of the breaches of fiduciary duty, the award was for equitable compensation, which is assessed on the value of the assets at the date of the judgment, with no requirement for mitigation of loss. £743,750 was awarded, plus costs. It was a firm reminder to insolvency practitioners to act with single-minded loyalty, to take account only of all relevant matters, and to comply with the code of ethics and the SIPs.
Mercer & Hole’s Expert Witness team covers Valuation, Professional Negligence and Divorce. If you require further information or wish to discuss a case, please contact a member of the team.