Duties of liquidators and administrators when undertaking the sale of properties

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There have been a number of recent decisions which clarify the duties owed by liquidators and administrators when selling company property. We recap the key points for these office holders, contrast them with the duties of receivers, and consider what insights the latest authorities give us on the court’s approach to the duties of liquidators and administrators, particularly when faced with allegations of negligence or misconduct.

Office holders’ roles are governed by the Insolvency Act 1986, the Insolvency (England and Wales) Rules 2016 and Statements of Insolvency Practice (SIPs), and overseen by their regulatory bodies and the court.  In broad terms, the role of a liquidator or administrator is primarily to:

  • Realise the insolvent company’s assets for the benefit of the estate;
  • Investigate the company and its directors; and
  • Distribute funds to creditors in the statutory order of priority.

Contrasted with receivers who are appointed for the benefit of the chargee lender, liquidators and administrators carry out their duties with regard to the interests of all creditors. While funds will be distributed to creditors in accordance with the so called ‘waterfall’ of payments, efforts should be made to achieve the best possible return to all creditors where possible, being mindful of the pari passu principle for unsecured creditors. 

SIP 1 sets out the fundamental principles for liquidators and administrators, to:

  • act with integrity;
  • be objective;
  • be professionally competent and act with due care;
  • respect confidentiality; and
  • act with professional behaviour, complying with the relevant laws and regulations, avoiding any action that discredits the profession.

While the roles of receivers, liquidators and administrators vary, the courts have made similar findings in relation to the duties of all office holders.

There has been a raft of caselaw where creditors have brought claims against office holders alleging they have breached their duties, particularly in the sale of company assets for the benefit of the insolvent estate. In this update, we consider the recent decision of Absolute Living Developments Ltd (in liquidation) v DS7 Ltd where a liquidator faced allegations of acting dishonestly or negligently in agreeing a sale of the company’s property; and briefly discuss other recent caselaw regarding the duties of office holders.

Absolute Living Developments Ltd (in liquidation) v DS7 Ltd

In Absolute Living Developments Ltd (in liquidation) v DS7 Ltd & others [2021] EWHC 2311 (Ch), interim injunctive relief was sought to restrain the sale of certain properties by Absolute Living Developments (in liquidation) (ALD), alongside allegations that the sale was at an undervalue and that ALD’s liquidator had acted dishonestly or negligently in agreeing to sell the property in a particular way.

DS7 Ltd (in liquidation) (DS7) was a creditor of ALD and had entered into a settlement agreement whereby it would receive 42% of recoveries by ALD in excess of £4.5 million.  The applicant, Mr Cunningham, was a litigant in person and claimed to have standing to pursue a claim against ALD/its liquidator on the basis he was a creditor of DS7.  The court did not make a finding as to his standing.

The property owned by ALD was part of a larger development with adjoining property owned by the local authority and another company. Mr Cunningham alleged that if the development was sold as a package the value would be £18 million (although there was little evidence to support this) whereas a sale had been agreed of ALD’s property alone for c£3.2 million.   


ALD’s property was subject to various leaseholds which would need to be surrendered to achieve a sale of the development as a whole. ALD did not own all of the sites to effect a group sale. The liquidator had engaged two reputable agents to advise her in relation to the proposed sale. 

Notably, the judge, Marcus Smith J confirmed that a liquidator is a professional person appointed and obliged to account to the court, and unless it is shown to the contrary, the liquidator is presumed to be acting professionally, honestly and competently. 

That being the starting point, when faced with deciding whether (on the one hand) the liquidator had  received agents’ advice to sell the property as a package, or (on the other) had been advised to sell the property separately, the judge found that it was overwhelmingly more likely that the liquidator was following the advice of her agents rather than wilfully ignoring it.  It was clear the agents were broadly happy with the course she had adopted and indeed had advised it, and the liquidator was entitled to act on that advice.   

In addressing allegations of negligence, the judge considered whether the decision to sell the property separately was one that no liquidator properly advised and instructed could take as a course of action. He determined that the liquidator’s course of action was one that was properly open to her. The liquidator had taken a view as to how to realise the assets of ALD, she was following that view and it could not arguably be said that she had taken a negligent or dishonest course in doing so. For this, and a number of other reasons, the application was refused.

Other recent decisions regarding officeholders’ duties

The duties of administrators were considered in detail in Re One Blackfriars Ltd (in liquidation) [2021] EWHC 684 (Ch). In that case, the former administrators (the FAs) of One Blackfriars Ltd had sold a premium central London site owned by the company in 2011 for £77.4 million. The subsequently appointed liquidators alleged that the FAs had sold the site at an undervalue of some £250m. Having considered the FAs' conduct, Deputy High Court Judge John Kimbell QC held that the FAs had fully complied with their statutory and other duties throughout the course of the administration, including having marketed the site appropriately to obtain the best reasonable price.

We recently wrote about the Force India decision of Uralkali v Rowley [2020] EWHC 3442 (Ch). While not itself a case relating to the sale of property, it confirmed that office holders do not owe a duty of care to buyers or bidders of company assets. Mr Justice Miles noted that inferring administrators had a duty to all prospective purchasers would widen their duties to a broad and indeterminate group of claimants, and would risk fettering an administrator’s decision making by driving them to be overly cautious, resulting in an “over-lawyered” approach to the commercial task of selling company assets.

Our comment

Disputes in relation to an insolvent company are of course all the more likely to arise where its assets are valuable, and there are differing approaches to valuation – Hat & Mitre being another case in point with a shareholder dispute in relation to a property of substantial value – so litigation in relation to the sale of real estate will remain an occupational hazard for office holders. 

However,  as can be noted from the cases discussed above, the courts are very reluctant to find office holders liable, particularly as officers of the court, and they are presumed to be acting professionally, honestly and competently. Strong evidence to the contrary must be provided for the court to find that an officeholder has acted in breach of their duties.

Absolute Living and One Blackfriars both affirm that officeholders will not be found to be negligent in reasonably relying on the advice of their competent professional agents. However it should be noted that blindly following advice will not constitute a defence and officeholders must give careful consideration to the choice of agent and the reasonableness of any advice provided.  For more tips on mitigating the risk of claims, see our article here.

For further information on this article, please contact Olivia Reader or another member of our Restructuring & Insolvency  team.

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