Force India - IPs' duties to third party bidders in a sales process

The Court has recently been asked to consider the extent to which IPs conducting sales owe duties to bidders and buyers. In Uralkali v Rowley [2020] EWHC 3442 (Ch), a prospective purchaser of the Force India F1 racing team brought claims in negligence against the administrators of the company which owned and operated that racing team, for events relating to the sale and bidding process.

During the sale and bidding process, the lead administrator met with a number of interested parties and potential bidders, pursuing deals which would either lead to a rescue of the company as a going concern, or to a sale of the business and assets. During those meetings, various financial information was discussed, along with the potential structure of a rescue or business sale, and other relevant information.

The claimant argued that the administrator was negligent in making certain representations to the bidders regarding the criteria that would apply in determining a successful bid, that the administrator was under a duty to conduct the sale process in accordance with those representations, and had assumed personal responsibilities to prospective purchasers in respect of any loss caused by their reliance on the representations.

In respect of the claim in negligence, it was held that administrators do not owe a duty of care to third parties purely by virtue of their office. Mr Justice Miles referred to the case of Fraser Turner Ltd v PricewaterhouseCoopers LLP where the Court of Appeal held that the administrators do not owe a duty of care to a particular creditor simply by reason of their appointment and they would have do something more to assume such a duty. The conclusion could not be any different where Uralkali was not even a creditor.

Mr Justice Miles said that inferring administrators had such a duty to all prospective purchasers would widen their duties to a broad and indeterminate group of claimants, and that such a duty ran the risk of fettering an administrator’s decision making in furtherance of the statutory purpose of administration, because it would drive office-holders to a cautious and over-lawyered approach to what the Judge acknowledged can be a demanding commercial task.

In the course of the judgment, the Judge did give guidance on an office-holders’ conduct when pursuing a competitive sales process, which included:

• The need to be careful in making representations about criteria for bids to succeed, particularly if the criteria may need to be adapted as circumstances change;
• Ensure the bidding process is in the best interests of creditors and members of the company, particularly if, for good commercial reasons, there is not a level playing field;
• While it is in order for an office-holder to let bidders know there are other bidders, they should be careful not to breach confidence when discussing this.

Office-holders will be relieved that this decision clearly acknowledges the importance of allowing a competitive sales process to take place, without the risk of personal liability arising from claims by disgruntled unsuccessful bidders. However, it is also clear from the judgment that office-holders must conduct themselves properly, maintain good records of their decision making, and ensure they are acting in the best interests of creditors in such a process, who can ultimately hold an office-holder to account.

For more information about this article, please contact a member of our Restructuring & Insolvency team.