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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Brewer & Anor v Iqbal [2019] EWHC 182 (Ch) (11 February 2019) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2019/182.html Cite as: [2019] EWHC 182 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT
7 Fetter Lane London EC4A 1NL |
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B e f o r e :
____________________
(1) RICHARD BREWER (2) MARK WILSON (As Joint Liquidators of ARY Digital UK Limited) |
Applicants |
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- and - |
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ZAFAR IQBAL |
Respondent |
____________________
DANIEL LEWIS (instructed by DWF LLP) for the RESPONDENT
Hearing dates: 21-24 January 2019
____________________
Crown Copyright ©
Chief ICC Judge Briggs:
The Company enters administration
"Having taken the board's views into account and reviewed the available information, I am satisfied that the administration is an appropriate insolvency route for the company on the following grounds: that there may be a chance to sell the whole business preserve jobs and hence achieving a better result for creditors as a whole than would be likely if the company were wound up." (sic)
"advise and assist the Board in relation to any discussions or negotiations with potential purchasers of the company's business and assets."
"our role is not to advise the individual directors on their personal position and if any director should require personal advice on the implications of the company's administration, they should seek independent advice."
"Once appointed administrator, our insolvency practitioner will owe his prime duty to the creditors as a whole and must act as officer of the court. Maximising realisations for creditors. He may investigate transactions and disposals and take recovery action against individual directors or submit adverse reports to the Secretary of State when reporting under the Company's Directors' Disqualification Act…." (sic)
"Q you should have kept a note of all dealings
A yes, I didn't.
Q. why not exhibit your diary
A I didn't know how to use the Outlook diary and I didn't regularly keep a written diary."
Administration
"Yesterday, I was appointed Administrator of [the Company]…… Would you kindly advertise on your website the sale of the following tangible and intangible assets without disclosing the name or location of this company.Office furniture and equipment as per the list already provided to you (I have agreed £7000 with the current management)
EGP x 2 (I have agreed £40,000 with the current management)
Goodwill (I have agreed £10,000 with the current management)
If there is no interest shown by any third party, I would like to conclude the sale through Edward Symmons on or before Friday, 27 May 2011."
"I decided that the objective of the administration was best achieved by the company ceasing to trade. As a result the company ceased trading on 20 May 2011 and its employees were dismissed on that date. However, in order to preserve the goodwill and make a better realisation from the sale of electronic programme guides which are the rights to broadcast I continued with broadcasting. This was done no extra cost. Since BSB was already holding a small deposit which may not be refunded to the administrator due to an early termination of the broadcasting agreement. As a result of the continued broadcasting my agents were able to sell the assets for £57,000 as against their estimate of £6000 if the company were to be wound up and assets sold through auction."
"Their valuation report estimated a maximum recovery of £17,000 insitu and £5000 exsitu. The assets were then advertised for sale on the website of Edward Symmons."
Framing the claim and defence
Legal framework
The administrator as fiduciary
"This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. These are the defining characteristics of the fiduciary. As Dr. Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary".
"The phrase "fiduciary duties" is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not the case. Although, so far as I am aware, every fiduciary is under a duty not to make a profit from his position (unless such profit is authorised), the fiduciary duties owed, for example, by an express trustee are not the same as those owed by an agent. Moreover, and more relevantly, the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties. Thus, in the case of an agent employed under a contract, the scope of his fiduciary duties is determined by the terms of the underlying contract. Although an agent is, in the absence of contractual provision, in breach of his fiduciary duties if he acts for another who is in competition with his principal, if the contract under which he is acting authorises him so to do, the normal fiduciary duties are modified accordingly."
"does not absolve the court from deciding the scope of the fiduciary's obligations. If, in fact, the agent has, in the light of the facts of the case, no obligation to disclose the actual amount of commission he is paid when his principal knows he is being paid by the third party to the transaction, it does not advance the matter to say that, because he is a fiduciary, he must disclose the actual amount he is being paid. It is the scope of the agent's obligation that is important, not the fact that he may correctly be called a fiduciary".
"While these controls have been developed primarily in cases concerning the powers of express trustees and company directors, they apply mutatis mutandis to insolvency office-holders. Accordingly, an administrator must: (i) act within his powers; (ii) exercise his powers in good faith; and (ii) exercise his powers for a proper purpose. The "proper purpose" control on the exercise of office-holder powers derives from the "fraud on a power" doctrine in trusts law and its variant in corporate law, the duty of a company director to exercise powers for the purpose for which they are conferred, now codified in the Companies Act 2006 s.171(b). Its effect is to prohibit the administrator from exercising his powers for a purpose, or with an intention, beyond their scope. It follows that the administrator must not act perversely or irrationally or for irrelevant or extraneous reasons as, properly understood, in doing so he would be abusing his powers by acting beyond their scope".
"The proper purpose rule has its origin in the equitable doctrine which is known, rather inappropriately, as the doctrine of "fraud on a power". For a number of purposes, the early Court of Chancery attached the consequences of fraud to acts which were honest and unexceptionable at common law but unconscionable according to equitable principles. In particular, it set aside dispositions under powers conferred by trust deeds if, although within the language conferring the power, they were outside the purpose for which it was conferred."
"The trustees' duty to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable. Fiscal considerations will often be among the relevant matters which ought to be taken into account. However, if the trustees seek advice (in general or in specific terms) from apparently competent advisers as to the implications of the course they are considering taking, and follow the advice so obtained, then, in the absence of any other basis for a challenge, I would hold that the trustees are not in breach of their fiduciary duty for failure to have regard to relevant matters if the failure occurs because it turns out that the advice given to them was materially wrong." (my emphasis)
"the nature (and consequent seriousness) of the necessary breach may further limit the scope of the rule. Some breaches of trust may not amount to a breach of "fiduciary duty", the touchstone of liability in Futter. Sometimes "fiduciary duty" is restricted in its meaning to the rules governing conflicts of duty and interest. Clearly, what is meant in Futter is wider than that the conflict rules already provide for a transaction that was made in conflict of duty and interest to be prima facie voidable, so the rule in Futter would be redundant if limited to breaches of fiduciary duty in that narrow sense. Context also makes it plain that a wider meaning of "fiduciary duty" is intended. But how wide? It is questionable that a mere breach of a duty of care and skill amounts to a breach of fiduciary duty in the Futter sense.": Fiduciaries and their flawed decisions (2013) LQR 129, 469-473.
"(i) The mortgagee when selling mortgaged property is under a duty to a guarantor of the mortgagor's debt to take reasonable care in all the circumstances of the case to obtain the true market value of that property. (ii) A receiver is under a like duty. (iii) The mortgagee is not responsible for what a receiver does whilst he is the mortgagor's agent unless the mortgagee directs or interferes with the receiver's activities. (iv) The mortgagee is responsible for what a receiver does whilst he is the mortgagee's agent and acting as such." (emphasis added)
"Although advised by Edward Symmons Ltd that he should look to the trade the receiver did not do so but was content that the trade should look to him. In my judgment the failure to take reasonable care is manifest in these forms: (i) a failure to take specialist advice from a person in the popular music industry; (ii) a failure to advertise in publications concerning the popular music industry. The receiver is liable in negligence to the guarantor…"
Duty of care.
"An administrator must be a professional insolvency practitioner. A complaint that he has failed to take reasonable care in the sale of the company's assets is, therefore, a complaint of professional negligence and in my judgment the established principles applicable to cases of professional negligence are equally applicable in such a case. It follows that the administrator is to be judged, not by the standards of the most meticulous and conscientious member of his profession, but by those of an ordinary, skilled practitioner. In order to succeed the claimant must establish that the administrator has made an error which a reasonably skilled and careful insolvency practitioner would not have made."
"The starting point for any analysis is that the office and role of an administrator is a creation of statute, and paragraph 69 of Schedule B1 to the 1986 Act expressly provides that in exercising his functions under the Schedule, the administrator of a company acts as agent. ……
"….that an administrator owes a duty to a company over which he is appointed to take reasonable steps to obtain a proper price for its assets. That is an obligation which the law imposes on anyone with a power, whether contractual or statutory."
"Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution."
Reliance on professional advice
"Trustees may also be in breach of duty in failing to give proper consideration to the exercise of their discretionary powers, and a failure to take professional advice may amount to, or contribute to, a flawed decision-making process. But it would be contrary to principle and authority to impose a form of strict liability on trustees who conscientiously obtain and follow, in making a decision which is within the scope of their powers, apparently competent professional advice which turns out to be wrong."
Evidence of fact
"Mr Lewis: Mr Brewer, what you are saying is that Mr Iqbal agreed with the directors before his appointment as administrator that there should be a sale of the EPGs to their associated company, correct?A. Yes, it looks that way.
Q. And what you are saying is that in doing that, he didn't only disregard the interests of the company, you say that, don't you? He didn't act in the interests of the company, that is correct, that is what you say?
A. That would follow from that, yes.
Q. And he didn't act in the interests of the company's creditors, that is what you say?
A. Again, that would follow from that.
Q. But he acted in the interests, he preferred the interests of the directors of the company. That is what you say, isn't it?
A. Yes.
Q. And I take it you accept, if you are an administrator you should know that your duties are to act in the interests of the company and its creditors, shouldn't you?
A. Yes.
Q. So what is it that you say motivated Mr Iqbal to act in the interests of the directors of the company over those of the company?
A. I don't know.
Q. You have no evidence to show a motive, have you, to act in that way?
A. I don't think we comment on motive.
"Mr Lewis Q. There is nothing wrong with that, is there? There is no suggestion there that there was a pre-arranged sale between the directors and Mr Iqbal?A. No, there is no suggestion in there."
"Q. How did you reach the view that the EPGs would be switched off?A. This is what I was advised by the directors, that they are heavily indebted to Sky, and as soon as obviously the company will enter into liquidation, it could take days, perhaps days or weeks before we find a buyer.
Q. So you were advised of that by the directors?
A. Yes.
Q. So you accept you were taking advice from the directors?
A. So far as the working of Sky was concerned, yes.
Q. Anyone else?
A. No."
Q. …That was presumably because you didn't want to damage the ARY brand, was it?A. I didn't want the UK operations to be affected, yes.
Q. UK operations of ARY?
A. ARY, yes.
Q. In terms of not disclosing the name or the location of the company, how do you think the creditors would benefit from that decision?
A. I have no answer to this question."
"Q. ...You were happy to defer to Fayaz?A. Yes, who obviously was aware exactly what services ARY or which audience they were targeting.
Q. Yes, ARY were best placed to know how the assets should be advertised?
A. Sorry, can you repeat the question.
Q. Yes. Fayaz from ARY was best placed to know?
A. That is what I understood, what my opinion was at that time."
Q. So this isn't a formal valuation and it is not document you could place any weight on, is it?A. Yes, but I did.
Q. For what purpose?
A. For my report to creditors, progress report to creditors.
Q. The assets had already been sold by this stage, hadn't they?
A. Yes.
Q. You say in your witness statement that one of the reasons behind getting that document was because if the assets had been undersold, you might try and challenge the transaction. How would you do that?
A. Because the initial value or figure of £35,000 was floated to me by the accountant, then followed on to directors, and they offered £40,000. And Edward Symmons did say to me that sometimes the assets are worth what someone is prepared to pay for those assets. So had they told me I have sold it on the lower side, I would have commenced an action to recover those assets.
Q. On what basis?
A. That they have misled me.
Q. You subsequently asked for a further comment on the value received for the EPGs, didn't you?
A. Yes, on the value realised, yes.
Q. Yes. How did you give that instruction?
A. Must have been by phone.
Q. Did you take a note of that?
A. No.
Q. In fact you had no estimate of £6,000 at all, did you?A. Without looking at papers I cannot say "yes" or "no".
Q. Is it really your position that you might have had a valuation of £6,000?
A. No, as I said, without looking at my relevant documents I will not be able to say "yes" or "no".
Q. So you think it is a possibility you had a valuation of £6,000?
A. There could be a possibility, yes.
JUDGE BRIGGS: Can you explain to me, Mr Iqbal, why you would put that in the proposals to creditors? Just to be clear, we are looking at paragraph 5 at page 450, behind tab 122.
A. Sir, I cannot comment.
Mr Curl: Moving down to paragraph 6(c) under the subheading "EPGs", do you see that?
A. Yes.
Q. "The company have three EPGs. The broadcasting services are rendered by BSkyB. Edward Symmons have estimated these assets may realise £10,000 in situ or £4,000 ex situ." That was a false statement, wasn't it?
A. This was misrepresentation. In fact the directors, as I said in my witness statement, they are the ones who floated these numbers.
Q. Do you say it was the directors?
A. The directors/their accountant.
Breach of care and skill
Breach of fiduciary duty
Concurrent causes of action and loss
"part of the calculation is based on the commercial success or "uplift" which the existing channel has achieved in its position on the EPG but of more interest to a potential purchaser is the value in revenue in terms from their own uplift that they believe they could achieve from broadcasting in that slot. This is the primary consideration in putting a value on any individual EPG slot….."
"I am aware that the positions [the comparable EPGs] were sold in a two-week fire sale and all sold at the same time in 2017 for £800,000. That sale was conducted by a small independent broker, The EPG shop, run by Nick Doff. This was, in my view, considerably less than could have been achieved with a professional sale process managed over a period of time…… Mr Brewer notes that discounts of 50 to 80% are not untypical in such fire sale scenarios. If I apply that formula in reverse, I note that the amount actually achieved in 2017 should have been (absent the fire sale) between £1.6 and £2.4 million which in fact reflects the range of my valuations."
"once the market becomes aware that a channel is in trouble through industry intelligence or gossip, or if the slot has been removed from the EPG, potential purchasers and broker will attempt to contact the channel. Often, this is because the channel is in financial difficulty, or the company may be in administration. Potential purchasers will use this to their advantage by waiting until the last minute to submit low offers that are considerably lower than the slots true value or occurrence market average price."