Philip Bell v Philip Long, Andrew Thomson, PKF and Weatherall Green & Smith (North) Limited [2008] EWHC 1273 (Ch)
Background
The receiver's duty to exercise care in disposing of the company's assets and to ensure he obtains the best price reasonably obtainable at the time of sale was considered recently in the English case of Bell v Long & Others.
Mr Thomson and Mr Long acting as administrative receivers of Dimple Property Limited (DPL) sold a portfolio of four properties for a combined purchase price of £775,000. Mr Bell, director and shareholder of DPL, felt that the receivers had failed in their duty to obtain the best price reasonably obtainable for the properties in the open market. Mr Bell was of the view that if the properties had been sold as individual properties there would have been a greater return to DPL.
Duty to the company
It is clear that a receiver owes a duty of care to the company when dealing with the company's property. In England, the receiver's duty has been described as "a duty in equity to all those interested in the equity of redemption" to obtain a proper price for the property. The test in Scotland is similar and the Scottish Courts have indeed suggested that the approach to the duties of a receiver should be as close as possible in England and Scotland.
However, notwithstanding that general duty of care, the receiver has a degree of latitude not only as to the timing of any sale but also as to the method of sale to be employed. The receiver must still exercise any power of sale in a bona fide manner and obtain a fair price but he has the right to effect a quick sale of the assets even though the market could improve if he held back.
Facts
In this particular case, Mr Bell did not challenge the sale process gone through by the receivers' selling agents but the prior decision to sell the property as a portfolio. The selling agents' initial advice was that the properties ought to be sold individually. However, following interest from a purchaser (PCPL) in buying the properties as a portfolio, the advice to the receivers changed and they recommended a portfolio sale. Following the sale of the portfolio to PCPL, they subsequently negotiated onwards sales of each of the four properties. Mr Bell argued that the subsequent prices achieved by PCPL demonstrated that had the receivers maintained their original marketing strategy they could have achieved a better price for the properties.
Findings
Under cross-examination Mr Bell's expert conceded that the advice to market a portfolio sale could not be described as incompetent. He further conceded that it was an option for the receivers but one which he felt did not produce the maximum return.
On the basis of that evidence, the Court had no difficulty with finding that there was no negligence on the part of the selling agents or the receivers. Mr Justice Patten said:
"There is nothing to suggest that [the selling agent's] assessment of the situation in April was not a reasonable one, his preference for the certainties of a sale to PCPL at £730,000 [as it then stood] over the uncertainties of a longer period of marketing, against a background of changing market conditions, was one which the receivers were entitled to adopt consistently with the right to choose the time of the sale. I do not see how as a matter of law it can be suggested in this case that they were bound to wait for an indefinite period in the hope of obtaining a higher return when they had a competitive bid for all the properties in excess of any individual offers. The duties they owed to the company do not require them to take those kind of risks."
Comment
Given the current market uncertainty, this case will reassure receivers that they do not have to become property speculators and second guess the market. The case does, however, reinforce the need for receivers, when agreeing a strategy for the sale of assets or contemplating a change of strategy, to keep a detailed note of the reasons why a particular strategy was deemed to be the best one in all the circumstances of the case and of any change to that strategy.
It should also be remembered that while the time of sale and method of sale can, to an extent, be dictated by the receiver, this does not mean that he can choose just any time or any method and he must always exercise a reasonable degree of care in disposing of the company's assets.
Interestingly, in another decision recently issued by the High Court in England, (Re Delberry [2008] EWHC 925 (Ch)), the Court upheld a liquidator's application under section 236(3) of the Insolvency Act 1986 to force a company's administrative receivers to disclose documents relating to the receivers' strategy and planning and in particular the decision of the receivers to sell quickly. This simply emphasises the need for a clear audit trail to be kept justifying each step in the decision making process.