English administrators of solvent companies owe a duty to have regard to the interests of members

Quick read

Background

A shareholder of three companies brought claims against the companies' administrators, on the basis that they had acted in breach of their duties.

Allegations of unfair harm

The shareholder claimed that the administrators had favoured the secured creditor's rights over the shareholders' interests, such that the potential surplus was reduced from £20 million to less than £1 million, causing the shareholders unfair harm, and so the shareholders argued the Court should remove the administrators from office.

Court's decision

The judge noted that:

Where there is no commercial justification for a decision that causes harm to members, this may be deemed unfair.
Where a company is balance sheet solvent, there is a duty to have regard to the interests of members as a whole, and not to cause any unfair harm.

The judge found that a competent administrator would have taken a different approach. However, there was no basis to conclude that the administrators took the approach they did out of a lack of commercial justification. The administrators had made the decisions based on the knowledge that was available at the time. As a result, the judge refused the shareholders' application.

Key takeaways

Where there is likely to be a return to shareholders, administrators must have their interests in mind.
Administrators must ensure that their decisions are made based on the best available knowledge at the time, to ensure they are commercially justifiable.