Re Charnley Davies Ltd (No 2): ChD 1990

An administrator owed a duty to the company over which he was appointed to take reasonable care to obtain the best price that the circumstances, as he reasonably perceived them to be, permitted, including a duty to take reasonable care in choosing the time at which to sell the property. A mortgagee is bound to have regard to the interests of the mortgagor, but he is entitled to give priority to his own interests, and may insist on an immediate sale whether or not that is calculated to realise the best price. An administrator, by contrast, like a liquidator, has no interest of his own to which he may give priority, and must take reasonable care in choosing the time at which to sell the property.
Millett J said: ‘An allegation that the acts complained of are unlawful or infringe the petitioner’s legal rights is not a necessary averment in a s.27 petition. In my judgment it is not a sufficient averment either. The petitioner must allege and prove that they are evidence or instances of the management of the company’s affairs by the administrator in a manner which is unfairly prejudicial to the petitioner’s interests. Unlawful conduct may be relied on for this purpose, and its unlawfulness may have a significant probative value, but it is not the essential factor on which the petitioner’s cause of action depends.
Counsel for the petitioners asked: ‘If misconduct in the management of the company’s affairs does not without more constitute unfairly prejudicial management, what extra ingredient is required?’ In my judgment the distinction between misconduct and unfairly prejudicial management does not lie in the particular acts or omissions of which complaint is made, but in the nature of the complaint and the remedy necessary to meet it. It is a matter of perspective. The metaphor is not a supermarket trolley but a hologram. If the whole gist of the complaint lies in the unlawfulness of the acts or omissions complained of, so that it may be adequately redressed by the remedy provided by law for the wrong, the complaint is one of misconduct simpliciter. There is no need to assume the burden of alleging and proving that the acts or omissions complained of evidence or constitute unfairly prejudicial management of the company’s affairs. It is otherwise if the unlawfulness of the acts or omissions complained of is not the whole gist of the complaint, so that it would not be adequately redressed by the remedy provided by law for the wrong. In such a case it is necessary to assume that burden, but it is no longer necessary to establish that the acts or omissions in question were unlawful, and a much wider remedy may be sought.
A good illustration of the distinction is provided by Re a company (No 005287 of 1985) [1986] BCLC 68. In that case the petitioners, who were minority shareholders, alleged that the respondent, who was the majority shareholder, had disposed of the company’s assets in breach of his fiduciary duty to the company and in a manner which was unfairly prejudicial to the interests of the petitioner. Hoffmann J refused to strike out the petition, holding that the fact that the petitioners could have brought a derivative action did not prevent them seeking relief under s 459.
Again, I respectfully agree. The very same facts may well found either a derivative action or a s 459 petition. But that should not disguise the fact that the nature of the complaint and the appropriate relief is different in the two cases. Had the petitioners’ true complaint been of the unlawfulness of the respondent’s conduct, so that it would be met by an order for restitution, then a derivative action would have been appropriate and a s 459 petition would not. But that was not the true nature of the petitioners’ complaint. They did not rely on the unlawfulness of the respondent’s conduct to found their cause of action; and they would not have been content with an order that the respondent make restitution to the company. They relied on the respondent’s unlawful conduct as evidence of the manner in which he had conducted the company’s affairs for his own benefit and in disregard of their interests as minority shareholders; and they wanted to be bought out. They wanted relief from mismanagement, not a remedy for misconduct.
When the petitioners launched the present proceedings, they wrongly believed that Mr Richmond was managing the affairs of the company in a manner which disregarded their interests and those of the creditors generally. That was a perfectly proper complaint to bring under s 27. Long before the case came to trial, however, it had become a simple action for professional negligence and nothing more. That, if established, would amount to misconduct; but it would neither constitute nor evidence unfairly prejudicial management. In my judgment it would be a misuse of language to describe an administrator who has managed the company’s affairs fairly and impartially and with a proper regard for the interests of all the creditors (and members where necessary), conscientiously endeavouring to do his best for them, but who has through oversight or inadvertence fallen below the standards of a reasonably competent insolvency practitioner in the carrying out of some particular transaction, as having managed the affairs of the company in a manner which is unfairly prejudicial to the creditors.’

Millett J
[1990] BCLC 760
Companies Act 1985 459
England and Wales
CitedStandard Chartered Bank Ltd v Walker CA 1982
The mortgagee having obtained insufficient on the sale at auction of the property charged to recover the sum secured, applied for summary judgment against the mortgagor for that sum. The mortgagor resisted the application alleging that the mortgagee . .
CitedCuckmere Brick Co Ltd v Mutual Finance Ltd CA 1971
A mortgagee selling as mortagee in possession must ‘take reasonable care to obtain the true value of the property at the moment he chooses to sell it’ and obtain the best price for the property reasonably obtainable on the open market. However, . .

Cited by:
CitedSilven Properties Limited, Chart Enterprises Incorporated v Royal Bank of Scotland Plc, Vooght, Harris CA 21-Oct-2003
The claimants sought damages from mortgagees who had sold their charged properties as receivers. They said they had failed to sell at a proper value. They asked whether the express appointment in the mortgage of receivers as agents of the mortgagor . .
CitedSilven Properties Ltd and Another v Royal Bank of Scotland Plc and Others CA 21-Oct-2003
The claimants complained that the receivers appointed by the bank had failed to get the best price for properties charged to the bank and sold, in that they had failed to obtain planning permissions which would have increased the values of the . .

Lists of cited by and citing cases may be incomplete.

Negligence, Company, Insolvency

Updated: 20 January 2022; Ref: scu.187031