In re Charnley Davies Ltd (No 2) [1990] BCLC 760
Citation:In re Charnley Davies Ltd (No 2) [1990] BCLC 760
Rule of thumb:Can administrators & liquidators be sued for mismanaging a company in financial trouble they take over? It is difficult to do this, but, yes, they can. In carrying outs their professional duty of care and skill properly a liquidator/administrator must demonstrate reasonable care by implementing a reasonable prudent and careful plan to sell property. It is however acknowledged that they are trying to get the most money for assets when they are not in a position of strength, and are often involved with a lot of negotiations running concurrently – the Court used the particular phrase ‘weak hand’ to described the liquidator’s negotiating position, so their approach has to be proven to be shockingly haphazard in order for them to be successfully sued for negligence.
Judgment:
‘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. None of this was in dispute before me... Mr Richmond was called upon to dispose of the business in highly unfavourable circumstances. He had to conclude a deal before the business fell apart; he was involved in a triangular negotiation with the brokers and the purchasers; and any other interested party would have to elicit information about the business from the very persons who were competing with Mr Richmond to sell the goodwill. He had a very weak hand. He might well have achieved nothing. In fact he obtained a fair value for the business. I am satisfied that the price he achieved was the best price that could reasonably be obtained in the circumstances’, 775-776 per Millett J
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.