Claim against administrator by shareholders fails

This case involved the unusual situation where there was to be a return to shareholders in a solvent administration. The shareholders sought to remove the administrators claiming that their actions had caused them loss, but the court disagreed and dismissed the claim.

Shareholders of a property development company pursued misfeasance claims against administrators with a view to removing them from office, in the unusual case where the company was solvent.

In effect, the shareholders argued that the actions of the administrators had substantially reduced the return to them through values commanded on asset sales.

The judge considered the authorities and summarised that “where the company is balance sheet solvent, or a return to shareholders is likely, there is a duty to have regard to the interests of members as a whole, including the concept of not causing them unfair harm.”

The judge then assessed whether the administrators had discharged their duties to the shareholders on that basis. In respect of the application for removal, the judge concluded that such applications should be dealt with by a three-stage process.

This was: “first, an examination of the allegations made and findings on those allegations; second, consideration of whether findings on those allegations results in good or sufficient grounds for removal (including the notion, in this case, of unfair harm); and, third, if so, whether the court should exercise its discretion, and grant removal relief, having regard to all the circumstances, including the interests and wishes of other stakeholders.”

The judge then applied those tests to the facts and concluded the administrators had not breached their duties to the shareholders and that the case to remove them from office failed.

While fact specific, this decision is a useful reminder to practitioners of what is expected of them, whether a company in administration is insolvent or solvent.

In reference to Nardelli and others v Richardson and Avery-Gee [2024] EWHC 2740 (Ch).

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