The court's recent decision in Uralkali v Rowley [2020] EWHC 3442 (Ch) has significant practical considerations for insolvency practitioners conducting insolvency sales, as well as for relevant bidders/buyers looking for suitable acquisition opportunities. 

The case explored the duty of care owed by an office-holder to a prospective buyer of an insolvent company/its assets, in which the court gave clarity on several issues arising in respect of an office-holder's conduct in pursuing their statutory purpose in conducting a competitive sale process in the interests of the company and its creditors, including:

  • Take care when setting bidding criteria
  • Ensure a level playing field for bidders or, in any event, the best outcome for the company
  • No duty of care is owed to bidders in a sale process
  • Take care when discussing rival bids
  • Bidders have no standing to intimidate office-holders by threatening litigation and personal liability 

Administrators will be relieved that the court's judgment significantly dissuades personal claims against office-holders by bidders in a sales process. Emphasising the need for administrators to be able to act single-mindedly and efficiently in the interests of the company and its creditors, the court rejected the imposition of a personal duty of care on office-holders to third party bidders in an insolvent sale.  


Take care when setting bidding criteria 

Administrators can set out the criteria which they will adopt in a bidding process to potential bidders without being scrutinised in the context of third party claims even if they ultimately deviate from such criteria in order to pursue a strategy with the best outcome for the company and its creditors. It might not always be the case that the most favourable purchase offer will win – and administrators should be careful in making representations to this effect. Administrators need to adapt to the circumstances and change tack as the conditions change, making commercial judgements about the best way of achieving their statutory purpose and serving the interests of creditors, revising their thinking to fit the changing circumstances. The court highlighted that an administrator (or its solicitors) should always make clear to bidders the priority of rescue which it is bound to follow under the statutory scheme and that this supersedes any set bidding criteria. If a prospective buyer is a commercial entity, however, the court held that a reasonable commercial party, particularly when assisted by a legal team, would be deemed to be informed of an administrator's obligations under Schedule B1 of the Insolvency Act 1986 ('IA 1986'). 

Ensure a level playing field for bidders or, in any event, the best outcome for the company 

Even if a sales process is deemed to be a level playing field for all bidders, office-holders are not precluded from favouring a bidder at an early stage of the bidding process (for example, by granting early exclusivity to a buyer), so long as they are acting properly in maximising the chances of the best outcome for the company. Nevertheless, administrators who improperly favour a bidder to the detriment of the company and its creditors may be held to account by creditors under the IA 1986. In this case, the court highlighted that administrators are held accountable for their conduct by creditors and members of the company, not third party bidders in a sales process (who lack judicial standing). Administrators therefore must take care to ensure that the bidding process is carried out, if not necessarily on a level playing field, in the best interests of the company and those to whom they are accountable by statute. 

The case of Re One Blackfriars Ltd [2018] EWHC 901 (Ch) is a working example of the importance of administrators acting in the best interests of the company and its creditors in the context of asset sales, in particular relating to the valuation of the asset. Failing to demonstrate pursuing the best possible outcome for the company could leave administrators susceptible to claims by subsequent liquidators, as well as creditors and members of the company. Administrators should be prudent in evidencing their decision-making process in any insolvent sale, particularly, since by their resignation/discharge they no longer have recourse to the assets of the company themselves to meet the costs of defending such actions. In Uralkali the court confirmed that emails, letters and legal advice disclosed are sufficient to evidence a decision validly. 

No duty of care owed to bidders in a sale process 

The court accepted that it is routine conduct for an administrator, as agent of the company, to discuss the financial position of the company, the amount of its creditors and any potential structure for a rescue or sale of the business and assets with potential bidders in the context of a sale. Administrators may further disclose the number of bidders interested and should set and communicate clear timetables for the sale process. In carrying out their duties, administrators will make statements and representations to an array of different parties – to whom they will not assume responsibility in doing so. So long as an administrator does not advise a bidder of how to conduct itself specifically, the administrator will not assume personal responsibility for, or a duty of care to, the bidder. If such a duty were owed to one bidder, this would lead to finding a duty in respect of a broad and uncontrolled class of potential claimants. The court is reluctant to open the floodgates for fear of causing administrators to adopt a more cautious, defensive stance, impacting the speed and openness of a sale process and the overall efficiency with which an office-holder should perform its functions. 

Take care when discussing rival bids 

As a rule of thumb, an administrator is acting within its statutory purpose in simply explaining the existence of other interested parties to each bidder, since such is commonplace in a selling process in order to foster competition. An administrator, therefore, can explain in general terms that there is more than one runner in the race, and the current attitude of those bidders, and the court is clear in its view that administrators should not be prevented from maintaining a competitive sale process. An administrator should be careful, however, not to disclose the amount of each bid, which the court indicated could amount to a breach of confidence.

Bidders cannot intimidate office-holders by threatening litigation and personal liability 

This case has provided office-holders with some security against aggressive, well-funded bidders who would be likely to threaten an office-holder with litigation either during or following a sales process. The judgment serves as a marker to bidders pursuing intimidating buyer tactics, or disappointed bidders considering initiating a legal challenge, that they cannot threaten an office-holder in this manner where, first, no duty of care is owed, and second, the bidder does not have standing to enforce the duties of an administrator under paragraph 74 or 75 of Schedule B1 to the IA 1986. Claimant bidders have no proper basis to seek injunctive relief during the sales process, nor do they have standing to pursue a claim against an office-holder for loss of chance following the sale. Similarly, the court has provided some reassurance to both lenders and successful purchasers of an insolvent estate in ensuring that a process challenged by an unsuccessful bidder is unlikely to succeed on this basis.

A joint administrator will not be liable for any wrongdoing by its counterpart in conducting the lion's share of the administration 

The court rejected the notion of joint and several liability for joint administrators where one administrator has carried out the lion's share of the administration. If one joint administrator is found to have been negligent it does not follow that the other is automatically liable where they are not on notice of such negligence or wrongdoing, particularly when relying on one administrator's expertise in a specific area. 

As a firm, we hope that this judgment serves to deter much of the intimidating bidding tactics experienced by our clients and other stakeholders in the context of insolvency sales. In its decision, the court has rendered it unlikely that claims arising from scrutiny by disgruntled alternative buyers seeking to derail a sales process, or gain a competitive advantage, will succeed. Administrators should continue to be diligent in ensuring that they are acting to achieve the best outcome for the company and its creditors (and that they are able to evidence this), while being reassured that they can act independently, flexibly and decisively without being subject to unwarranted litigation by third party claimants. Nonetheless, Administrators may wish to include additional suitable exculpatory language in auction/marketing communications and documentation to emphasise their overarching statutory duties and to advise bidders of the correct legal relationship.


Tiffany Morgan

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Karl Clowry

Karl Clowry

Partner, Restructuring
London, UK

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Andy Bates

Andy Bates

Partner, Restructuring
Leeds, UK

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