Insolvency Practitioner Selling Assets: Brewer v Iqbal 

Brewer & Anor v Iqbal [2019] EWHC 182 (Ch) was a case in which an Insolvency Practitioner selling company assets was found to be in breach of duty.

The assets applicable were those held by ARY Digital UK Limited (“the Company”) being Electronic Programming Guides (“EPG”). The EPGs were programme scheduling information shown by television providers. The EPGs were acquired from British Sky Broadcasting (“BSB”).

The company went into Administration and instructed insolvency agents to sell the Company’s assets and asked them to advertise various assets on its website.

The instructions to the agent noted that if there was no third party interest in 7 days then it was agreed that the EPGs could be sold to the Company’s management for £40,000 and the Goodwill for £10,000. The EPGs were advertised as follows:

… It is common ground that an advertisement was posted on the Edward Symmons website on 20 May 2011 under the heading “Machinery Sales”. The description of the assets given in the advertisement was “By order of the Administrator…satellite broadcasting company serving UK and Europe. Three channels catering to a wide audience with entertainment, news and religious broadcasting”. It is to be noted that the advertisement did not state in terms that the EPGs were for sale or identify what numbers were attached to the EPGs.

After a period of marketing Mr Iqbal, the Administrator, asked the agent to invoice the management and receive the funds. £40,000 of the funds received related to the EPGs.

However, when the Administrator issued the Proposals to creditors a creditor objected.

The insolvency agent Edward Symmons wrote to the Administrator saying they had been unable to validate the value of the assets in the short time available. No valuation was received by the Administrator prior to the sale of the EPGs. An informal desktop valuation was obtained after the assets had been sold.

The issue at large here was whether the Administrator received good value for the EPGs and dealt with their sale correctly.

The subsequently appointed Liquidators suggested the former Administrator, Mr Iqbal had been negligent or in breach of duty to obtain the best price.

The Court in assessing the claim had this to say:

Breach Of Care And Skill

The court has the benefit of an expert report provided by Mr Laughton who is a partner at M&H Corporate Finance, a chartered accountant, licenced insolvency practitioner and a member of the Academy of Experts. He has been practising since 1982. He reported on “whether Mr Iqbal’s conduct when selling the EPGs was that of the reasonable administrator in the circumstances” in which he found himself. In cross-examination Mr Laughton made clear that he was not seeking to usurp the function of the court by stating what a reasonably competent administrator would have done, but merely offering an opinion based on his substantial experience, the statements of insolvency practice and code of ethics applicable to office-holders.

Mr Iqbal’s failure to appreciate the applicability of SIP 16 and failure to have any regard to SIP 13 are strong indicators of a failure to act with due care and skill in respect of his dealings as administrator of the Company. He admitted a failure to “think” about the loss of £5,000 from petty cash and admitted that he did not seek an explanation from the directors. These failures are failures of a duty owed to the Company’s creditors, to realise property of the Company for the benefit of creditors in accordance with his statutory duty.

Mr Iqbal was entitled to rely on the directors to appraise him of the Company’s finances, its assets and liabilities. He was entitled to rely on them to provide an account of the reasons for the Company’s insolvent position. His reliance on them crossed the permissible line. He placed too much reliance on the directors to provide (i) a value for the EPGs; (ii) approval for the marketing (through advertising) of the EPGs on the Edward Symmons website; and (iii) the timing or dictate the timing of the sale of the EPGs.

Failure to properly ascertain the value of the EPGs by failing to obtain a proper valuation prior to sale constitutes, in my judgment, a failure to exercise reasonable care and skill. I accept the unchallenged evidence of Mr Laughton. It is his opinion that Mr Iqbal should have complied with his code of ethics and obtained “knowledge and understanding of the entity….” and acquire “an appropriate understanding” of the complexities of the business. There are no contemporaneous documents that may support a finding that Mr Iqbal did obtain knowledge and an understanding of the Company and its assets. I accept Mr Laughton’s opinion that Mr Iqbal, if he were acting as a competent office-holder, should have established, during his investigations, that an EPG was a specific category of intangible asset with a “restrictive but competitive market”. He should also have established and acted on knowledge that “there were specialist EPG acquisition and sales agents operating in that market”.

Failure to understand the nature of the intangible asset, and the true value of the EPGs, led to a failure to properly market the EPGs. These constituted a failure to act with reasonable care and skill. As to negotiating with a special purchaser, Mr Iqbal accepted that he knew prior to his appointment, that the ARY Group was a valuable multi-national group of companies operating globally with a global reputation. He knew that the Group wanted to broadcast the channels in the UK and knew that the directors had incorporated a company to purchase the Company’s assets. There is no evidence he sought to negotiate any price with the directors. He merely accepted their first offer.

As to the advertisement, it was inadequate for the following reasons. The advertisement failed to refer to the EPGs, failed to refer to the channel numbers that were for sale, failed to refer to the likely audience numbers available on each of those channels or other special features, and failed to refer to the use of the EPGs by the ARY Group.

Mr Iqbal instructed Edward Symmons to raise an invoice for the purchase by the directors (on behalf of ANL) just days after he was appointed, and the EPGs advertised. This was contrary to advice received from Edward Symmons and there is no evidence that Mr Lynch advised differently from Mr Pointon, merely that Mr Iqbal had used the word “agreed” in an e-mail sent to Mr Pointon.

Although Mr Iqbal claims that Mr Lynch agreed that he should sell the EPGs before the bank holiday weekend, there is no attendance note to support a conversation or agreement that took that form. The agreement may have been no more than Mr Lynch accepting the demands of the ANL directors. As a professional person Mr Iqbal should have kept a full attendance note of such an important conversation. He cannot now complain that he is unable to support his own assertion with evidence. I find that on the balance of probabilities Mr Lynch did not advise Mr Iqbal to sell the EPGs by the bank holiday.

I find that Mr Iqbal failed to act with due care and skill by taking account of the interests of ANL (concerned to protect their identity and standing) and failing to take account of, or give due regard to, exposing the assets to a specialist but open market for a reasonable period potentially prejudicing the interests of creditors.

A competent office-holder having had time to advise the Company prior to administration should have made reasonable investigations as to the market for EPGs. Mr Iqbal had not so much as undertaken an internet search to ascertain if there was a specialist market, and if there was, the identity of the leading sellers of EPGs. A competent administrator would have taken independent advice as to the marketing and selling from more than one agent, as the asset class was unusual and unfamiliar; would have made inquiries as to how much time the assets should be marketed for in order to obtain the best price; would not have relied on an agent’s claim that they could deal with such a specialised asset without inquiring as to their past performance of selling such assets and knowing, as he did, that the agent felt unable to value the asset. A late disclosure document confirms that Edward Symmons had at that time, never sold such an asset. Mr Iqbal failed to make adequate enquiries.

In short, I have taken account of Mr Laughton’s report and in a similar way to the negligence of the receiver in American Express International Banking Corp v Hurley, negligence is manifest in Mr Iqbal’s failure to (i) take specialist advice from a person in the EPG industry; (ii) advertise in publications or websites likely to attract purchasers of EPGs and not plant and machinery; and (iii) expose the assets to a proper market for a reasonable period of time. He further failed to recognise that the directors could not provide independent advice to him on timing, advertisement, price or any matter concerning the Company and its assets, yet he heeded their advice.

Breach of fiduciary duty

By accepting that he gave deliberate thought to excluding the name of the Company and its location when advertising its assets for sale and reasoning that he “didn’t want the UK operations to be affected,” Mr Iqbal was admitting, in my judgment, that he failed to act with “single-minded” loyalty to the Company. Another stark example of breach concerned the exposure of the EPGs to the market. He chose not to expose the EPGs to the market (even if it was to a non-specialist market) for a reasonable time. His explanation was that the EPGs would be “switched off”. However, he had received no advice from Edward Symmons about the possibility that the EPGs would be switched off by BSB. He was asked in cross-examination “How did you reach the view that the EPGs would be switched off? His response was that “I was advised by the directors, that they are heavily indebted to Sky, and soon the company will enter into liquidation, it could take days, perhaps days or weeks before we find a buyer.” This is evidence of serving two masters and failing to act with loyalty to the principal. Mr Curl asked, “so you were advised of that by the directors?” Mr Iqbal responded “yes”. Mr Curl wanted to be sure he had the answer to his question and asked, “So you accept you were taking advice from the directors?” Mr Iqbal said, “so far as the working of Sky was concerned, yes”.

I further find that he failed to take account of matters that he should have when deciding on the timing of the sale of the EPGs, namely the best interest of creditors and took account of matters that he should not have, namely (i) the perceived risk that BSB might take the EPGs off-air without any inquiry from BSB whether that was in fact the case; (ii) a concern that even though the Company was in administration it may be wound up; and (iii) the directors’ need to transfer money from abroad before the bank holiday weekend.

In respect of the first matter expert evidence given to this court concurs that BSB had and continues to have a 60 day non-black-out policy. If he had made inquiry, Mr Iqbal would have known that there was sufficient time to market the EPGs. Further, by understanding the reasons behind the termination of the 2007 agreement (mentioned in paragraph 4 of this judgment), the arrears owed by the Company at that time, and how the Agreement provided for payment of the arrears, Mr Iqbal may have learned more of BSB’s approach to arrears, which in turn is likely to have affected his decision-making process.

As he made no such inquiries and no inquiries about the black-out policy with BSB he failed in his duty to properly understand the Company’s position, which in turn led to failures in his decision-making process, taking account of matters that he should not have taken account of when selling the EPGs. Further Mr Iqbal admits he took account of the interests of the ARY brand and its UK operations which were not relevant to his duties as Administrator of the Company.

These matters lead me to conclude that Mr Iqbal breached the wider fiduciary duty concerning decision making.

…

Due to the failures of his decision-making process I have set out above I find that Mr Iqbal did not, as a matter of fact, rely on suitably qualified or competent professional advice, nor did he materially rely on any professional advice in connection with the selling of the EPGs.