Background
In a recent example, in Gladwin v RSM UK Restructuring Advisory LLP [2024] EWHC 3054 (Ch), the High Court dismissed a claim brought by a sole director and shareholder. The Claimant, Anthony Gladwin, had been the sole director of Killean Estate Limited (the "Company"). The Company purchased and operated an estate comprising of 24 self-catering holiday lets, two farms, a shop and a hotel from 2016. The Claimant lived on the estate until his eviction in July 2023. The Company purchased the estate with loans from Lendy Ltd and Saving Stream Security Holding Limited.
In June 2018, the lenders made a formal demand for repayment of the loans. Two administrators, both partners in RSM UK Restructuring Advisory LLP ("RSM"), were appointed in July 2018 to realise property in order to repay one or more of the secured or preferential creditors.
The Claimant failed to cooperate with the administrators. Ultimately, the whole of the Company’s property was sold for c. £4.4m. Lendy was paid £3.176m of the £8.772 million it was owed. There was insufficient funds to pay any other creditors.
The Claimant issued Part 7 Proceedings against RSM in July 2023, making allegations of professional negligence and seeking losses in the region of £23m. On the same day, the Claimant filed an Application Notice pursuant to Paragraph 75 to Schedule B1 of the Insolvency Act 1986 seeking a "return of the status quo of his business and premises" and an assessment of damages.
The Court made an Unless Order by Consent on 15 August 2023, ordering the Claimant to file amended Points of Claim detailing the legal and factual basis for the relief sought against the correct defendants, requiring that he make an application to amend the Claim Form and named Defendants, and requiring that he bring an application under the Insolvency Act (which is almost always a procedural requirement before a claim can be made against an IP), in default of which the claim would be struck out.
On 29 August 2023 the claimant made a further application seeking to join the individual administrators to the claim. There followed yet another application by the Claimant on 25 September 2023, this time naming RSM and the individual administrators as the respondents, enclosing amended points of claim and a schedule of damages. The schedule of damages included sums described as 'past damages' totalling £14,145,642 (plus interest) and sums described as 'future damages' in the sum of £95,205,260, including £51.2m in respect of lost revenue from wind turbines.
Decision
The High Court struck out the claim on the basis that the Claimant had failed to comply with the Unless Order. He had the benefit of legal advice between December 2023 and September 2024, but failed to make any application for relief from sanction, an extension of time or for permission to pursue the former administrators pursuant to paragraph 75(6) of Schedule B1. The Claimant had had more than enough time to make such applications but failed to do so and was now more than a year late. The claim was therefore struck out and, as such, all associated applications were dismissed.
Whilst strictly obiter, the Court explained that the claim and various applications were, in effect, always doomed to fail. The only defendant that the Claimant had pursued was RSM – but administration is a personal appointment, and RSM had never owed any duty of any kind to the Claimant. As RSM was not the administrator, any claim against RSM was hopeless. In relation to the claim against the individual administrators, that claim would have also been doomed to fail: the administrators had had their statutory release, and no application had been made for permission to bring proceedings against any of the individual administrators. Even if the Claimant had applied for permission to pursue the individual administrators, the schedules attached to the application, described as "essays in make-believe", revealed no prospect of success as the Claimant had no pecuniary interest in the relief he would be seeking as he was not a secured creditor.
The amended application also failed on the basis that the claim had been struck out and no application for an extension of time or relief was made. Furthermore, the Claimant had no claim against RSM, nor did he have permission to pursue the former administrators.
Comment
Whilst the claim was ultimately struck out for a failure to comply with a court Order, the judgment provides helpful further commentary in relation to claims against former administrators. Any purported claim against a former administrator must be pursued against the individuals directly, and permission must be sought in advance pursuant to paragraph 75(6) of Schedule B1 to the Insolvency Act 1986. Any claim brought against the firm by whom the administrators were employed is doomed to fail for lack of any duty to the Claimant, unless the Claimant can establish some sort of direct duty owed by the firm to them – which will apply in only exceptional circumstances. Further, there could be no claim against the administrators under common law. Whilst the administrators owed duties to the Company, the Company had been dissolved and no application for restoration to the register was made. The Claimant could not represent the Company and enjoyed no fiduciary or contractual relationship with any of the former administrators. It is clear that in such circumstances, and in the absence of compelling evidence of any special relationship between the parties, the Court will not entertain any such claim.
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