In Brewer & Anor v Iqbal [2019] EWHC 182 (Ch) the joint liquidators of ARY Digital UK Ltd, Richard Brewer and Mark Wilson, brought breach of duty claims against the former administrator of the company, Zafar Iqbal.

The court heard how Iqbal had sold the company’s business and assets back to the directors in a pre-pack. These included Electronic Programming Guides (EPG), Sky TV channels, which Iqbal sold at an undervalue. The EPGs were acquired on a fixed-term basis by agreement between ARY Digital UK and British Sky Broadcasting Limited.

Iqbal became administrator of the company on 19 May 2011 and sold the company’s assets to a company incorporated by ARY Digital UK’s directors for the purpose of acquiring the assets during the administration, however the creditors failed to approve the administration proposals.

The company later entered insolvent liquidation and Iqbal was discharged as administrator under the Insolvency Act 1986.

The liquidators alleged that by selling the company’s assets shortly after he was appointed administrator, Iqbal acted negligently or in breach of his duty of care, breach of trust, fiduciary duty or statutory duty.

Iqbal continued to trade ARY Digital UK although he was aware that British Sky Broadcasting was pressing for payment but ARY Digital UK had paid a £69,618 deposit for broadcasting services. On this basis, Iqbal did not consider that ARY Digital UK would increase its debt during an administration and that an extended period of trading would help him ‘realise a better price for its assets, in particular the EPGs’.

Chris Laughton, partner at Mercer & Hole, gave evidence on what a reasonably competent administrator would have done. The judgment pointed out three interesting points:

• the admission by Iqbal that he kept no attendance notes of any kind in respect of any meeting;
• Iqbal knew of Statements of Insolvency Practice (SIP) 16 but thought that it did not apply and accepted, again with candour, that he did not consider SIP 13; and
• the statements made in the report [to creditors in his proposals], regarding the sale of the company's assets while it was in administration, bore no resemblance to the truth.

On breach of duty of care and skill the judge said: ‘I have taken account of Laughton's report and negligence is manifest in 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.’

The judgment states that a competent administrator having had time to advise the company prior to administration should have made reasonable investigations as to the market for EPGs. It says ‘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.’

Breach of fiduciary duty arose through the administrator failing “to act with ‘single-minded’ loyalty to the company.

As a result of the breaches of fiduciary duty, the award was for equitable compensation, which is assessed on the value of the assets at the date of the judgment, with no requirement for mitigation of loss. The judge awarded £743,750, plus costs.

Iqbal's lawyers declined to comment on whether they would appeal.

Brewer & Anor v Iqbal [2019] EWHC 182 (Ch) is here.

Report by Amy Austin