Sale of Insolvent Company to Creditor Not Improper
Insolvencies are seldom happy periods for any of those involved and great care must be taken by those who deal with the insolvency proceedings to ensure they do their work in a way that correctly balances the interests of the creditors and the insolvent organisation.
In a recent case, a firm of chartered surveyors that was dealing with the property of an insolvent company – as Law of Property Act (LPA) receivers – found itself under attack because it arranged to sell the insolvent company's premises to a creditor. The property had received offers between £2 million and £4 million. It was sold to the creditor for £2.75 million. It was claimed that the surveyors had failed to achieve the best price possible for the property, because they had a conflict of interest and did not act in good faith to obtain the best price available for it.
The court concluded that in order to breach their duty of good faith, the surveyors would have to have undertaken intentional conduct which went beyond the bounds of mere negligence. Their remit was to take reasonable care to obtain an appropriate price for the property and they could not remain passive if by so doing the interests of the creditors would be damaged.
There was no indication that the surveyors had received any benefit from the sale at a price lower than that which might otherwise have been achieved and the court could find no indication that they had breached their duty of good faith, colluded with the purchaser or acted improperly. It was up to the accuser to produce evidence sufficient to show such conduct and it had failed to do so.