The role of an IP has always been challenging – taking control of a company in crisis, making swift decisions based on limited information and balancing the competing interests of stakeholders; all of this requires sound judgment, often under extreme pressure. It is no surprise that, when things go wrong (or perhaps more accurately when parties feel they have lost out), the IP can become the focus of blame, and their insurance policy an attractive target for ‘last resort’ litigation.
The traditional situation in which an IP finds themself the target of litigation is one where lenders have enforced personal guarantees against the company’s directors or shareholders. Faced with the prospect of paying out under the guarantee, the director or shareholder responds with a cross claim against the IP1, usually along the lines that the IP breached his/her duties by failing to realize the best price when selling key assets. In other words, a claim that the IP ‘undersold’ those assets2.
However, in the past few years, there has been a noticeable change in the type of claims brought against IPs and their firms, as well as a large uptick in their frequency. Two main themes have emerged.
The first is that claims for ‘underselling’ are increasingly being brought as standalone actions, rather than as a defensive tactic to demands under a guarantee. See, for example, AM Holdings v. Batten & LePage [2018] EWHC 934 and Davey v. Money & Another [2018] EWHC 766 (Ch). Both of these claims were brought by the company or its shareholders as standalone claims that (inter alia) the IPs had undersold the company’s assets. It is notable that both claims were brought after what would ordinarily be perceived as successful administrations – in AM Holdings the company returned to solvency, and in Davey unsecured creditors had received a significant dividend.
The second theme is the rise in claims based on economic torts – most notably claims for unlawful means conspiracy. The most high profile of these claims has arguably been Premier Motor Auctions v. Lloyds Bank and PwC, which was dismissed earlier this year, but there have been (and still are) many similar claims at various stages of proceedings. The typical allegation in such claims is that the IP or their firm unlawfully conspired with a secured creditor (usually a bank) to place the company into an insolvency process with a view to extracting the associated fees and (in the case of the bank) a discounted equity stake in the company.
In this article we look at a number of cases exemplifying these themes and consider: (i) what has driven the increase in them; (ii) what tactics IPs and their firms have used to defend them; and (iii) what the future holds for this type of litigation.
