CFJL Property Partners et al. - Case Update

The High Court has ruled on administrators’ duties to shareholders and creditors in a unique case involving a likely surplus in an administration.

CFJL Property Partners, Portfolio Property Partners and P3ECO (Bicester) Himley collectively owned land located at Himley, Bicester in Oxfordshire. Daniel Richardson and Edward Avery-Gee of CG Recovery were appointed as joint administrators of the companies in 2022 by their lender, Desiman, after a third-party developer obtained a £13.4m judgment against the companies for breach of contract and obtained charging orders over the land.

As the companies had no employees and their assets were all related to the land, the administrators concluded that the companies could not be rescued as going concerns and instead chose to pursue the objective of achieving a better result for the companies' creditors than a winding up.

A sales process was conducted, resulting in the sale of the land in phases to Cala Management. During this process, Desiman agreed to forbear on its loans and advance further funds in exchange for an increased profit sharing arrangement, ultimately at the expense of shareholders.

One of the company’s shareholders sought the removal and replacement of the administrators, essentially arguing that the administrators had made a bad bargain with Desiman which caused him to suffer loss as a member. The shareholder claimed that the Desiman loan should have been refinanced and that this would have resulted in the companies being rescued. The shareholder also took issue with the decision to grant Desiman an increased profit share on the land.

The Court dismissed the shareholder’s application, finding that the administrators’ decision to grant Desiman an increased profit share in return for continued support and further fresh lending was a bargain reached by the administrators exercising their commercial judgment with commercial justification. There was no evidence of other available finance, such that the administrators did not have a strong position from which to bargain for a lower share than the share which Desiman required for its support.

The Court also found that the administrators chose the bidder which offered the best prospect of the highest return to creditors and shareholders, and confirmed that the administrators were entitled to choose the option which was best for creditors, even if this harmed the position of shareholders.

The decision can be found here.

Joseph Curl KC and Jon Colclough of South Square (instructed by Brecher LLP) acted for the administrators.