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Insolvency practitioners are obligated to maximise asset value for the benefit of creditors in insolvency cases. Administrators are now subject to heightened scrutiny to ensure they have thoroughly explored all options to safeguard creditors’ interests.

The case of Brewer & Anor (as joint liquidators of ARY Digital UK Ltd) v Iqbal [2019] EWHC 182 (Ch) highlights the importance for office holders to thoroughly understand the assets they are selling, use appropriate marketing processes, and obtain accurate valuations.

Annecto Legal helps insolvency practitioners and distressed businesses in finding the right litigation support, funding and insurance for their insolvency cases and asset recovery. Moreover, we help insolvency recovery teams to secure the best result for creditors in insolvency litigation.

Brewer & Anor v Iqbal

The case of Brewer & Anor v Iqbal [2019] EWHC 182 (Ch) centres on allegations of misfeasance and a breach of duty of care against Zafar Iqbal, an insolvency practitioner, during the administration of ARY Digital UK Limited.

The main issue in the case was the handling and sale of the company’s assets, specifically Electronic Programming Guides (EPGs), which were sold below market value without proper market exposure or valuation efforts. These EPGs were licensed by British Sky Broadcasting Limited.

The court found that Iqbal did not perform his duties with the required care and skill expected of a competent administrator. He was significantly criticised for failing to adequately investigate the market for EPGs, relying on insufficient advice from the company’s directors, and making poor decisions regarding the asset sale.

Notably, Iqbal did not perform a basic internet search to identify potential markets or leading sellers for EPGs, nor did he seek independent valuation or marketing advice for these specialised assets. This negligence prejudiced the interests of the creditors, as the assets were not exposed to an open market for a reasonable period, potentially leading to a higher sale price.

The court also highlighted Iqbal’s breach of fiduciary duty by acting with divided loyalties. It stated that he failed to act with single-minded loyalty to the company, allowing considerations such as the company’s public image and the directors’ needs to influence his decisions, rather than focusing solely on the creditors’ best interests.

The judge noted that Iqbal’s failure to expose the EPGs to a specialist market for a reasonable time was a clear oversight. He accepted the directors’ advice without verifying their claims, particularly regarding the risks of the EPGs being taken off air, reflecting a failure to act independently and with the necessary diligence.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance– ATE insurance is generally used to protect from adverse costs risk & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding– In some cases, third party litigation funders may be willing to provide funding for an insolvency dispute claim in exchange for a percentage of any financial settlement or damages awarded. This option can be attractive for individuals who cannot afford to pay for legal fees themselves but have a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger disputes. Working with a broker can be an effective way to understand the options and evaluate the best course of action, as well as providing the insolvency with a written record of the process undertaken. 

How can Annecto Legal assist?

When handling law firm insolvency, insolvency practitioners are obligated to explore all options to maximise asset value for creditors. It is important to recognise that pre-pack sales are not the sole option available in such cases. Equally, approaching one funder to take assignment of a claim does not meet the minimum requirements either.

Annecto Legal regularly assists licensed insolvency practitioners and liquidators who are involved in the administration of or liquidation of a company, as well as trustees in bankruptcy. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance. We ensure you meet your professional obligations in a cost-effective manner, and provide written reports to place on file. This is in addition to seeking to get the best deal for you and creditors.

If you are in the process of pursuing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal.