Promontoria (Chestnut) Limited vs Charles Phelan Bell and Angela Bell

This is a key case on applying for a bankruptcy order against the guarantor. The primary borrower was a property developer, 34 Julian Road Dev Limited.

Its directors, Mr and Mrs Bell, provided a guarantee for the liabilities of the borrower, and a third party legal charge which secured the liability and the borrower. Separately, they also had a personal guarantee liability.

The Lender applied to make the borrowers bankrupt. Their defence was that the bank had security by virtue of the third party legal charge. The lender’s counsel argued there was no security for the personal guarantee, as it had created a liability not secured by the third party legal charge, because that charge secured the debt of the borrower.

The judge decided the guarantee had been given in respect of liabilities of the borrower to the lender, so both the guarantee and third party legal charge were effectively for the same liability, and the lender was secured in respect of the liability by the third party legal charge.

It is however arguable that because the liability is between the two directors and the lender under personal guarantee, rather than the liability of the borrower to the lender, it is not the same liability as between 34 Julian Road Dev Ltd and the lender. Therefore there was no security for the guarantee debt.

"It's also quite an interesting point in a wider sense, because we are seeing concern from lenders that courts may be increasingly becoming 'borrower friendly' in such cases," Doug added.

One Blackfriars Limited

This case concerns the value of a landmark residential scheme overlooking the Thames, which includes a 170-metre tower containing 274 apartments. It was sold for £77.4m by administrators in 2011.

The development company was dissolved, but later restored to the register and liquidators were appointed. They then tried to sue the former administrators (effectively BDO) for selling the scheme below its true value, claiming it was worth at least £115m.

The liquidators said the administrators had breached their duty by both negligence and lack of independence. One counter argument was that the claim was only issued because the limitation period was about to expire.

The initial dispute was as to whether administrators who had been discharged of their liability could be sued for misfeasance. The interesting technical point was the threshold over which liquidators had to get to receive a court's permission to sue former administrators, especially as they had been released.

The liquidators sought consent to bring proceedings, and the application was resisted on the basis that there needed to be a reasonable chance of success.

Pre-action expert evidence was required to support the liquidators’ case, and when it was disclosed, the counter argument was that it should have been disclosed before proceedings were issued, therefore the claim should be dismissed as an abuse of process.

"The judge's comments offered insight, because we all act for insolvency practitioners at times, and when the substantive case comes to trial, it will be an interesting judgement in terms of the duties of an office holder in realising the value of a property," said Doug.

"The threshold for obtaining permission was to show reasonable grounds of a benefit to the estate if the case was won. So, it appears it would be difficult to bring a claim if the potential damages would be dissipated by the legal costs."

The court decided the lack of expert evidence was not a bar to bringing a claim, and if proceedings were issued due to the imminent expiry of the limitation period, it was not an abuse of process.

Devon Commercial Property Ltd

At the heart of this case were claims that receivers acted in bad faith by selling assets to a company linked to the creditor that appointed them.

Devon Commercial Property (DCP) bought a distribution depot and bottling plant, which it then leased to Devon Cider Company Ltd. They granted a mortgage to State Securities in 2007, but in 2009, DCC went into administration, and the business was sold to Aston Manor Brewery which occupied the plant.

In 2009, DCP granted a licence for Aston for the leasehold land, and State Securities assigned the mortgage to Aston. At this point, Doug explained, Aston had a charge over the freehold. DCP later defaulted on interest payments and receivers were appointed.

They then surrendered the lease, granted a new one to Aston, and marked the property for offers in excess of £4m. Two offers were received, for £4.3m and £3.2m.

Eventually, the plant was sold to Aston Manor Freeholds Ltd (a newly incorporated company) for £2.75m, and DCP claimed against the receivers.

They said Aston was a 'Special Purchaser', so sealed bids were required, and the receivers had a conflict of interest by making the sale to a company linked to their appointor.

Ultimately, it was found that whilst Aston was a 'Special Purchaser', the receivers had taken reasonable care and obtained the proper price.

The court also decided there had been no selfdealing, because the receivers did not benefit directly from a lower price, so they had not placed themselves in a position of conflict, or acted in bad faith, by selling the property to a company connected with the creditor.

"The judgement reconfirmed that the duties of a receiver are limited to managing property as the creditor's security, and for the benefit of the creditor rather than the borrower," said Doug. "It also provided further clarity in relation to the position when selling to an associate company of the creditor."