The Court of Appeal’s recent decision in Denaxe Limited v Cooper & Anor is an important one for insolvency office-holders and trustees seeking court approval for a significant transaction, typically a commercial decision to sell business assets as a going concern.
The Approval and Sale of Blackpool Football Club
In this case, receivers sought and obtained the court’s approval in June 2019 to sell Blackpool Football Club. The club’s majority shareholder did not object to the application for approval, it reserved its position.
Following the club’s sale for £8.2 million and the receivers’ discharge, the majority shareholder initiated legal action against them, alleging an £80 million undersell. The shareholder argued that the club should have entered liquidation and its football stadium sold for redevelopment, accusing the receivers of not securing the best price for these assets.
Majority Shareholder’s Silence and Subsequent Legal Action
Importantly, the majority shareholder had decided to remain silent at the earlier approval hearing when it could have at that time easily raised the criticism made in the subsequent proceedings it issued against the receivers for breach of duty. This was done to preserve the club and hold the receivers responsible for any financial losses if proven and both these points were made in the lead judgment in the case.
High Court’s Decision and Grounds for Striking Out
The receivers sought to dismiss the claim, arguing they were immune due to the court’s prior approval of the club’s sale. They also contended that the proceedings were abusive, as the majority shareholder had chosen not to challenge the receivers’ sale strategy during the approval hearing.
At first instance the High Court struck out the majority shareholder’s claim on the basis that immunity flowed from the court’s approval of the proposed sale.
The High Court also determined that the majority shareholders claim was an abuse of process because the majority shareholder had had every opportunity to raise its concerns at the approval hearing, but chose not to do so. This was something that the judge had noted when sanctioning the proposed sale of the club. It followed that the subsequent proceedings against the receivers was an abuse of process and was struck out on that ground applying the well-known principle in Henderson v Henderson.
Court of Appeal’s Analysis and Clarifications
The Court of Appeal affirmed the High Court’s decision to dismiss the claim against the receivers. However, its analysis of the protection afforded to office-holders through court approval holds broader importance for receivers and insolvency practitioners.
Observing that office-holders make the decision using their expertise and experience, the Court of Appeal emphasised that office-holders are not surrendering to the court their discretion to make a decision but asking the court to approve a proposed course of action.
Issues Determined and Scope of Immunity
After analysing the case authorities, the Court of Appeal clarified that there was no legal doctrine of “immunity” and that this was simply another label for what was issue estoppel and the well-known principle in Henderson v Henderson.
In this case, the Court of Appeal applied these principles by emphasising the issues determined during the initial court approval of the transaction. They compared these issues with those raised in subsequent proceedings initiated by the majority shareholder against the receivers. Essentially, the court assessed whether the pertinent issues were raised or could have been raised during the sale approval hearing.
What this means is that the extent of the “immunity” that follows from the approval decision depends upon the issues and this will vary in each case.
The court might avoid making determinations on issues like whether a proposed asset sale meets the office-holder’s duty of care for obtaining the best price during the swift and accessible approval process, as these matters often require extensive examination.
Best Practices for Office-Holders
To maximise protection, office-holders should request the court to include a statement of determined issues in approval applications. The Court of Appeal’s decision provides clarity for receivers, trustees, and insolvency practitioners on handling approval application issues and the protection it offers against subsequent claims.
For further insight on this case’s implications, feel free to reach out to us today.