IPs under examination and s.1157 CA06 considered - Rawnsley & Anor v Weatherall Green & Smith North Ltd [2009] EWHC B22 (Ch)

His Honour Judge John Behrens (no doubt in his new post Phillips' reforms outfit - see right) has handed down his judgment in Rawnsley & Anor v Weatherall Green & Smith North Ltd [2009] EWHC B22 (Ch). The case involved, inter alia, an insolvency practitioner (IP - Mr O'Hara) who allegedly failed to institute proceedings for negligence against Weatherall Green & Smith North Limited, who had, it was alleged, given negligent valuation advice to Mr O'Hara in relation to property of the Canal Dyeing Company Limited (the insolvent company). The property was the Old Lane Dyeworks, Old Lane, Halifax ("the property"). It was alleged that because of the advice, "Mr O'Hara failed to market the property properly with the result that the sale was for less than the price that ought to have been achieved." The case highlights a number of criticisms of Mr O'Hara. These included:

"Mr O'Hara ignored the advice of Weatheralls (in a letter of 30^th May 2002) that a thorough marketing campaign be adopted. It also appears that despite written assurances and assertions by Mr O'Hara Weatheralls were not instructed to market the property.

Mr Poxon makes the point that Mr O'Hara has said on more than one occasion that there were no funds available to cover the costs of insuring the property. However Mr O'Hara appears to have failed to consider insurance cover other than on a reinstatement basis – such as "diminution in value". This would have resulted in greatly reduced premiums.

... there is a general criticism of Mr O'Hara to the effect that his general management was poor. In particular the point is made that the assertion he made to the Bank in the letter of 31^st May 2002 appears to have been untrue."

The company had a joint liquidator (Mr Poxon). In his report he noted:

"In conclusion, although I believe Mr O'Hara's management of the case could have been handled more effectively, he did rely on the advice of his agents to provide a professional valuation and therefore an indication of the likely realisable value. As an offer was received by Mr O'Hara far in excess of the market value provided by Weatheralls it can be argued that Mr O'Hara acted in the best interests of creditors by not only accepting the offer but ensuring that costs were kept to a minimum. In contrast I have been advised by independent agents that Weatheralls conducted insufficient enquiries with the local authority given their expertise and experience and therefore did not provide the liquidator with a clear of the potential value of the land and buildings. In my opinion there are reasonable grounds against the liquidator's agent for negligence in providing substandard advice …"

The learned judge held, "In my view the question of whether Mr O'Hara's admitted failure to market the property amounted to a breach of duty is well arguable and not suitable for summary determination. On any view Mr O'Hara acted contrary to Weatheralls express recommendation...In my view the question of what steps were taken by Mr O'Hara following Mr Poxon's report merits investigation. Mr O'Hara was, after all the Liquidator with a duty to collect in the assets of the Company. It may be he had no funds with which to commence proceedings. However this is a matter that needs to be investigated. Furthermore he could have sought an indemnity from either Mr Rawnsley or another creditor."

In relation to section 1157 of the Companies Act 2006 the learned judge noted:

"Mr Mitchell also suggested that Mr O'Hara would obtain relief under section 1157 of the Companies Act 2006. I cannot accept this argument either. It is to my mind seriously arguable that a liquidator is not within the ambit of section 1157. Even if he is the question of whether he should obtain relief is plainly fact sensitive and should be determined at a trial. In any event Mr O'Hara was a professional liquidator who was earning substantial fees from the liquidation. He chose to ignore advice from Weatheralls, not to follow up the insurance correspondence and (on one view) to lie to HSBC over the extent of the marketing that he was carrying out. In those circumstances I would have thought he might well have an uphill task in seeking to persuade any court to grant him relief under section 1157."

Picture Credit: http://image.guardian.co.uk/sys-images/Arts/Arts_/site_furniture/2007/05/01/courtroomdress460.jpg