In paragraph 57 of the judgment of Asplin LJ (with whom Floyd and Henderson LJJ agreed) the supervisory power of the court to intervene was confirmed:

“There can be little doubt that the court will grant substantive relief whether under section 303(1) or section 168(5) Insolvency Act 1986 to put a bidding process right or to require the process to be repeated where the trustee or liquidator has acted unfairly or outside his powers. It is also beyond question that the court has power to supervise the conduct of its officers.”

The questions were whether a bankrupt (including a discharged bankrupt) has standing to challenge such conduct / decision of their trustee in bankruptcy and, secondly, whether, as an outsider (‘stranger’) to a bankruptcy or a liquidation, a bidder has standing.

The Court of Appeal decided that it was not necessary for a bankrupt (including a discharged bankrupt) to establish a prospective surplus in the bankruptcy as a pre-requisite or condition for establishing standing.  The bankrupt must show an interest in the relief sought in addition to their status as the bankrupt.  On the facts of the case, the discharged bankrupts had standing because of their occupation interests in the property which was the subject of the bidding process.

Although it has long been established that outside bidders in the market have no standing to complain about a commercial decision of an insolvency office-holder to reject their bid, this is the first occasion when a bidder has sought to invoke the court’s supervisory power to intervene on grounds of illegality/unfairness. The Court of Appeal has decided that, as outsiders with no economic interest in the outcome of the insolvency process, bidders have no such standing.

insolvency sales are taking place at all levels on a daily basis, usually pre-packs in administration.  For many years, the Government and the profession have been taking measures to meet abuse of pre—packs.  On 27 October 2020 the House of Commons published a briefing paper summarising the history of those attempts.

This paper was promoted by the publication on 9 October 2020 by the Insolvency Service of its latest report: “Corporate report: Pre-pack sales in administration”

On the same day as the publication of the October 2020 Report, the Government published draft regulations. If enacted, the draft regulations would apply to all pre-pack administration sales to insiders (“connected” purchasers).

The perception is that unsecured creditors are disenfranchised in these sales processes in that they are informed after the event and not of the details of the process. 

The Court of Appeal has decided that bidders have no grounds for requesting the insolvency court to supervise or review the conduct of a bidding process, even on grounds of unlawfulness and/or that it was conducted unfairly for connected parties.

The Government’s report summarises the proposed regulatory framework as follows:

• The regulations will apply where there is a disposal in administration of all or a substantial part of a company’s assets.
• An administrator will be unable to dispose of property of a company to a person connected with the company within the first eight weeks of the administration without either the approval of creditors or an independent written opinion. The connected party purchaser will be required to obtain the written opinion.
• The provider of the opinion must be independent of the connected party purchaser, the company and the administrator and must meet certain eligibility requirements.
• The administrator must have no reason to believe that the opinion provider is not independent of the connected party or does not meet the eligibility requirements.
• The opinion provider will provide a written report to state that either the case is made for the disposal or that the case is not made.
• A connected party purchaser may obtain more than one report.
• An administrator must consider a report from an opinion provider.
• Where a report states that the case is not made for the disposal, an administrator can still proceed with the disposal but will be required to provide a statement setting out the reasons for doing so.
• An administrator will be required to send a copy of the report(s) to creditors of the company and to Companies House.

In this context, the decision of the Court of Appeal that bidders have no standing to invite the court to intervene seems out of step with the Government’s strong desire to end the abuse of pre-packs.