Mr Stephen Louis Nardelli v Mr Daniel Richardson

Hearing dates: 8–10, and 18 October 2024

Approved Judgment

Mr Hugh Sims KC:

Introduction

This case raises a question not frequently encountered by insolvency practitioners (“IPs”) acting as administrators: how to exercise their powers, and discharge their duties, where there is a likely surplus after payment of creditors and expenses, and thus a likely return to members, or shareholders, of a company. More unusually, it also involves a lender who was willing to forbear on defaulting loans, and advance further funds in administration, in order to assist in the realisation of assets at a higher price than might otherwise have been obtained on a forced sale scenario. The financial support was not altruistic. The effect of the bargain made in administration increased the share of returns to the lender at the expense of the shareholders. These commercial tensions lie at the heart of the complaints made.

By application notices made under paragraphs 74, 88 and 95 of Schedule B1 to the Insolvency Act 1986 (“IA 86”) dated 21 September 2023 (“the Removal Application”) the Third Applicant challenges the conduct of the joint administrators of CFJL Property Partners Limited (“CFJL”), Portfolio Property Partners Limited (“PPP”) and P3ECO (Bicester) Himley Limited (“P3 Eco”) (together “the Companies”) on the basis that their conduct was in breach of their duties and has caused him unfair harm as member. The remedy he seeks is the removal of the joint administrators and their replacement. This is my judgment following the trial of the Removal Application.

The Removal Application was originally brought by all three Applicants, but on 13 September 2024 the First Applicant, Mr Nardelli, and the Second Applicant, Mr Johnson, were adjudged bankrupt. This was on the petition of Desiman Limited (“Desiman”), on the basis of a personal guarantee Messrs Nardelli and Johnson gave to secure certain lending advanced by Desiman to the above-named companies, which loans were defaulted on. This left the Third Applicant, Brigadier Inshaw, as the sole applicant continuing with the Removal Application at trial. However, Mr Nardelli and Mr Johnson continued to feature at trial. The day before trial a notice of change of representation was lodged, and Brigadier Inshaw acted in person for the first 3 days of trial. With my permission, Mr Nardelli and Mr Johnson provided him with assistance, as McKenzie friends, in presenting the Removal Application. Brigadier Inshaw subsequently obtained representation for closing submissions, when he was represented by Mr Watson-Gandy. I should note here my thanks to Mr Watson-Gandy for stepping back in to assist in the circumstances.

The Respondents, Mr Richardson and Mr Avery-Gee, both licensed IPs, of CG Recovery Limited, were appointed as joint administrators (hereafter “the Joint Administrators” or simply “the Administrators”) in February 2022. All of those appointments were made by Desiman in its capacity as qualifying floating charge (“QFC”) holder: it held floating charges falling within the definition under paragraph 14 of Schedule B1 giving it the power to appoint an administrator. Desiman also has a subsidiary company called Desiman 2 Limited, and where appropriate references to Desiman below should be taken to include Desiman 2.

The affairs of the Companies are inter-linked and concern a development of land at Himley, Bicester in Oxfordshire, also known as Himley Village. On 30 January 2020 a section 106 agreement (under the Town and Country Planning Act 1990) was entered into, and outline planning permission was obtained for development on the land for up to 1,700 residential dwellings, a retirement village, commercial development and social and community facilities. This resulted in certain land holdings and rights collected in and held by the Companies becoming much more valuable. As well as being directors, Mr Nardelli, Mr Johnson and Brigadier Inshaw also held (together with other family members or associates) certain shareholding interests in the Companies, and it is in relation to this interest the Removal Application was brought. Whilst not strictly speaking a group undertaking (for the purposes of section 1161 Companies Act 2006 (“CA 06”)), there is a commonality of directors, a substantial overlap in shareholders, and the Companies were operated like a group. In addition, as explained further below, CJFL held its principal assets and rights as agent or nominee for P3 Eco and/or PPP.

By 2020 disputes involving the Companies, and its lender, Desiman, had arisen. A developer, Brooke Homes (Bicester) Limited (“Brooke Homes” or “Brooke”), had commenced proceedings alleging a breach of contract in relation to a sale of certain of the land and asserting a proprietary claim. That litigation came on for trial, also before me, in October 2021, and I handed down judgment on 11 November 2021 ( [2021] EWHC 3015 (Ch) (“the 2021 Judgment”)). I awarded damages against the Companies for breach of contract in the sum of £13.4m plus interest and costs, but dismissed the proprietary claim and the claim against Desiman. Much of the background concerning the development at Himley and the Companies' affairs up to October 2021 are set out in the 2021 Judgment.

By an order I made on 10 December 2021 Brooke Homes obtained charging orders over certain parcels of the land then held by the Companies. At that time it was in contemplation that certain of the land, forming part of what has been called “Phase 1”, would be sold to Countryside Properties (UK) Limited (“Countryside”). In the event, that sale did not progress. In addition to Brooke Homes' claim, an additional claim had been issued against PPP in relation to another parcel of land. On 28 January 2022 Desiman sent letters of demand to each of the Companies in relation to its loans, which were by then in default. The Companies were unable to meet those demands and the appointments of the Respondents as Joint Administrators were subsequently made. At that time the relationship between the Applicants and Desiman was a good one. Following the events which have taken place in the administrations that relationship has deteriorated.

As the Companies had no employees, and its assets were property/land or contracts associated with land, the Administrators concluded that the Companies could not be rescued as going concerns and thus “Objective 1” of paragraph 3 of Schedule B1 to IA86 should not be the objective of their proposals. They concluded that the objective of achieving a better result for the Companies' creditors as a whole than would be likely if the Companies were wound up (“Objective 2”) could be achieved and was reasonably practicable. They proposed this objective could be achieved through a process of marketing and sale of the land and rights associated with the land in conjunction with Desiman, the first ranked secured creditor, holding fixed and floating charges. A marketing process was carried out in 2022 and on 6 January 2023 contracts were exchanged with Cala Management Limited (“Cala”) for the sale of the Phase 1 land for £40m (also referred to as Lands A, B and C). On the same day a hybrid option and promotion agreement (also termed the “Hybrid Agreement”) was simultaneously entered into with Cala in relation to land forming part of “Phases 2 and 3” (also referred to as Lands D, E and F), which was a condition of the Phase 1 sale. The sale facilitated payment under a Conditional Sale Agreement (“ CSA”) which had been entered into between CJFL (also referred to in the evidence as the “CFJL Agreement”, and in some of the documents as the “CFJL Contract”) and certain landowners on 31 May 2017 (as subsequently varied) for the acquisition of land to form part of Phases 2 and 3. £10m was required to complete those acquisitions. Phase 2 purchase has already completed (at a little over £5m) and Phase 3 purchase is due to complete at the end of this month (at a little under £5m).

As I have foreshadowed, the position of Brigadier Inshaw is that the Administrators have conducted the administrations of the Companies in the interests of Desiman and to the unfair detriment of the other creditors and shareholders. It is alleged their conduct was a breach of their duties as officeholders of the Companies and provides good grounds for their removal. He points to the fact that it was originally estimated by the Joint Administrators in 2022 that the implementation of their proposals would result in a payment in full of creditors, and a “handsome” return to shareholders. A surplus for shareholders of as much as £20m was contemplated. He complains that the effect of the sale, and associated transactions which the Joint Administrators caused or permitted the Companies to enter into in January 2023, and as implemented subsequently, means that the return to the shareholders is now estimated to be less than £1m, and over a longer...