The outcome of a recent court case shows that administrators appointed by companies are right to serve the interests of all stakeholders, rather than just those who hold a majority.
Richard Toone and Jason Maloney of CVR Global were appointed administrators by the directors of a property holding company, Hat & Mitre plc, after it was unable to meet certain short-term liabilities without external funding.
Although the firm appeared to be solvent on its balance sheet, its main source of income was rental payments from its sister company, Maxwell Stamp PLC, which had not been paid for more than two years, thus impacting on the available cash reserves held by the Company.
However, the majority shareholders – who owned 72 per cent of the company – disputed CVR Global’s appointment and tried to form their own proposal to settle the company’s debts.
The proposal put forward by the majority shareholders was unacceptable to the remaining shareholders as in their view the proposal would unfairly harm their interests. Due to the opposing stances taken by the groups of shareholders, the administrators were unable to reach an agreement which would rescue the Company as a going concern.
14 months after the administrators’ appointment the majority shareholders took steps to challenge the appointment of the administrators in Court.
The directors asserted that Hat & Mitre should not have been placed into administration and claimed CVR Global had been invalidly appointed for an improper purpose, were harming their interests, and were needlessly delaying the process.
Mr. Justice Trower ruled against the applicants on all of these points and found that CVR Global acting in the interests of all stakeholders, even if that means damaging the majority stakeholders’ position in the company, is correct.
Richard Toone, Managing Partner at CVR Global, said the decision was good news for administrators trying to do their job against a backdrop of warring stakeholders.
He said: “The judge made it clear CVR Global had followed all the correct steps when Hat & Mitre were placed under administration, despite huge pressure from its majority shareholders.
“His decision not only confirms what we did was right and proper, but will also reassure other administrators that acting in the interests of all stakeholders is the right thing to do when trying to rescue a company as a going concern.
““CVR Global always acts in the best interests of all stakeholders and shareholders when a company enters administration, and we are delighted the court has found in our favour in this regard.”
Throughout the administration, CVR Global were advised by Ashfords LLP and Joe Curl of 9 Stone Buildings, who represented the administrators at the Court hearing.