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VE Vegas Investors IV LLC (“Vegas”) and others v Shinners and others (2018)

Vegas (the Company) encountered financial difficulties and instructed IPs, who were instructed to assist with placing the Company into Administration and to effect a pre-pack sale.

The Administrators struggled to obtain information from the Company prior to their appointment, which made it difficult for them to find an arm’s length purchaser as they were unable to provide sufficient information to any purchaser. Only one external purchaser came forward.

A sale was completed to a Newco set up by Vegas’ directors for a price of £1.75m.

Numerous creditors sought the removal of the Administrators, and demanded new Administrators (Deloitte) be appointed to investigate whether the sale had been conducted at an undervalue, and whether the current Administrators’ duty to creditors had been breached. There was also an alleged conflict of interests.

The Administrators contested the proceedings at first but soon gave a letter of their intention to resign to the court, agreeing to pay all costs. The asked the court to shorten the five business days’ notice of resignation to creditors, with the apparent intention that the creditors make the decision on the resignation and not the court. The Administrators were immediately removed by the court, and were replaced with Deloitte.

The court considered whether the directors did their best under the time pressure, and whether the directors took advantage of the situation, using their position to purchase the business back at an undervalue. They also considered the IPs’ involvement and that they should have appreciated that further investigation was needed.

The court commented that there is an unavoidable conflict where the IPs are members of the same firm that provided advice prior to Administration and then subsequently act as Administrators.

This case was discussed in more detail in our recent CPD Tap webcast.

Posted: 12.04.2018
Tags:  newsletter

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