Home Information Cases Green & Newman (as Joint Administrators of each of the Respondent companies) v SCL Group Ltd (2019)

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Green & Newman (as Joint Administrators of each of the Respondent companies) v SCL Group Ltd (2019)

Summary

The administrators of companies in the Cambridge Analytica group had not breached their duties in connection with the hearing for an administration order, nor had they misconducted themselves during the administration. They would be appointed as the companies' liquidators.

Facts

The administrators of companies in the Cambridge Analytica group applied to be appointed as the companies' liquidators.

The group's business involved acquiring and analysing data. There was public concern about the misuse of such data, including in electoral processes. In March 2018, a voter (C) issued proceedings against a group company (Elections) arising from an alleged failure to comply with a subject access request (SAR). The Information Commissioner's Office (ICO), in a separate investigation, raided the group's offices, seizing servers and other evidence. The controversy greatly interfered with business. In April, the group's holding company engaged the applicants in the instant application to put the companies into administration, undertaking to pay their fees and to guarantee their post-administration costs. The applicants, as proposed administrators, issued certificates stating that they considered that the purpose of the administration could be achieved. They were separately represented in the administration order hearing before Hildyard J in May. After being appointed, they realised that they could not continue to trade. They obtained statements of affairs in June, then proposed that the companies should be wound up. Most creditors voted to appoint the administrators as liquidators. C, whose claim for an unascertained amount in his SAR proceedings entitled him to vote, voted against the appointment. During the administration, the ICO served an enforcement notice on Elections and later prosecuted it for non-compliance. Elections pleaded guilty and paid a fine. In November 2018, the ICO reported that the group had committed serious breaches of data protection principles.

Held

Did the administrators' failure to tell Hildyard J about C's SAR proceedings breach their duty of candour?

The administrators had not been aware of the proceedings until after their appointment. Further, they had been under no duty to make enquiries which would have revealed the proceedings. Proposed administrators should make such reasonable enquiries as would bear upon their ability to perform their duties. They had no duty to make themselves as fully informed about the company's general affairs as the applicant for the administration order, and were not generally bound to seek out every piece of litigation in which the company was involved (see paras 38-42 of judgment).

Did the administrators lack candour in failing to immediately disclose to Hildyard J the holding company's post-administration costs guarantee?

It was relatively unusual for a holding company to underwrite the costs of its subsidiaries' administration, but that might be considered a matter for commendation rather than criticism. It was understandable that administrators might not regard such a funding arrangement as material. However, proposed administrators were not the sole arbiters of materiality. The administrators had disclosed the arrangement belatedly. That did not show a lack of candour, although it was a misjudgement (paras 43-45).

Had the administrators been truthful regarding their costs?

Although the administrators' initial costs estimates had been inaccurate, that did not mean that they had not been untruthful. Nor had the amount of the chargeable fees been settled: the creditors' approval was needed, the fees proposed for Elections were subject to further scrutiny by a creditors' committee, and the proposed fees could be challenged if they unfairly harmed creditors' interests (para.46).

Had the administrators been incompetent in certifying that there was a reasonable prospect of achieving the purpose of administration?

The question for the administrators had been whether, at the date of the administration hearing, they could say that the purpose was reasonably likely to be achieved. Their view had not been irrational, even if some practitioners would have taken a different view. The allegations that the companies' software and databases had been misused did not at that stage obviously mean that those assets had no value. Value would only evaporate once it became clear that the software necessarily involved unlawful data processing or that the databases inseparably included unlawfully acquired data. That appeared only to have clearly emerged in the November ICO report. It had not been unrealistic to think there was an opportunity to realise assets before their value evaporated (paras 51-52).

Had the administrators shown bias against C?

The administrators had advised C to request material adduced at the administration hearing from the companies' solicitors rather than from the administrators. That was consistent with the duty to run the administration in the interests of the creditors as a whole. However, the administrators should have provided C with material that had been generated on their behalf, namely pre-appointment certificates, estimated outcome statements and their counsel's skeleton argument. The administrators' actions regarding the instant application were not so perverse as to disclose bias. Nor had there been bias in their alleged failure to see if C had a good claim. It had been for C to prove his monetary claim and to pursue his data rights (paras 54-64).

Had the administrators misconducted themselves in office?

It had been within the range of decisions open to competent administrators to await the statement of affairs, identify the creditors who would be affected by their decisions, and canvass those creditors' views, rather than proceed more quickly to apply for winding-up. Nor had there been misconduct regarding the enforcement notice, although in not responding to the notice they had not appreciated the relevant legal niceties (paras 68-78).

Did the funding arrangement mean the administrators could not be objective?

The arrangement did not preclude objectivity, although the administrators would have to constantly ask themselves whether the identity of their paymaster might make independence more difficult, and they should periodically review the availability of other funding sources. There was no evidence that the arrangement had inhibited their enquiries (paras 82-85).

Should the administrators be appointed as liquidators?

The conventional course of appointing the administrators as liquidators would be conducive to the liquidation. New office-holders would have to duplicate their efforts. They had a funding arrangement in place and the evidence indicated that they would do justice between the interested parties. They were not the choice of any person whose purpose conflicted with the liquidation. The wishes of the majority of creditors were relevant. There was no reason to doubt that the administrators would act in the interests of the creditors as a whole (paras 91-97).

Application granted

Chancery Division
Norris J
Judgment date
17 April 2019
References
LTL 17/4/2019 : [2019] 4 WLUK 301