Challenge to the administrators refusal to assign a cause of action

LF2 Limited v Supperstone & another (joint liquidators of Pennyfeathers Limited)

A creditor of the Company sought to persuade the administrators to bring a claim against a firm of solicitors for advice given to the Company in relation to a claim under a CFA. The creditor also offered to purchase the claim for £10,000. The administrators refused to pursue the claim, sell it or assign it. The administrators considered that the claim had no merit and that a claim would be frivolous and/or vexatious.

The creditor applied under Schedule B1 paragraph 74, which enables an interest party to challenge the administrators conduct if it unfairly harms its interest. The judge upheld the administrators decision. The creditor appealed.

The appeal was dismissed. While it could not be said on the facts available that the claim was frivolous or vexatious the creditor had to show that the decision unfairly harmed it. The creditor had not argued that it had been unfairly harmed and the appeal court refused to allow a late amendment to the application. However, the court then reviewed the administrators duties when determining when to assign a cause of action. It said the burden was on the creditor to satisfy the court. Where a claim is frivolous or vexatious an officeholder should not allow an assignment, even if a cash sum is offered. This is not in the public interest and as an officer of the court the officeholder should not be a party facilitate a frivolous or vexatious claim.

The court did state that where the situation was unclear and the officeholder was under pressure to realise a claim, for example if a limitation period was due to expire the focus should be on realising the asset. The protection of the potential defendant would be secondary, it could always apply to strike out the claim itself if it were frivolous or vexatious.

The risk of an adverse costs order where a claim is improperly assigned remains a risk to officeholders. However, the threshold is low. The claim need must be frivolous and/or vexatious, and if time is pressing this is even outweighed by the need to realise assets in the interest of creditors. The key consideration, as always, is for the administrator to make a reasoned decision based upon the facts at the time and to have documented that decision.

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