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Legal Q and A: Assigning claims

30 January 2015

I am an administrator of a company. The director shareholders believe the companys collapse was connected with interest swap agreements which had allegedly been mis-sold to the company by a bank. I do not want to bring the claim against the bank in the companys name and the directors want me to assign the claim to them for a very modest amount of money. Can I be compelled to assign the claim to them?

It is not uncommon for administrators to assign claims which belong to the company in administration. A claim is an asset of the company which can be realised for the benefit of its creditors. The power to assign can be found in paragraph 1 of Schedule 1 of the Insolvency Act 1986 (the Act).

The circumstances in which an administrator may be ordered by the court to assign a claim were recently considered in Hockin v Marsden [2014] EWCH 76. In that case, the directors and ultimate shareholders of the company in administration applied to the court under paragraph 74 of Schedule B1 of the Act for an order directing the administrator to assign an interest swap claim to them. The consideration offered was £5,000 together with 10 of any compensation received. The application was made on the grounds that the administrator had been acting unfairly so as to harm the interests as members/ creditors of the company.

The court ordered an assignment on the terms offered. It found that it was unnecessary to prove that the administrator has acted perversely or in bad faith (the test for challenging a liquidators conduct under s.168 of the Act). Instead the applicants had to show that (as members or creditors) they had been harmed by the decision. The claim was not vexatious and although the sum being offered was small it was not derisory. The judge held that the claim should be assigned as otherwise the opportunity to realise one of the companys assets would be lost.

You should therefore consider the merits of the claim with your lawyers. If the claim is vexatious then, as a matter of public policy, it should not be assigned. If the claim is not vexatious you should consider the terms offered and whether better terms can be achieved by offering to assign the cause of action elsewhere. If the director shareholders offer is the best offer available, and no higher price can be negotiated with them, then you would be expected to assign the claim to them if otherwise it would be lost. However, you should first demand a personal indemnity to protect you against any adverse costs order.

This article was first published in Recovery magazine.

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