The Court of Appeal has provided clarity on the extent of the immunity afforded to receivers in respect of subsequent claims against them, where the court’s prior approval of the transaction in question has been obtained. Dismissing the claim of a shareholder of Blackpool Football Club that the sale of the club and its assets by court-appointed receivers had taken place in breach of their duties of care and at an undervalue, the court took the opportunity to set out the basis on which such immunity might arise.
Facts
Denaxe Limited (Denaxe) was the majority shareholder (owning 76.3% of the shares) in Blackpool Football Club Limited (BFCL), which owned and operated Blackpool Football Club. Denaxe was, in turn, owned and controlled by Mr Owen Oyston. The remaining shares in BFCL were owned by VB Football Assets (VB) (around 20%), with the balance being held by individual supporters.
In addition to its shareholding in BFCL, Denaxe separately owned the stadium, training ground and a number of other real estate assets that were integral to the football club’s continued operation (with these real estate assets and Denaxe’s shares in BFCL referred to collectively throughout as the "footballing assets").
Following a dispute, VB (in its capacity as the minority shareholder of BFCL) succeeded in obtaining a court order requiring Denaxe/Mr Oyston to acquire VB’s shares in BFCL for £31.27m (the buy-out order). Following a failure to pay the full amount due pursuant to the terms of the buy-out order, the court appointed receivers by way of equitable execution over the Footballing Assets and Mr Oyston’s shares in Denaxe (the receivers).
The receivers instructed agents to provide valuation advice in relation to the marketing and sale of the footballing assets and to coordinate the sale process generally. As part of this process, a number of prospective purchasers made it clear that they would only be interested in acquiring the footballing assets where VB’s minority shareholding in BFCL could also be acquired, in order to provide the new owner with near-total control of all shares and therefore overall control of the football club.
The valuation advice received also supported the receivers’ view that the value of the footballing assets would be maximised where they were sold as a “package” and as part of a single transaction (rather than individually), in order to preserve the operation of the football club.
The receivers subsequently applied to the court seeking approval to sell the footballing assets - and the sale of VB’s minority shareholding in BFCL - as part of a single transaction to a purchaser who had been identified following the conclusion of the competitive sales process (the sanction application).
The receivers’ evidence at the hearing of the sanction application supported their view that the footballing assets should be sold as part of a single transaction in order to maximise their value and preserve the club as a going concern. Denaxe and Mr Oyston (who had by that point been removed as a director of Denaxe but remained its majority shareholder) submitted evidence in response as part of the sanction application. However, Mr Oyston purported to expressly reserve his rights as regards the receivers’ evidence relating to the marketing and value of the assets to be sold.
The court ultimately approved the proposed sale of the footballing assets and VB’s shares in BFCL, which completed in June 2019. However, in January 2020 Denaxe issued a claim against the receivers - alleging that they had breached their duty of care by selling the footballing assets at an undervalue - claiming that the assets should instead have been sold individually (rather than as part of a single transaction).
First instance
At first instance, Mr. Justice Fancourt held that where the court approved a specific transaction involving the sale of specific assets, to a specific person at a specific price, such approval would necessarily confer a wide immunity in respect of all subsequent claims in relation to the transaction. He also held that even if he had reached a different decision on the immunity ground, he would have struck the claim out as an abuse of process. Denaxe appealed.
Court of Appeal judgment
In dismissing Denaxe’s appeal, Lord Justice Snowden (delivering the lead judgment) took the opportunity to consider the existing case law at some length. Concluding that there is no separate doctrine of English business or property law called “immunity”, the court held that the only two established legal principles that could be relied upon were: (i) res judicata (an umbrella term for a series of principles based on an underlying policy against abusive proceedings) and in particular the concept of “issue estoppel”, and (ii) abuse of process.
Drawing comparisons with the recent decision in Re Sova Capital Limited [2023] EWHC 452 (Ch) (a case that we have previously reported on here), the court made clear that “blanket immunity” in respect of all subsequent claims relating to a transaction would not be conferred simply because the court had approved a specific transaction with a specific purchaser.
Instead, the scope of any immunity that may be afforded upon the receivers in relation to subsequent claims was confined to the issues that were determined in the earlier proceedings. Therefore, consideration need be given as to whether the claim now being made shared the same “necessary ingredient” to the issues previously decided and as between the same parties. If it did, then the claim would not be allowed to proceed.
The court also confirmed the High Court’s view that it was not required to “second guess” the receivers in terms of the commerciality of their decision on how to dispose of the assets. Instead, it was required to assess, at a high level, whether the decision to enter into a transaction was properly taken.
The court did not go on to decide whether the decision on the sanction application amounted to an issue estoppel, deciding instead that Denaxe’s claim was an abuse of process, because Denaxe had been provided with the clearest opportunity to object to the structure of the proposed sale at the hearing of the sanction application. Mr Oyston and Denaxe were in possession of all of the relevant facts - including the valuation evidence and other financial information relating to the football club - and therefore could and should have raised any objection to the proposed sale of the footballing assets at the time of the sanction hearing.
Accordingly, it would be manifestly unjust and a misuse of the Court’s resources to now allow Denaxe to proceed with its claim.
Comment
Tim Carter, co-head of the restructuring and insolvency team at Stevens & Bolton LLP, comments that:
"The court’s decision will undoubtedly provide comfort to receivers and indeed, other insolvency officeholders, in circumstances where they have sought the court’s prior approval for the sale of assets to an identified purchaser.
However, the court was clear in its judgment that receivers will not automatically obtain blanket immunity in respect of all subsequent claims relating to the transaction - the required analysis in this regard will be highly fact-specific, necessitating consideration of the precise issues raised and subsequently determined as part of the earlier proceedings.
What practical impact the decision in this case has on applications by officeholders seeking the court’s sanction to enter into a transaction remains to be seen. However, it seems at least possible that officeholders may naturally seek to broaden the scope of such applications in an effort to limit the possibility for challenge further down the line".
Tim Carter
Louise Corcoran