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Joint Administrators of Force India Formula One Held to Owe No Duty of Care to Prospective Buyer in Sale Process15th February 2021 Restructuring & Insolvency
PJSC Uralkali v Rowley & Anor  EWHC 3442 (Ch) is about the sale of the Force India F1 racing team, owned and operated by Force India Formula One Team Limited (the “Company”).
The Force India F1 team was more successful on the track than it was financially and by the summer of 2018, the Company was in a precarious financial position. The Company went into administration and appointed joint administrators on 27 July 2018 (the “Joint Administrators”).
The Joint Administrators faced a number of immediate challenges following the Company entering administration, including:
- The short period of about a month in which to complete the sale before the Belgian Grand Prix;
- The approval of (a) the Fédération Internationale de l'Automobile (which owned and regulated the Formula One Championship) (“FIA”), (b) Formula One Management Limited (which owned the commercial rights, organised the championship and distributed prize money) (“FOM”) and (c) Mercedes (the engine and gearbox supplier of the Company’s cars and a major creditor) was required for any successful sale; and
- The main sponsor, BWT, had terminated its Sponsorship Agreement with the Company.
Pit Stop – Brief Explanation re Sale
Paragraph 3 of Schedule B1 of the Insolvency Act 1986 (the “Act”) creates a hierarchy of objectives. An administrator must perform his functions with the objective of rescuing the company as a going concern and in the interest of the company’s creditors as a whole.
There were two main ways a buyer could structure an acquisition of the Company:
- Buy the shares from the existing shareholders and inject sufficient funding into the Company to restore it to solvency and seek an exit from administration; or
- Buy the business and assets.
The first of these routes required the buyer to deal with the shareholders as well as the Joint Administrators. This was problematic given the ultimate owners of Orange India Holdings Limited (“OIH”), being the company that owned the shares in the Company, appeared not to be a united group. To complicate matters further, one of the ultimate owners of OIH, Dr Vijay Mallya (who features briefly in Season 1, Episode 5 of Drive to Survive and more recently in Netflix docuseries “Bad Boy Billionaires: India”), was facing extradition proceedings from the Government of India. He (together with OIH) was also subject to a worldwide Freezing Order in a sum in excess of £1 billion, in proceedings brought by a consortium of thirteen Indian banks. The Order prohibited dealings in the shares in the Company owned by OIH.
A number of parties were interested in acquiring the F1 team or its business and assets. The Joint Administrators decided to undertake a sales process and by August 2018 (after what must have felt like 52 laps of Silverstone for the Joint Administrators), there were two bidders in pole position:
- Uralkali, a public joint stock company based in Russia. Mr Dmitry Mazepin is the ultimate beneficial owner of Uralkali’s principal shareholder. Mr Mazepin’s son, Mr Nikita Mazepin, is a racing driver due to race for Haas F1 Team in the 2021 Formula One World Championship.
Uralkali offered to acquire the business and assets of the Company for £101.5m (with a ratchet mechanism increasing the offer in the event of a higher offer from a competing party up to a maximum of £122m).
- Racing Point UK Limited (“Racing Point”), a bidding vehicle of Mr Lawrence Stroll, a Canadian businessman whose son, Mr Lance Stroll, is an F1 driver, previously having driven for Williams and currently driving for Racing Point (which has been rebranded to Aston Martin F1 Team for the 2021 season).
Racing Point submitted a proposal to pursue a rescue of the Company as a going concern, with a fall back offer to acquire the business and assets for £90m which would kick in automatically if the rescue plan failed.
Ultimately, Racing Point purchased the Company’s business and assets for £90m on 16 August 2018. Whilst Uralkali’s offer was some £11.5m higher than Racing Point’s, the Joint Administrators accepted Racing Point’s offer on the basis that the proposal would allow the Company to be rescued as a going concern (in accordance with the statutory hierarchy of objectives set out at Paragraph 3 of Schedule B1 of the Act).
Following the sale to Racing Point, Uralkali brought a claim against the Joint Administrators, contending that the Joint Administrators inter alia failed to conduct a fair and proper sales process; misrepresented the criteria they would follow in assessing bids; misrepresented that the bidding process would be operated on a level playing field as between all bidders; breached an equitable duty of confidence by disclosing confidential information.
No Duty of Care – but it is still no Stroll in the Park
Mr Justice Miles dismissed every single one of Uralkali’s claims.
The Judge held that the Joint Administrators did not assume a personal responsibility to Uralkali, giving the following reasons:
- Administrators are appointed to manage and administer a company’s affairs in order to achieve the statutory purposes. Under the statute, they are expressly appointed as agents of the company:
I do not think that administrators are to be taken to assume a personal responsibility to bidders by undertaking a sales process, without more. That is an entirely routine function, and to the extent they are engaged in stimulating a sale of the company’s assets, or promoting a rescue, they are acting as agents.
- Uralkali failed to show that it reasonably relied on the defendant’s assumption of responsibility.
- If such a duty were owed to Uralkali, it would also have been owed to a broad and indeterminate group of claimants, including other bidders and stakeholders such as Mercedes, the FIA and FOM.
- The Court should be very slow to impose on an administrator a duty of care which might fetter his discretion to make decisions in accordance with the statutory purposes of the administration under Paragraph 3 of Schedule B1 of the Act; still less a duty that would operate to subvert the statutory purpose of the administration. Mr Justice Miles further commented:
Indeed were administrators to be subject to a duty of care it is likely that they would routinely find themselves in the crossfire of threats of personal liability while the bidding process was in play.
Administrators have an overriding statutory duty to creditors, a fiduciary duty to the company in administration and a statutory duty to perform their functions as quickly and efficiently as possible. The Judge acknowledged the often demanding nature of the work administrators carry out, commenting as follows:
The task of administrators is demanding and exacting enough without requiring them to have to look over their shoulders for personal claims by bidders. I consider that the imposition of a personal duty of care on the administrators […] would be inimical to the single-minded duty placed on administrators to act in the interests of the company’s creditors.
The Court has made clear that to impose a personal duty of care would “severely constrain the ability of administrators to perform their functions single-mindedly in the interests of creditors” and would inhibit the ability of administrators to act and respond decisively for fear of being sued.
The High Court decision that Joint Administrators, acting in their capacity as agents of the company, do not owe a personal duty of care to participants in a sale process will be well received by officeholders and may go some way to deter third parties from threatening and/or commencing litigation against Joint Administrators performing their routine functions.
That being said, Uralkali has confirmed its intention to seek permission to appeal the decision – so fasten your seatbelts; there may be turbulence ahead.