Denaxe Ltd v Cooper and another [2023] EWCA Civ 752

Precis

Denaxe Ltd v Cooper and another has helped to shed some light in respect of immunity from claims around the sale of assets for receivers and broadly, trustees and insolvency office-holders.

A company (Denaxe formerly known as Blackpool Football Club (Properties) Limited) appealed against a decision that the respondent receivers, who had been appointed over certain company assets by way of equitable execution, had immunity in respect of claims of breach of duty in a sale at an undervalue which Denaxe had brought against them.

Denaxe had owned shares in the holding company (B) of a football club, the club’s football stadium and its training ground (known as the footballing assets). 

Following increased revenues from a season in the Premier League in 2010-2011, a dispute broke out between Denaxe, Denaxe’s owner Mr Owen Oyston (Mr O) and a minority shareholder (V). V issued an unfair prejudice petition and succeeded in obtaining an order for its shares to be bought out by the company for approximately £31 million. However, it transpired that a proportion of that sum related to concealed dividends paid by B to Denaxe, rather than the value of V’s shares in B. Therefore, Denaxe and Mr O paid less than one third of the amount due. As a result, V successfully applied to court to appoint the receivers over the footballing assets. 

The receivers applied for an order sanctioning their proposal to sell the footballing assets together with V’s shares as a single transaction. Denaxe did not oppose the sale. Marcus Smith J sanctioned the transaction, and it went ahead. At a hearing on 17 December 2019 Marcus Smith J discharged the receivership order and he also granted a release to the receivers of all claims arising out of or in connection with the receivership unless such claims were commenced by 31 January 2020.

On 30 January 2020 Denaxe issued  claims against the receivers, alleging that they had breached their duties of case and had sold the footballing assets at an undervalue, on the basis that a higher price could have been obtained if the footballing assets had been sold separately from each other and from the shares. It was alleged that the footballing assets were therefore sold at an undervalue at £8.2 million. The judge held that the receivers had immunity from suit in respect of the claims. 

Decision

At first instance, the Judge considered four grounds why the Receivers were immune from the claim:

1. Court approval of decision: Firstly, he noted that as the Court approved the Receiver’s decision to enter into a specific sale, it does not mean that there is a breach of duty by not selling the asset in a different way or for a higher price.
2. Doctrine of Res Judicata: The Judge considered but disregarded the concept of Res Judicata which arises if the same claim or the same issue within a claim has previously been decided by a court in proceedings between the same parties as this was not the case here.
3. No abuse of process: Denaxe and Mr O were aware of the application for the sanction of the transaction  but noted they did not utilise the opportunity to object against this, so the claim brought by Denaxe was clearly an abuse of process claim.
4. Merits of Denaxe’s claim: Denaxe’s claim did have reasonable prospect of success given that the Receivers had planned to sell the footballing assets as a package from the outset and that there were no alternative strategies apart from such a sale.

Therefore, despite the claim having a reasonable prospect of success, Denaxe’s appeal was dismissed. It was not necessary to properly characterise a court-appointed receiver’s duty of care as a common law duty of care or an equitable duty of care. Rather, the focus should be on the duty and the issues arisen. Denaxe did not seek the opportunity to object against the sanction application at the time, which is a clear abuse of the process to now bring the claim. In particular, Mr O in the knowledge of the financial position of the Company still did not seek to advocate for a separate sale of the footballing assets which might have led to a different course adopted by the receivers.

Conclusion

Given there is no specific legal position on immunity, there is no ‘one size fits all’ answer. However, by exploring abuse of proceedings, this judgment has provided some clarity to insolvency office holders and receivers broadly in terms of applying to the court to approve actions on the sale of a company’s assets. Further, it has been recommended in future cases for the Court to be invited to give detailed consideration of what exact consequences could manifest from a decision to a sanction.