The Irish Supreme Court recently published its decision in the case of In the matter of Bula Limited (in Receivership) Supreme Court, 11 April 2003 (unreported). The case arose from the sale by a receiver of the assets of Bula Mines and confirms the obligations to be discharged by a receiver upon the sale of property.
In a challenge to the sale of Bula's assets, it had been claimed that the receiver had gone to the market at the wrong time, that it had failed to employ a specialist valuer, that the receiver should not have sold the property in circumstances where litigation was pending or threatened, and that the assets of the company were grossly undervalued.
In considering the receiver's duties, the Supreme Court in a robust and common-sense decision rejected the challenge. The Supreme Court observed that:
- While the primary duty of a receiver is to the debenture holders, the receiver also has a duty to the company. A receiver must take reasonable care to obtain the best price reasonably possible at the time of sale. A receiver is not obliged to postpone a sale to obtain a better price.
- The receiver was entitled to choose the time at which he sold the assets. He was not obliged to postpone a sale until the markets may rise or other possible events. It was not the function of the court with the benefit of hindsight, to decide if it might have been better if the receiver had waited further.
- The receiver was entitled to proceed with the sale despite the threat of litigation. To hold otherwise would allow mischievous litigation to stop sales. The Court noted that in the present case the receiver had proceeded on the basis that no purchaser would be required to buy into litigation and that the contract for sale had reflected this.
- The receiver and the Court were entitled to rely on the specialist valuer appointed by the receiver during the course of the sale. His expertise had not been effectively challenged.
- The essence of the receiver's duty to achieve the best price is to ensure the asset is fairly and properly exposed to the market. In confirming that this duty had been satisfied, the Court held that the process had been fair, that the steps taken within that process were appropriate and that good practice had been followed. While the asset might have a special added value to one party (a neighbouring mine owner and the eventual purchaser) this does not negate the price as the open market price after a reasonable process.
William Prentice and Alison Bradshaw