Insolvency practitioners should take note of a case in which the administrators of a hotel partnership spent years under the shadow of fraud accusations before their reputations were finally vindicated by the High Court.
The partnership owned a single hotel and its members had spent substantial sums on refurbishing the same. They had borrowed heavily from a bank which eventually pulled the plug before the work was complete. The members had been unwilling to sign personal guarantees.
Two professional insolvency practitioners were appointed as administrators of the partnership. The hotel was ultimately sold for £4.25 million to a company associated with the bank. That event triggered prolonged proceedings in which the members claimed, amongst other things, that the administrators had made fraudulent misrepresentations and assisted the bank in a conspiracy to achieve its hidden objective to acquire the hotel.
Following a number of hearings, the allegations of dishonesty and fraud against the administrators were struck out. However, the members persisted in claims that they had acted improperly, that the hotel had been worth in excess of £7 million and that it had thus been sold at a huge undervalue. They also fiercely objected to the six-figure fees that had been paid to the administrators.
Bringing an end to the case’s complicated procedural history, the Court dismissed what remained of the members’ case. Arguments that the administrators had engaged in a fraudulent conspiracy, or that the hotel had been sold at an undervalue, were ‘simply not viable’, the Court ruled.