Commercial judge removes administrators of five-a-side football business after application by principal shareholder

About this case:

• Citation:
  [2023] CSOH 79
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

The application under Schedule B1 of the Insolvency Act 1986 made by Sports Direct was made to remove Robert Harding and Gavin Park as administrators of Goals Soccer Centres Plc. It was stated by the noters that, other than disagreeing with the administrators as to the appropriate exit route from administration, they did not otherwise critique their handling of the administration.

The case was heard by Lord Braid in the Outer House of the Court of Session. Ower KC appeared for the noter. The administrators did not oppose the petition and lodged no answers, although their solicitors made informal representations by letter.

Ensure proper accountability

In or around 7 March 2019, Goals Soccer made an announcement to the market that it was investigating certain financial irregularities in respect of the financial year ending 29 December 2018. Joint administrators were appointed on 31 October 2019, prior to which the company disclosed that there had been a substantial mis-declaration of VAT. The business was then sold to Northwind 5S Ltd, a rival of the Sports Direct group, as a pre-packaged sale.

Following realisations, Goals’ secured creditor, Bank of Scotland plc, was still owed more than £4.5 million, while the noter was owed £2.4 million. Claims against two of Goals’ former directors were assigned to the noter, with no recoveries yet made. The noter averred that it was hampered in its progress of these claims due to the transfer of the company’s books and records to Northwind in the sale and expressed concerns regarding the level and scope of the administrators’ investigations into the affairs of the company.

The administrators considered that the purpose of the administration has been achieved and, accordingly, that it ought to be brought to an end by way of dissolution. The noter disagreed with their position, wishing for further investigations to ensure proper accountability for those responsible for the company’s downfall and for the company to move to compulsory liquidation.

Counsel for the noter submitted that there were good and proper reasons for removal, noting the unusual circumstances of the company being a plc in administration, and the willingness of the noter to fund the costs incurred by a replacement administrator. The alternative of dissolution would mean any outstanding claims would be lost forever. In their letter to the court, the administrators’ solicitors expressed concern that the purpose of the note was to enable the noter to pass the high threshold of an application under paragraph 74 or 75 of the Act via a circuitous route.

No ulterior motive

In his decision, Lord Braid said of the weight he attached to the letter: “Insofar as the letter appears to suggest that an application which did not challenge the administrator’s conduct or claim misfeasance could only be made on a stand-alone basis at a very early stage in the administration, and then only if the administrator had been inappropriately appointed, it is, with respect, simply wrong: there is no such restriction to be found either in the legislation or in the case law. If a party truly wishes to assist the court by reference to authority, the appropriate course is to instruct counsel to appear at the hearing.”

He continued: “While I have read the letter, I have attached no weight to it and I specifically attach no weight to the suggestion that the note may have been presented for an improper purpose; that is very much a suggestion which, if it was to be advanced, ought to have been advanced in formal answers.”

In determining whether to make an order, Lord Braid said: “The combination of the extent of the company’s debts, the admitted mis-declaration of VAT and financial improprieties, the fact that the company was a listed company in which the noter made a significant equity investment in reliance on audited financial statements and representations to the market about the performance and health of the company, and the current non-availability of the company’s records, make it hard to conclude that the noter’s wish to have further investigations carried out is an unreasonable one.”

He went on to say: “I accept the assurance of senior counsel on its behalf that there is no ulterior motive, and it is significant that the noter has attempted to reach an agreed solution with the administrators, which foundered only through inability to reach agreement on funding.”

Lord Braid concluded: “Given the size of the shortfall, and the extent of the noter’s loss, I consider it reasonable in all the circumstances that the noter has the opportunity of testing the administrators’ conclusion that there are no further assets to be realised or enquiries to be made, in the absence of any prejudice to any person occasioned by their having that opportunity.”

The application for removal was therefore granted. No issues arose over the suitability of the noter’s proposed replacement.