James Latham
- Partner
- Insolvency & Restructuring
McFadzean v Martinez
McFadzean v Martinez & Anor [2026] EWHC 426 (Ch) joins a long line of cases challenging the conduct of an office-holder. Such challenges appear to be on the increase. Rarely, however, do they succeed, as indeed was the position here.
Mrs McFadzean was made bankrupt on 25 July 2018. On 6 September 2018 Ricardo Cacho was appointed as her trustee in bankruptcy; on 9 November 2018 Matthew Waghorn was appointed as an additional joint trustee on Mrs McFadzean’s application.
The main asset in Mrs McFadzean’s bankruptcy estate was a plot of land at 132 Boulevard Francis Meilland, Cap D’Antibes, France, which had the benefit of planning permission for the construction of a large villa which had been granted on 5 December 2014. That permission had been due to lapse on 5 December 2017, before the bankruptcy, but had been extended to 10 December 2018. No further extension was possible, but its benefit could have been preserved by beginning construction work at the plot. There was a dispute about the scale and cost of the work necessary to preserve the planning permission as well as about the likelihood of its being preserved at all; but the parties accepted that there was a significant difference (about €6 million) between the value of the plot with the benefit of the existing permission and its value without, and that once expired, no similarly extensive permission could be sought or would be available, as a result of restrictive changes made to the applicable planning regime after 2014. In effect, then, when the bankruptcy began, the existing permission, an asset of the estate, was worth about €6 million, but would be lost, if not preserved or realised before it expired.
On 26 October 2018, before Mr Waghorn’s appointment, Mr Cacho accepted an unconditional cash offer from a Mr Dermot Mayes and others to purchase the French plot (through an entity called Aurum 33) for €3.5 million. (Mr Mayes knew Mrs McFadzean and was familiar with the French Plot, which Mrs McFadzean had been seeking to sell, for some time, before she was made bankrupt.) A binding offre d’achat was signed, and completion took place on 21 February 2019. In the meantime, Mr Mayes had been given access to the plot and begun work to preserve the benefit of the existing permission before its imminent expiry. Those efforts were successful, and the permission was preserved. In due course, a luxurious villa was built on the plot and was sold by Aurum 33 in July 2020 for €11,633,583.
Mrs McFadzean’s prospective claim (under s 304 Insolvency Act 1986) was, in essence, that the French plot had been negligently sold by Mr Cacho at an undervalue and that he had failed to take appropriate advice before going ahead with the sale. She also intended to claim against Mr Waghorn, although had to formulate that more subtly because of the date of his appointment; but in essence it amounted to a claim based on his failure to intervene in what Mr Cacho did.
Section 304(1) Insolvency Act 1986 empowers the court to order the trustee, for the benefit of the estate, to repay, restore or account for money or other property, or pay compensation for misfeasance or breach of fiduciary or other duty. Section 304(2) provides that the application may be made by the official receiver, the Secretary of State, a creditor of the bankrupt or (whether or not there is, or is likely to be, a surplus for the purposes of section 330(5) (final distribution)) the bankrupt himself or herself; but the leave of the court is required if the application is to be made by the bankrupt or after the trustee has had his release. That, as ICC Judge Greenwood observed, operated as a filter, and that is what his judgment deals with.
ICC Judge Greenwood noted that the proper approach to giving leave, and its purpose, had been explained by Hart J in Brown v Beat and confirmed by the Court of Appeal in McGuire v Rose. In the former, Hart J said that the requirement for leave under s 304(2) in the case of an application by the bankrupt had almost certainly been included by Parliament “in recognition of the fact that applications by bankrupts against their trustees may well have a tendency to be vexatious,” making it “appropriate for there to be a filter in the form of permission by the court before the bankrupt is permitted to launch upon them; that also being particularly necessary given the fact that the bankrupt is accorded locus standi notwithstanding the absence of any financial interest to himself in the application being made.” He identified, among the factors to be taken into account, the likelihood of the application being successful and the risks as to costs of the estate in the event of failure. He referred to the duty that a trustee owed to take reasonable steps, to the standard of an ordinary, reasonably skilled and careful insolvency practitioner, to obtain a proper price for assets within the estate (see for example, Chapper v Jackson and Re Charnley Davies Limited (No.2)), but also to the need to bear firmly in mind that, where a trustee had used his discretion in the exercise of his commercial judgment, or in the conduct of negotiations, acting as a “prudent businessman” (as to which see Re Edennote), then short of bad faith, fraud or perversity, the court would afford him generous latitude.
Referring to Re Edennote, ICC Judge Greenwood accepted that a failure to take advice could render an office-holder’s conduct unreasonable. He found, however, that Mr Cacho had taken and acted on advice, and there was nothing to suggest that it had not been correct advice: “on the contrary, it was confirmed by events as they unfolded.” That advice included that preserving planning permission could have entailed incurring costs of €200,000 – €300,000 and continuing, which the estate would have had no prospect of bearing. He also took into account that Mr Cacho was acting under considerable time constraints. Furthermore,
“The conduct of negotiations is a matter of commercial judgment – it can almost always be said (but is not relevant) that a different person, negotiating differently, might have secured a better deal…”
In fact Mr Cacho had succeeded in negotiating a higher offer than that posited in the available valuation. And in any event, Mr Mayes’ offer had been the highest unconditional offer:
“[E]ssentially, Mr Cacho had no relevant bargaining position, and no viable alternative; no other person was willing to commit to paying more; Mr Mayes was in pole position; Mrs McFadzean has produced no evidence, and produced nothing at the time (despite invitations to do so) to suggest that the Plot was genuinely and realistically worth more than €3.3 million, or that there was a realistic alternative prospective purchaser.”
Other matters referred to in the judgment which appear to be relevant are, first, the fact that Mrs McFadzean had not adduced expert evidence of French planning law or evidence as to either the true value of the French plot in October 2018 to the effect that it was worth at least €7.92 million or the prospects or costs of seeking to litigate in France, or the likely outcome or effect of any such litigation, although the judge accepted that there was no absolute rule that required expert evidence. Secondly, Mrs McFadzean’s own efforts to sell before her bankruptcy had not been successful.
The application was dismissed.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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