Cambridge Analytica offers guidance on administrators’ duties, data protection and regulatory enforcement
Insolvency Bitesize - September 2019
In Re SCL Group Ltd (& others)  EWHC 954 (Ch), the High Court considered a range of allegations concerning the administrators to the Cambridge Analytica group and whether they should be appointed as liquidators following a failed sale process.
Central to the case were allegations of misconduct and potential bias against a particular creditor. The claims were rejected. But, the case contains useful observations about the role of administrators and their duties:
- investigations and pre-appointment candour: a proposed administrator must give an independent objective opinion based on their knowledge as to whether an administration order is reasonably likely to achieve the purpose of administration and must make reasonable enquiries to that end. As officers of the court, they must disclose facts material to their appointment even if embarrassing to the applicant (the company, directors or a creditor). But, a proposed administrator is not under a duty to make themselves as fully informed about the company’s general affairs as is the applicant and need not (leaving the possibility for exceptional cases) seek out every piece of litigation in which the company is involved;
- independence and administration funding: there is no inherent conflict in a group company or major creditor funding the administration to help obtain the best recovery. But, in a court appointment, it is the sort of thing that administrators should disclose to the court. Also, administrators should be alive to conflict concerns and ask periodically whether the identity of any funder might restrict their independence and if there are other sources of funding available;
- dealing with data protection issues: an administrator does not have a general duty to investigate pre-insolvency data breaches. Administrators will not be “data controllers” in respect of data processed by the company, unless they take decisions about the processing of the data as principal in their capacity as administrator rather than as agent of the company (confirming earlier case law as applied to liquidators); and
- assisting regulators: administration does not take the place of a regulatory investigation at public expense. But, as an officer of the court, administrators must assist regulators in their investigations provided that does not itself impede the achievement of the purpose of the administration. If a company is faced with regulatory enforcement action, although they may not be personally responsible, administrators should ask what they can do within their powers of management as administrators to enable the company to meet its obligations and whether it is in the interests of the creditors as a whole that they should bring about those actions. They may rightly decide to do nothing if compliance would be disproportionate to the value of the assets and would impact adversely on recovery.