IP Briefing: Cambridge Analytica

Introduction

The Cambridge Analytica scandal dominated headlines in 2018 in relation to the alleged misuse of personal data.  The result of the scandal was the insolvency of several companies in the group colloquially known as Cambridge Analytica. Companies entered administration and administrators subsequently sought to be appointed joint liquidators. Their appointment as liquidator was opposed by one of the creditors of the company. 

The objection was based on the administrators being “insufficiently objective” and being unable to “hold the balance fairly as between him….. and the directors/shareholders of Cambridge Analytica who were responsible for their initial appointment”. The background was that the parent company in the group had taken responsibility for the substantial fees the administrators were to charge if there were insufficient realisations in the case. There were further allegations in relation to the integrity of the administrators. Much of this centered around the fact when administration applications came before the court, the administrators appeared themselves before the High Court to explain their views.  They granted certificates in the normal form to the effect that one of the purposes of administration was reasonably likely to be achieved.  The judge was not satisfied that the appointment should be an administration rather than a liquidation. However, the joint administrators confirmed the belief set out in the certificates and on balance the judge approved their appointment. 

Decision

Mr Justice Norris issued his decision in the creditor challenge on 17th April 2019. Against the factual backdrop mentioned above there were a range of criticisms of the way the administrators had handled the case.  Mr Justice Norris helpfully adopted the formulation found in Stanley’s International Betting Limited [2011] EWHC 1732 (CH): “When there is a contest over the identity of the liquidator to be appointed I think the guidance as to the exercise of the discretion is well settled….the fundamental question is what will be conducive to the proper operation of the process of liquidation and to justice…..although the majority vote of the creditors in the normal course prevails, creditors holding the majority vote do not have an absolute right as to the choice of liquidator….the liquidator should not be a person (nor be the choice of a person) who has a duty or purpose which conflicts with the duties of the liquidator….the liquidator should not be the nominee of the person against whom the company is hostile or conflicted in claim or whose conduct in relation to the affairs of the company is under investigation. The liquidator needs to act (and be seen to act) in the best interest of the creditors as a whole….

In this case the majority of creditors were happy for the joint administrators to be appointed liquidator. Mr Justice Norris conducted a detailed consideration of the various criticisms and found for the most part that they were not made out and the joint administrators were therefore appointed liquidator. 

Advice

This is an English decision, but we would expect that in large part it would be followed in Scotland.  Although the challenge was not successful there are a number of lessons for office holders. Criticisms arose because of the terms of funding arrangement with the parent company. Funding arrangements should be clear about the objectivity of the office holder and kept under review. Office holders should also be aware of potential criticism where they grant certificates in circumstance where the court is expressing concern about the likelihood of administration purposes being fulfilled.