Promoting fairness in English insolvency valuation cases

This is the second part of a comprehensive study on fair measurement of value in English insolvency law. The author has already demonstrated in a previous article the importance of posing and responding to questions about fairness in the insolvency process. That article developed a specific framework to measure whether assets and businesses are fairly valued in insolvency and bankruptcy cases. The proposed communitarian, fairness-oriented framework is based on a modified version of Rawls, Finch and Radin's concepts of fairness. It evidenced that, when assessed against fairness, none of the valuation techniques currently available to the courts are without limitations. Building on the findings of this previous work, this article investigates whether English case law: (i) achieves a fair valuation of the debtor's assets and business; and (ii) protects interested parties (mainly creditors and shareholders) who have realistic prospects of receiving a distribution- against unfair harm. Abstract The analysis of the sample of cases investigated in this article shows that courts adopt recognized and consistent approaches to valuations, capable of ensuring adequate levels of procedural safeguards against unfair harm. With reference to substantive safeguards, the findings from the review of cases provide ambiguous answers. On the one hand, claimants seem to face a high burden of proof to challenge valuations and the “ fair ” nature of a market-tested price. On the other, courts seem to use their discretion and legal expertise to choose between competing valuations. Overall, however, it seems that the courts' main concern is to ensure procedural fairness and predictability of outcomes, which is not necessarily in line with the fairness-oriented framework advocated by this article. Abstract “ Fair value ” is likely to remain a very contentious and highly litigated notion in the future in the absence of clear statutory guidance. As stated elsewhere: “ anyone attempting to determine the ‘ fair ’ price also has to contend with the risk that any of her embedded assumptions could be wrong, as well as the fact that she could be wrong about the possible size of those errors. ” 179 It is argued, however, that some statutory guidance should enhance the fairness of the insolvency framework, and result in more balanced and equitable decisions in valuation issues. A critical assessment of English case law suggests that more should be done to ensure that assets and businesses are properly assessed and that unsecured creditors are not


| INTRODUCTION
This is the second part of a comprehensive study on fair measurement of value in English insolvency law. The author has already demonstrated in a previous article 1 the importance of posing and responding to questions about fairness in the insolvency process. That article developed a specific framework to measure whether assets and businesses are fairly valued in insolvency and bankruptcy cases. The proposed communitarian, fairness-oriented framework is based on a modified version of Rawls, Finch and Radin's concepts of fairness. It evidenced that when assessed against fairness, none of the valuation techniques currently available to the courts are without limitations. Building on the findings of this previous work, this article investigates whether English case law: i achieves a fair valuation of the debtor's assets and business; and ii protects interested parties (mainly creditors and shareholders), 2 who have realistic prospects of receiving a distribution, 3 against unfair harm.
As explained in the above-mentioned article, fairness is a key policy objective of English insolvency law and issues of fairness feature prominently in recent high-profile cases, thus prompting a regulatory debate in the area. This article adopts the same communitarian, fairness-oriented framework advocated in the article mentioned above, as this framework underpins English corporate insolvency law 4 and recent policy documents do not depart from this well-established approach. 5 It is acknowledged that not all of English insolvency law follows communitarian tenets. In fact, English insolvency law to an extent reflects all the purposes laid out by the various contractarian theories. Creditor wealth maximization-emphasizing insolvency law as a pool of debt in which creditors assert their claims as a collective-is reflective to a larger extent of liquidation, and to a lesser extent of administration. Meanwhile, the broad-based contractarian approach encompassing both creditors and non-creditors to maximize aims are a reflection of the administration process with the primary objective of rescuing the corporation. This article shows that, while concepts of fairness have featured increasingly in courts' decisions, much still needs to be done to ensure substantive protection of non-sophisticated interested parties in insolvency valuation disputes. As a result, it argues that fairness-oriented approaches should be made transparent and become part of English insolvency law and policy. The findings of these articles suggest that the current de-regulatory approach in insolvency may fall short of achieving the policy goals advocated by the law.
This article makes several original contributions to the topic of measurement of value in insolvency and bankruptcy law. First, it carries out the first (as far as the author is aware) comprehensive documentary investigation into reported decisions on valuation disputes in English insolvency and bankruptcy cases. This substantial documentary analysis shows that English courts adopt consistent practices when valuing assets and businesses. These practices are based on traditional valuation methodologies, such as market tests and liquidation values. Yet, despite a praiseworthy usage of flexibility and discretion to achieve procedurally fair outcomes, English courts fail to consistently ensure that interested parties are treated in a substantially fair and just manner.
The second key contribution of this study is its discussion on the impact of a fairnessoriented framework, which addresses substantive as well as procedural issues, on judicial powers, and what is needed to make this approach transparent. In particular, this article investigates if and to what extent a fairness-oriented framework can be used to decide between competing valuations; to determine if assets and businesses are sold at a fair value, both in and outside pre-packaged administrations; and to assess if the office holders' actions have caused unfair harm to the interested parties.
In this study, fairness is understood as a substantive and procedural concept. It is submitted that procedural fairness is the propensity of the system to rely on replicable and competitive techniques to value assets and to allow interested parties to challenge decisions taken in the course of insolvency procedures. Substantive fairness is the propensity of the system to adjudicate in favour of the parties who have a lawful interest under the law whenever valuation decisions do not take the best interests of the parties concerned, the peculiarities of the valued assets, business or the market or the claimant-defendant relationship into reasonable account or do not treat similar situations alike.
This article proceeds as follows. Section 2 outlines the result of the documentary investigation. It shows that courts consistently apply procedural but not substantive notions of fairness in valuation cases. Section 3 demonstrates how the usage of a regulatory-heavy approach to promote substantive, and not simply procedural, fairness would impact the notions of "fair value" and "unfair harm." It also questions whether the regulatory-heavy approach should be preferred over de-regulatory practices currently followed by the English courts and the legislator. Recent developments in case law are also examined to show whether they promote substantive as well as procedural fairness. Section 4 sums up the conclusions of the study. It highlights the importance of giving more explicit recognition to the concept of procedural and substantive fairness in insolvency and suggests a list of regulatory recommendations.

| A FAIR JUDICIAL APPROACH TO THE VALUATION OF ASSETS?
The lack of uniform approaches and clear guidance for the evaluation of assets and challenges to valuations affects the behaviour of parties, inside and outside insolvency. In an influential piece in 2006, Baird and Bernstein argued that this uncertainty causes parties to opt for an outof-court restructuring instead of the formal corporate insolvency procedures. 6 Others have observed that valuation uncertainties may induce the party with a better case to steer away from litigation, while the party with the worst case has an incentive to steer towards it in the hope of a windfall. 7 It is pertinent, therefore, to investigate if English courts adopt a consistent approach in assessing the fair market value of the debtor's business and assets. It is equally appropriate to determine whether these approaches protect the interested parties from unfair harm. No valuation method is unfair per se. It is their use by the judiciary on the basis of the circumstances of the case that determines the overall degree of fairness of the system. As a result, a documentary analysis of 31 judgments has been carried out in order to test the fairness of the English judicial approach to measure value in insolvency cases. The following judgments were considered: • All the judgments issued in corporate rescue procedures decided in the period January 1, 2014-June 30, 2019 that included the word "valuation" in a keyword search on Westlaw; and • Some of the most frequently cited decisions on valuations in corporate rescue procedures for the years before December 31, 2013.
These judgments offer a comprehensive and up-to-date picture of how English courts deal with valuation issues in bankruptcy and insolvency cases. Out of these judgments, only 26 rulings were relevant for the purposes of this review as in the remaining five cases the courts did not address valuation issues.
The results show that courts tend to rely on and apply primarily traditional valuation techniques. As evidenced by Figure 1: • The actual valuation ("AV") method (market testing, usually by public auction) was mentioned in 20 cases (77% of the sample) and applied in 17 of them (65.4%); and • The liquidation method ("LM") was mentioned in 11 cases (42.3%) and applied in 8 of them (30.8%).
The other valuation methods most frequently considered are the discounted cash-flow ("DCF") (7 cases, 23.1% of the sample) and the comparable transaction multiple ("CTM") (5 cases, 19.2 of the sample) methods. Valuation methodologies which require deeper knowledge of finance, economics and statistics in order to be understood and applied -such as comparable companies multiple, leveraged buy-out, contractual valuation mechanisms (2 cases, 7.7% each) and market capitalisation (1 case, 3.8%) -feature in a negligible number of rulings.
These preliminary findings cast doubt on the ability of the system to reach fair decisions, as courts make predominant use of methods that, as evidenced in a previous article, 8 only ensure procedural as opposed to substantive fairness.
These results also show that courts rely on market testing and/or expert valuations in 19 out of 26 cases (73.1%), mainly where the sale is to a connected party. 9 This figure is certainly meaningful. However, it is probably even more significant that in seven valuation cases (26.9% of the sample), judges did not rely on competitive market testing and/or independent valuations from experts to determine the value of the debtor's assets and business. This finding casts serious doubt on the overall fairness of the system. In the cases where no market tests or independent valuations are provided, 10 judges either rely on contractual clauses to determine the value of the contested assets 11 or on their own independent assessment to determine the quantum meruit of the case. 12 Another seven cases have been decided based on the DCF method, which is highly dependent on the co-operation and data provided by the debtor. These findings suggest F I G U R E 1 Valuation methods in English insolvency cases. Source: Survey data collection that claimants face an uphill struggle to achieve fair valuations. In fact, in 14 out of 26 cases (53.8% of the sample) there are questionable elements in relation to not only the substantive, but also the procedural fairness of the approach followed by the courts (and the parties) to measure the debtor's worth ( Figure 2). The following sub-sections assess the results of this documentary analysis in depth to determine if the existing valuation practices followed by the courts comply with the proposed fairness-oriented framework.

| Valuations: The issue of proper timing
With reference to timing, the results of the documentary analysis show that courts require the debtor's assessment to be carried out at a date as close as possible to the actual sale. 13 Courts tend to dismiss evidence that suggests a higher value of the assets or business in the near or not-so-near future, especially when the sold assets or businesses have been extensively tested in the market. 14 This is because courts consider that the (hypothetical) higher proceeds from the sale may not result in higher returns to creditors due to a variety of factors, such as depreciation of assets and increased interest on debt and professional fees. 15 Courts also dismiss claims that insolvency practitioners ("IPs") have an obligation to sell the assets or business at a propitious time, as this view is explicitly rejected with reference to mortgagees. 16 It can be argued, however, that this focus on the value at the time of the sale may be misplaced. It may lead to results that do not represent the substantially fair value of the debtor's assets and business. It is common knowledge, in fact, that the value of the debtor's assets and business is dependent on the nature of the purchaser. Take, for instance, the case of a sale by auction of a car manufacturer ("A") in which there are two potential bidders. One is a real estate developer ("B") interested in closing the factories and selling the properties in the market for a profit. The other one is a competing car manufacturer ("C"), interested in preserving the profitable part of the insolvent business for the economies of scale arising from their merger.
In the first scenario (B buys A), the preferred valuation method would be the LM. In the second scenario (C buys A), the bidders would opt for a DCF method. Clearly, company B would F I G U R E 2 Evidence used in court. Source: Survey data collection VACCARI be willing to pay a much lower price than company C. If company C buys the insolvent business at a price which is higher than the liquidation value but lower than the DCF price, would the sale be upheld by an English court? According to the evidence collected in this study, the answer would be in the affirmative. However, it is questionable whether this purchase price represents a substantially fair value of the debtor's assets and business. This example, therefore, shows that by adopting a mechanistic approach, courts may ensure consistency and predictability of outcomes and replicability of results (i.e., procedural fairness). However, they may fail to properly assess the "true," peculiar value of the assets and business for the purchaser and the nature of the relationship between debtor and creditor.
Another element that suggests the courts' focus on procedural rather than substantive fairness is the requirement for timely and constant involvement of the creditors throughout the negotiation phase. As a result, late challenges may affect the court's willingness to dismiss an existing valuation. 17 However, the lateness of a challenge should not in itself affect its outcome, as otherwise this solution would impinge on the substantive fairness of the procedure.
As mentioned in the previous sub-section, to assess the value of the debtor market testing is not always necessary. 18 In particular, in Saltri III, Eder J held that market testing is not needed if running a lengthier auction procedure would be impracticable, impossible or damaging and it would not yield higher offers. 19 In Saltri III, the mezzanine lenders argued that the actual value of the company was affected by the particularly challenging period in the automotive industry in the wake of the 2009 financial crisis and the Chapter 11 filings of Chrysler and General Motors. While admitting that there was no value left in their investment, the mezzanine lenders based their claims on the expected recovery of the restructured group. 20 In this case, the court held that it had no discretion to depart from AV valuations, potentially undervaluing the company (as it turned out to be the case) and ignoring issues of substantive fairness.
The author agrees that under perfect market conditions, auctions are "the best way of finding out the market value of an asset." 21 Unsurprisingly, courts held that in appropriate cases, the process of testing the market by holding an auction might make it reasonable to proceed without seeking valuation advice, particularly where the claim's valuation is difficult. 22 As a result, in Goel v Grant, Halpern J held that the company administrators had not unfairly harmed the interests of creditors under paragraph 74 of Schedule B1 of the Insolvency Act 1986 ("IA 1986") by deciding to auction a claim that the insolvent company potentially had against its former directors without obtaining a preliminary valuation of that claim. 23 Similarly, in Wind Hellas, 24 the court sacrificed the need to carry out a thorough valuation due to the urgency to complete the transaction to preserve the debtor's going concern. 25 There is the risk, however, that such decisions prove ill-judged and unfair to the affected creditors if the company later falls into liquidation, as was the case in Wind Hellas. 26 It is not possible to draw general conclusions on whether this approach (auction without valuation) is "fair." It very much depends on the circumstances of the case and on the market for the assets or business. For instance, in Wind Hellas, while the business was market-tested through an auction process, the sale procedure resembled a validation technique rather than a true method of maximizing value. 27 In Wind Hellas, the junior lenders and third parties did not have enough time to complete due diligence and submit a competing bid. In Goel v Grant, the office holder obtained only a small amount of money for the sale of the claim. In other words, on both occasions the ways in which the auction procedures were carried out raise issues of substantive unfairness.
Finally, market testing can sometimes prevail over conflicting, independent valuations. This was what happened in Chadwick, where the court held that insufficient evidence of a clear intention by the parties to enter into a binding collateral agreement for the value of the property, as assessed by an independent valuer. The court allowed the trustee in bankruptcy to rely on the higher estimate of the value of the property that emerged from the market test rather than on the figure previously suggested by the independent expert. 28 Like Goel v Grant, Chadwick followed the precedent of Ludsin, where Baldwin J held that: "the best indication of the value of an asset at any particular time was what someone would pay for it after reasonable attempts had been made to sell it." 29 As a result, evidence to the effect that nobody had been prepared to offer even GBP 2 million for a property after 6 months of marketing by a well-known and reputable agent was more persuasive than expert evidence, obtained before the marketing process had begun, of GBP 3.35 million. The circumstances of Chadwick may suggest that the result was substantially and not simply procedurally fair. However, courts do not always actively consider the peculiarities of the assets and those of the market at the time of the auction. As a result, both in Ludsin and Chadwick, the parties reached a substantially fair outcome more by chance than by a purposeful stride to achieve that outcome.
These cases show the English courts' reliance on market testing. This is usually described as an AV approach, but it shares many more similarities with a liquidation method, as the main concern is the price that a party would pay for the auctioned assets at the time of the sale. The courts have shown a reluctance to depart from market testing where there are no specific reasons that require a quick sale of the assets and where speed appears to be an excuse generated by the connected bidder to obtain a more favourable price for the debtor's assets or business. 30 At the same time, this reliance on market testing may result in undervaluing the debtor's assets and business. In fact, the hammer price is not always a fair assessment of the debtor's intrinsic and potential value as well as of the money that the bidder would be willing to pay for the assets or business, especially if the bidder was not aware of the distressed condition of the debtor.

| Valuations: The issue of proper methods
With reference to methods, the results of this substantial documentary analysis show that parties have no absolute obligation to follow any particular procedure or to obtain any particular advice in deciding how the debtor's assets should be sold. 31 However, creditorsand secured ones in particularbear the burden of showing that they took reasonable steps to obtain a proper price, 32 especially in cases of sales to connected parties. 33 This seems to suggest that sufficient protections are being adopted to ensure that assets are sold at a fair price and that creditors are not unfairly harmed. In other words, this seems to suggest a stride towards substantive fairness in the valuation process.
In Philbin, 34 for instance, the court found that a secured creditor failed to meet that burden when the respondent took possession of the charged properties as mortgagee and sold them for GBP 2 million to a company he owned and controlled. The sale was conducted on the basis of the low estimates for fire sales valuations in the Christmas period "without vacant possession." The mortgagee made no effort to properly market the properties or to check if the tenants were willing to peacefully vacate them. The applicant produced valuations of GBP 4.8 million to GBP 5.5 million for the same properties, if these were sold at an auction under normal market conditions. This case shows that the court adopted the enhanced notion of fairness suggested by this article and assessed the transaction against this yardstick. It considered that the market price obtained for those properties was affected by the circumstances of the sale and, therefore, did not lead to a fair valuation of the debtor's assets.
Nevertheless, in general, courts tend to prefer AV, market-testing approaches over competing methodologies, 35 especially in real estate and liquidation cases. 36 As the market value is one to be determined as a matter of historic fact, based on expert evidence, 37 the focus is very much on procedural rather than substantive fairness. Some rescue cases where courts followed an AV approach also make reference to liquidation values when: i this appears necessary to assess the rights of the claimants/creditors; and ii the alternative to the proposed rescue procedure is a distribution of assets in a winding-up. 38 Again, it is argued that this is not the proper course of action, as this approach overlooks the peculiarities of the claimant-defendant relationship and substantially undervalues the debtor's business. AVs on a going concern basis should be preferred where companies are only financially as opposed to economically distressed 39 and: "assets have a higher value if kept together as a functioning unit than if sold off piecemeal." 40 Yet, this study has shown no evidence that courts are willing to depart from market values solely on the basis that the price obtained from the competitive procedure underestimates the going concern value of the business.
At the same time, courts are willing to complement AV approaches with CTM and other market-testing methods whenever the insolvency procedure aims at liquidating/selling assets and there is a restrictive but competitive market for the company's assets. 41 Courts in particular appreciate techniques that lead to "true" market value and/or the best prices reasonably obtainable for the transaction. 42 In IMO Car Wash, 43 for instance, the court concluded that to determine the value of the distressed business on a going concern basis, valuations could be based on multiple standards, namely discounted cash-flow ("DCF"), comparable companies multiple ("CCM") and leveraged buy-out ("LBO").
This case law is promising, but it is very much inconsistent across the sample analysed in this study. In fact, multi-method approaches feature only in a minority of cases (5 cases, 19.2% of the sample). 44 Additionally, in a recent case, 45 the court rejected the multi-method approach and relied only on one valuation technique to determine the value of the debtor's assets. 46 English courts usually uphold the choice of the parties to rely on CVMs if: i the clause is binding 47 ; ii similar clauses are used in a variety of similar circumstances; iii their use does not appear inappropriate in light of the circumstances of the instant case 48 ; and iv such use would have been approved by a person acting rationally and not arbitrarily or perversely. 49 Pursuant to the established case law, the circumstances that the sale are carried out in an illiquid and distressed market are not in itself sufficient to dismiss the validity of a contractual valuation clause. 50 This is because the contracting parties should have considered the risk of economic or financial downturn at the time in which they negotiated the clause or entered into the agreement. If they failed to consider this risk, it is not for the courts to invalidate the clause, as this would result in a windfall for one of the parties.
Once again, the existing system of checks and balances is not appropriate to ensure enhanced fairness in the valuation process. The standard for challenging the usage of these clauses (perversity and negligent behaviour) is too high. Additionally, the praiseworthy mention that courts should consider the specific circumstances of the case is de facto counterbalanced by the lack of available remedies if the sale is carried out in an illiquid or distressed market.
By upholding the choice of the parties to rely on CVMs, English courts promote consistency and predictability of results over protection from abusive market practices. Nevertheless, courts are aware that undervaluation of assets is likely to happen in sales to connected parties, as in Philbin, due to the proximity of seller and buyer. Philbin was not an isolated case. In Brewer, 51 intangible assets worth between GBP 1.9 and GBP 2.35 million were sold to an associated company for GBP 40,000. In Goel, 52 the administrators arranged a pre-packaged sale for GBP 1.5 million to a connected company owned by a minority shareholder and director of the debtor. In the following trial on the assignment of a claim against the previous directors for unlawful means conspiracy, it was argued that the sale undervalued the company by almost GBP 12 million! 53 Many of the cases and the guidance provided by courts in the area focus on giving detailed directions on valuations in sales to connected parties. 54 It was held that in any sales to associates and/or connected parties, the sale is presumed invalid unless the seller can demonstrate that he acted in good faith 55 and can exclude the possibility of any conscious or unconscious preference. The sellers must show that they took all reasonable precautions to obtain the best possible price 56 or, at least, that they took reasonable care to maximize the return from the property. 57 This generally means that the sale was carried out by means of a public auction rather than as a private sale and that the reserve price was determined on the basis of independently-obtained expert valuations. 58 In some instances, this obligation might include a duty to attempt to sell a business as a going concern, unless the proprietors had closed down the business and moved from the premises prior to the mortgagee repossessing the property. 59 Two caveats apply to this expansion of the rights and responsibilities of the office holders. First, as mentioned in the previous section of this article, sale by auction (or by another competitive method) does not in itself result in fair valuations, especially if it only produces one or very few bids. 60 The price bid at auction tells one nothing about the value of the property. 61 Secondly and more importantly, it is well established that office holders are not subject to the same equitable duties and standards as a trustee when selling property of the company under his control. 62 Office holders in general, and administrators in particular, are subject to the fiduciary duties of agents to act in good faith, loyally and for proper purposes. 63 The duty to exercise reasonable skill and care is tested against the standard of an ordinary, skilled practitioner. 64 Challenging a decision from an office holder requires proof of negligent or perverse behaviour 65 that would unfairly harm the creditors. It requires proof of behaviour that could not be justified by reference to the creditors' interests as a whole or to the administration's objective. 66 These safeguards ensure procedurally fair outcomes. They result in replicable and predictable decisions and allow interested parties to challenge any deviations from the established approaches. The rules are not, however, set in stone. Courts use their discretion to validate transactions that are the result of negligent or perverse behaviour but, otherwise, in the best interest of all creditors. In particular, courts have reiterated that there is no absolute obligation on the mortgagee/IP to take and act upon independent expert advice. 67 Consequently, in Alpstream, Clarke LJ refused to invalidate a private sale to a connected party, even though the mortgagee did not take all: "reasonable precautions to obtain the best price reasonably obtainable at the time of sale." 68 In fact, the mortgagee did not rely on any independent valuation and the auction process was poorly carried out. However, it was proven to the satisfaction of the court that there was no bidder prepared to pay the independent valuation price at the time of the sale. The price offered by the connected party was comfortably above what others had offered or would have offered at a perfectly arranged auction, and the connected party was not prepared to pay more. 69 As no unfair harm was caused to creditors and the price paid by the connected party was overall fair, the court dismissed a claim for damages against the mortgagee and the connected purchaser. 70 Furthermore, some cases seem to suggest that where the sale of a charged asset is to a connected, affiliated or associated person, there is no absolute obligation for the mortgagee to take and act upon independent expert advice as to the steps which ought to be taken to make the sale a success. 71 These authorities do not prescribe any particular procedure which a mortgagee should adopt in deciding the manner in which the charged asset should be sold, whether as to marketing, advertising or otherwise. 72 This leaves us with conflicting guidelines.
It is true that English courts stress the need to ensure fairness and achieve a "fair value" for the creditors, 73 values which feature in a significant number (10) and portion (38.5%) of the cases in the sample. Additionally, courts are ready to accept that creditors' interests outweigh all other considerations 74 and that expert valuations can be challenged. 75 However, creditors' rights do not prevail over those of innocent third parties absent fraud. 76 Additionally, courts are unlikely to challenge any valuation which appears to be procedurally fair, even if a marketbased approach would have yielded a different result 77 and even if such a value contrasts with the opinion of an expert valuer. 78 Claimants do not have any remedy if they are not capable of proving that the failure to carry out a market test or independent valuation has caused any loss to them. 79 This, however, represents a significantly high burden of proof for petitions submitted by third-party and generally unsecured creditors. Where there has been no independent valuation, the claim is dismissed if no better price would have been obtained and the connected party had been under no duty to pay more than it was prepared to pay. 80 If there was no proper marketing and sales process, the claim is dismissed in the overwhelming likelihood that the price obtained would not have been higher with a competitive marketing and sales process in place than the liabilities owed to the preferential lenders. 81 Courts have also dismissed claims by creditors whenever the cause of action was a difficult asset to value and the decision to sell it by auction (AV method) did not unfairly harm the claimants. 82 Equally, they have dismissed claims whenever it appeared from expert valuations that the non-connected buyer acted in good faith and purchased the asset for full value or near full value. 83 Once again, these examples show the significantly high thresholds that any potential claimants have to overcome in valuation cases.
To sum up, courts do not interfere with the decision made by the office holder unless: i the IP treated the applicants less favourably than other creditors; ii the decision could not be justified by reference to the interests of the creditors as a whole or to achieve the objective of the procedure; and iii the decision did not withstand logical analysis, which probably meant the same as "perversity." 84 Reliance on this three-prong test andin particularon the last element of this test means that existing case law fails to provide sufficient protection against substantive unfairness. This conclusion is further supported by the fact that, where valuations present certain features, they are unlikely to be questioned by the courts. In particular, valuations are not closely scrutinized if: i the IPs relied on independent experts and on objective data 85 as well as their own judgment 86 ; ii valuations are easy to understand for non-financial professionals; and iii valuations offer a single point value rather than a range of values oreven worsea range of possibilities. 87 While valuations need not to be perfect to be relevant, they may rely on evidence of secondary markets. 88 If valuations present these features and are not subject to criticism from the creditors, courts find it unreasonable to carry out an extensive analysis of the criteria and outcome of these valuations.
It is appropriate to say, however, that it does not follow that any valuations that present the characteristics mentioned above cannot be subject to judicial scrutiny. For instance, in Sinclair, 89 a substantial difference between the price of a property sold in a formal insolvency procedure and that of its immediate subsequent sale was found sufficient to grant permission for an action for breach of duty against the IP. This conclusion was reached irrespective of the fact that the IP relied on two independent valuations from reputable national firms and the sale occurred through expert selling agents. 90 Such a course of action is consistent with other cases which, while falling short on imposing an obligation on the mortgagee to delay a sale in the hope of getting a higher price in the future, 91 hint at the possibility of demonstrating unfairness where there is an expectation of market improvement in the near future. 92 Yet the cases where courts focused on substantive rather than procedural unfairness are few and far between. The consistent approach adopted by English courts has been to ensure procedural fairness and predictability of outcomes.
The final element that needs to be assessed to determine if courts' practices lead to fair market values and claimants are protected against unfair harm is the judicial approach to the case of similarly objective and independent valuations. Courts are unanimous in claiming that valuations should not be averaged but they should be distinguished based on their persuasiveness. 93 This statement fits very well with the proposed fairness-oriented framework because it allows interested parties to go beyond a mechanistic approach to valuation.
In Stanley J Holmes, 94 Arden LJ stated that when judges are faced with two different valuations, they have to find a way of distinguishing the two. This approach to the assessment of expert valuations was followed in Wilson, where the court accepted a valuation of a property based on an investment method, rather than on an owner-occupation method. This is because the property subject to valuation was a commercial property and, therefore, more likely to attract a retail investor rather than a property owner. 95 This approach was equally followed in Cahillane, where the registrar rejected an argument that properties should be valued on the basis of their potential future value rather than the present one. This is because the independent expert who supported the future value approach had no statistical data in support of his analysis, made conflicting statements, did not consider alternative methods and did not inspect any of the properties. 96 In Brewer, Briggs J, after having established the existence of a breach of duty of care and skill by the administrator of a pre-packaged sale, went on to quantify the equitable compensation for breach of fiduciary duty. In doing so, he considered the expert evidence provided by both the applicant (the joint liquidators) and the defendant (Mr Iqbal). He eventually decided to rely on the applicant's expert due to a variety of considerations, including the fact that the valuer had been active in the market for Electronic Programming Guides ("EPGs") (the intangible assets of the sale) since its establishment 15 years before. Furthermore, Briggs J did not accept the applicant's findings at face value, as the court discounted the expert valuation of a figure between 50 and 80% due to a variety of factors listed in some detail. Other cases equally dismissed independent reports based on dubious or incomplete evidence, 97 their lack of clarity in the methodology and their reliance on subjective assessments. 98 Courts also recognize that the persuasiveness of a valuation is highly dependent on the qualities of the expert witness and on whether the valuation procedure considered different methods to maximize the value of the debtors' assets or business. 99 Preference is normally given to valuations where the methodology and key assumptions are clearly articulated 100 and which are not based on speculations. 101 Courts have to consider all the circumstances to determine if a valuation has been carried out properly. 102 Should the valuation be based on unfair terms and relationships, courts may confirm the method chosen for the valuation but they would be able to vary rates of interest, impose penalties and deprive the respondent of all or some of the interest claimed. 103 If there is nothing to choose between valuers, judges should not arbitrarily pick up a half-way figure, but they should rely on the lower estimate produced by the parties. This is the conclusion reiterated by Arden LJ in Stanley J Holmes, 104 where the Court of Appeal reversed the lower court's decision to fix the value of machinery: "on a figure of GBP 65,000, which happens to be half-way between GBP 50,000 and GBP 80,000 (the figures from the expert valuations)." 105 Arden LJ emphatically observed that: "it is not a judicial process simply to fix a midway point between the two valuers.
[…] The judge was faced with two different valuations and he had either to find a way of distinguishing the two or he had to conclude that he was not persuaded that anything more than [GBP] 50,000 was justified." 106 However, valuation is and remains a discretionary process. Courts acknowledge this circumstance, as they have consistently reinstated that judicial assessment should be allowed and preferred over more mechanistic and robotic valuations. Valuers and courts should have the discretion to make some real-world judgements as to what is likely to happen. 107 For instance, in Rowbury, the court estimated the applicants' debt at the value of GBP 1 because, despite the existence of a conditional fee agreement upon which the credit was based, the bill lacked explanation, included non-agreed costs, failed to itemize statements and presented some inaccuracies. 108 Courts also make wide and generally wise use of their discretion. 109 For instance, AMT Coffee reinstates the English courts' reluctance to identify fixed, pre-determined approaches to valuation. According to this decision, the proper method should be determined in light of the circumstances of the case. The "proper method" is the one thatdepending on the said circumstancesappears the most appropriate to achieve justice and lead to a "fair price." 110 It is questionable, however, whether these clarifications are sufficient to ensure procedurally and substantially fair outcomes in insolvency valuation cases when other cases analysed in this section show a lack of consistency of approaches to this matter.

| Abstract
The analysis of the sample of cases investigated in this article shows that courts adopt recognized and consistent approaches to valuations, capable of ensuring adequate levels of procedural safeguards against unfair harm. With reference to substantive safeguards, the findings from the review of cases provide ambiguous answers. On the one hand, claimants seem to face a high burden of proof to challenge valuations and the "fair" nature of a market-tested price. On the other, courts seem to use their discretion and legal expertise to choose between competing valuations. Overall, however, it seems that the courts' main concern is to ensure procedural fairness and predictability of outcomes, which is not necessarily in line with the fairnessoriented framework advocated by this article.

| REGULATORY CHALLENGES
Two approaches are possible to ensure fairness of outcomes in valuation disputes. The merits and limits of the light-touch, de-regulatory approach currently used by English courts have been discussed in the previous section. It is now pertinent to explore if encompassing enhanced fairness tenets (the so-called interventionist, regulatory-heavy approach) in the law is to be preferred over the existing de-regulatory practices.

| The critical concept of "fair (market) value"
A critical aspect that emerges from the case law analysed for this research is the centrality of the definition of "fair (market) value." Courts can use their discretion to depart from sale prices and expert valuations if these are not "fair." According to the case law, a valuation is fair if it is in the best interest of creditors or such as an intelligent and honest creditor would reasonably approve. 111 This may suggest that courts do adopt a definition of fairness, which is close to the one proposed in this article because it considers elements of substantive fairness.
Fair value is a term that appears frequently in insolvency cases, 112 but it is much more commonly used in valuations prepared for tax, financial reporting and investment purposes. In the absence of any statutory guidance in the IA 1986, English courts apply the standards defined in the accounting literature to insolvency cases.
In non-insolvency contexts, according to the International Financial Reporting Standard ("IFRS") 13, "fair value" represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). 113 However, it can be argued that the notion of fair value may and should differ from non-insolvency cases. In fact, IFRS standards are useful to obtain the actual valuation of an asset. They promote procedural fairness, but they are less useful in dealing with the substantive side of this concept. Some decisions, 114 many of them not even in the insolvency context, 115 have provided some guidance for the general use of the notion of fair value outside the context for which it was conceived (i.e., reporting practices). These guidelines are influenced by the fact that most of these decisions deal with valuation issues for shares in a company. With reference to insolvency cases, LBI EHF 116 is a seminal case, specifically in relation to those contracts that are subject to Global Master Repurchase Agreement ("GMRA") terms. Other cases have also highlighted that the concept of "fair value" is strictly linked to a "fair valuation date," which is a date as close as possible to the actual sale. 117 Fair values can be obtained even when the sale is carried out in a distressed market. 118 Such a conclusion is in line with the absence of any obligation on IPs to delay a sale in the hope of receiving a higher price. 119 Fair values can be determined in accordance with specific provisions in the company's articles of association 120 and/or pursuant to clauses in a contract 121 and/or in a joint venture agreement. 122 It is a well-established rule when valuing assets and businesses at a particular date to exclude evidence of events which occurred after that date. 123 However, a reasonable forecast of the future can be included in the fair value assessment. 124 The latter point is contentious, as courts seem to depart from including evidence of future events on some occasions. 125 Therefore, it seems inasmuch that English case law on "fair value" ensures only procedural, as opposed to substantive fairness. English courts have clarified that it is not up to judges to determine what the fair value is. 126 As a result, courts will interfere in the non-defaulting party's assessment only in extreme circumstances, such as when the assessment appears as extreme as to be irrational. 127 This is because courts do not "seek to establish an 'objectively reasonable' fair market value." 128 Nevertheless, on some occasions, English courts depart from this narrative. In Ahmed it was held that "fair value" is something separate from "market value": "shares should be valued at a fair value, as opposed to a market value." 129 This conclusion, which goes beyond the guidance from IFRS 13 in order to promote substantive over procedural fairness, has been adopted only in a minority of cases. The majority approach is the one described in AMT Coffee, where the court held that: "sale and purchase of the shares at an undiscounted valuation will do justice, and amount to a 'fair price'." 130 In other words, the court in AMT Coffee held that fair value amounted to the market price for those shares. Moreover, in Cuckmere Brick, the Court of Appeal conflated the notion of proper, fair and best price in what they preferred to call "the true market value." 131 Enhanced clarity on this notion is, therefore, needed to ensure substantive and not simply procedural fairness in valuation disputes. As a way forward, it is submitted that a promising approach is to introduce a revised version of the insolvency provisions dealing with transactions at undervalue, which are section 238 of the IA 1986 (with reference to companies) and section 339 of the IA 1986 (with reference to people). These sections should include a general definition of "fair value" for insolvency and bankruptcy cases, which would apply absent any alternative choice made by the parties. For the reasons evidenced in this sub-section, the proposed definition of "fair value" should not be the indubitable equivalent of the concept of "market value" and, consequently, of the definition provided by IFRS 13. If "fair value" were not different from "market value," it would represent the amount for which an asset, liability or business could be exchanged in an arm's length transaction between unrelated, willing parties who are reasonably well-informed.
However, prevailing market conditions may mean that nobody at that particular moment in time is willing to pay a fair, market price for the assets or business on sale. 132 As a result, the notion of fair value should also make reference to the notion of "disposal value" set out in Article 12(5) of the regulation on valuation before resolution. 133 The disposal value is the value that "the entity can reasonably expect in the currently prevailing market conditions through an orderly sale or transfer of assets or liabilities." Finally, it should also be clarified that a reasonable forecast of future events should be included in the fair value assessment to ensure substantive and not just procedural fairness.
The other issue related to fair value assessment is the courts' attitude to second-guess business judgments. The requirements set out in LBI EHF (no challenges to valuations which appear to be procedurally fair, even if a market-based approach would have yielded a different result) make it extremely difficult for the claimants to contest the decision of the IP with reference to the price of the debtor's assets and business. As a result, it is argued that courts should not discuss the fairness of the valuation solely in "extreme" circumstances. A preferred approach would be to argue that, if a claimant submits sufficient evidence to question the fairness of the valuation, the burden of proving that the price is "fair" should shift onto the IP who approved the transaction.

| The evidentiary threshold for "unfair harm"
Some of the most common failures of IPs relate to the ability to obtain valuations for intangible assets (such as goodwill) in pre-packaged sales to connected parties and/or to explain the basis for the value given to those assets. 134 Furthermore, when these mistakes happen, as was the case in Brewer and Goel, they are significant. These mistakes have the potential to affect a large number of stakeholders and they usually occur in pre-packaged sales to connected or otherwise interested parties. In theory, interested parties can challenge these mistakes if they can prove that they suffered "unfair harm" from the actions of an administrator. 135 This statutory duty on administrators to act in the interests of the creditors as a whole came into force in September 2003, as part of the new administration regime introduced by the EA 2002. A similar power is also recognized in liquidation procedures, where any person aggrieved 136 by an act of the liquidator can apply to the court. As a result of that application, the court may confirm, reverse or modify the act or decision complained of. 137 Creditors can challenge the use of administrators' powers 138 if they prove that a decision caused or would have caused disadvantage to the claimant; 139 and/or they have been subject to differential treatment from equally ranking claimants, including the decision to sell an asset at an undervalue. 140 Alternatively, they can prove that the decision cannot be justified by reference to the interests of creditors as a whole or in achieving the objective of the relevant insolvency process and/or is discriminatory in effect. 141 Once again, the overall picture seems to suggest a substantive, not simply procedural protection against unfair treatment, in line with the fairness-oriented framework suggested by this article.
Furthermore, recent cases suggest that the concept of "unfair harm" is not limited to differential treatment 142 and that such a petition can be brought against an administrator even if the company is no longer in administration. 143 Applying a principle from Citicorp, 144 the courts also held that, whenever a creditor petitions for the assignment of a potential claim that a company in administration might have against a third partywhich is a rather common request in administrations -, the administrators should in principle agree to that request unless they can demonstrate that the claim had no prospect of success. 145 The same principles apply in liquidation cases. 146 If the potential claim is assigned, this assignment can be challenged if there was no evidence that the liquidator had investigated matters to evaluate the strengths of any assigned claims of the company; there was no evidence of negotiations being carried out by the liquidator and the assignee in regard to the assignments; and there was no evidence that the liquidator had looked elsewhere for offers beyond that made by the assignee. 147 In other words, in Supperstone, 148 the High Court reversed the burden of proof between claimants and administrators. It is no longer for the claimant to prove that an action has merit, but it is for the administrators to prove that a cause of action is without merit if they do not want to assign it.
These circumstances seemingly facilitate the burden of proof for applications from creditors. In any case, it should be noted that a petition based on "unfair harm" is distinct from a case centred on breach of fiduciary or other duty, which should be brought under paragraph 75 of Schedule B1 of the IA 1986 and which could lead to compensation for personal losses. 149 This apparently pro-claimant, fairness-oriented approach is mitigated by the fact that unequal or differential treatment is not necessarily unfair if the administrator demonstrates that the inequality is in the best interests of the creditors. 150 If there is a cogent rational explanation for the differential treatment of a particular creditor, any harm caused will not be unfair. 151 The administrator, however, has to rely on sound commercial reasons relating to the interests of the creditors as a whole to justify choosing to implement unequal or differential treatment. 152 The real issue, however, is another. Establishing a breach of common law and equitable duty of care requires a high standard of proof, that is, the existence of negligent behaviour. 153 Courts restrict their intervention to cases in which the decisions of the office holders do not withstand logical analysis, which probably means the same as perversity, 154 to the extent that some commentators argue that office holders can never do wrong. 155 While the above-mentioned judicial approach on determining breaches of the duty of care may make for happy reading for office holders, 156 not all courts agree on the need to demonstrate perversity in applications under paragraph 74 of Schedule B1 of the IA 1986. For instance, in Hockin, the court held that: "to adopt a test of perversity in place of the statutory test of unfair harm would plainly be impermissible, and to adopt it in addition to the statutory test would lack any legislative warrant." 157 As a result, the court concluded that an administrator breached the duty not to unfairly harm the debtor's creditors if he declined to assign claims that, if successful, would have resulted in a benefit for the creditors and, if unsuccessful, would have caused no prejudice to the same creditors. 158 However, even after the Hockin test, courts do not interfere with the IPs' decisions unless they are based on a wrong appreciation of the law or are conspicuously unfair to a particular creditor or contractor. 159 The government itself did not want courts to interfere with the administrators' business judgment without evidence of irrationality. 160 It is argued that in the absence of any suggestion that the administrator was acting improperly, it is contrary to the nature and purpose of an administration for the courts to interfere with the detailed day-to-day management of the administration. 161 However, it is also submitted that courts probably give greater latitude to administrators than desirable by stating that they would interfere with their judgements only in case of total unreasonableness or perversity. In doing so, they are not investigating if there has been a substantive breach of the principle of fairness.
In liquidation cases, there is an equally strict attitude to challenging the IPs' decisions. Courts have consistently held that an exercise by a liquidator of powers conferred on him or her by statute could be called into question only when utterly unreasonable 162 and in exceptional circumstances. 163 Exceptional circumstances arise whenever decisions go beyond what any reasonable person properly instructed could have considered proper. This high standard of proof makes life extremely hard for aggrieved and probably unfairly treated claimants. Although in Edennote, the claimants were successful in challenging the decision of the liquidator, it seems that the threshold of establishing the existence of "unfair harm" or otherwise challenge any other unreasonable act is too high as gathering evidence of perverse behaviour is extremely difficult. 164 A solution to this dilemma would be to judge the acts of the IP by reference to what is commonly referred to as the Wednesbury test. 165 According to this test, an exercise of a statutory power or discretion may be called into question, not only if it can be shown that the exercise of the power is utterly unreasonable, but also if it was shown that the person exercising the power, though acting in good faith, took into account considerations which he or she ought not to have taken into account or failed to take into account considerations which he or she ought to have taken into account. 166 This approach would be entirely consistent with the fairness-oriented approach advocated by this article because it would give the interested parties a real, fair chance to challenge the IP's decision.
This course of action was suggested in the first instance decision of the Edennote case with reference to the judicial assessment of the powers of the liquidators. However, the Court of Appeal rejected this interpretation. On appeal, it was held that the fact that the lower court also referred to the Wednesbury test of reasonableness, which applies to administrative acts by public servants, may have been confusing but did not mean that the wrong test had been applied. 167 The Court of Appeal did not want to depart from the well-established tradition of the judicial assessment of the powers of liquidators. Considerations of predictability once again trumped any opposing argument for fairness-oriented approaches.
It is respectfully submitted that the reasoning of the Court of Appeal is not persuasive. In Edennote, it is clear that the lower court tried to apply the Wednesbury test to extend the circumstances in which liquidators can be found in breach of their statutory duties. The Wednesbury test would not significantly alter the officeholders' liability towards the creditors as a whole. Creditors would still be unable, for instance, to demand the revocation of an agreed sale if they are incapable of proving that the company could be rescued as a going concern and/or constituted a viable business. 168 It is, therefore, appropriate to introduce the Wednesbury test into the law, as the threshold for challenging IPs' decisions is too high (see Goel) and courts are unwilling to lower the burden of proof for the claimants (see Edennote in the Court of Appeal).

| Recent developments
The purpose of this section is to investigate if recent cases mark a significant step forward in granting enhanced protection to interested parties in case of unfair valuations of the debtor's assets and/or business. In case of an affirmative answer, the argument for regulatory-heavy solutions would emerge weaker.
Over the past few years, there has been a flurry of cases concerning criticisms by interested parties (creditors and shareholders) of the actions and omissions by IPs. The cases analysed below have been chosen because they deal with three of the most contentious issues described in the article: i the IP's duties and the notion of "unfair harm"; ii the notion of "fair value"; and iii the assessment of independent valuations.
While it is submitted that these cases are illustrative of recent trends in case law, one qualification is that claims in this area are always highly fact sensitive.
In the recent case of Goel, 169 the High Court refused to restrain the joint administrators from auctioning a proposed claim. This case reinforced the courts' reluctance to interfere with reasonable commercial decisions of officeholders, in the absence of unfair harm. The court also reinstated that, while claimants do not need to show negligent or perverse behaviour on the part of the office holder, the threshold for interference is a high one. Consequently, administrators are generally given a wide measure of latitude when exercising their duties and powers. In fact, according to the judgment, courts should only intervene in circumstances where the administrators are proposing a course of action, which is based on either the wrong appreciation of the law and/or is conspicuously unfair to a particular creditor or creditors of the company.
This approach to claims under paragraph 74 of Schedule B1 of the IA 1986 has later been confirmed in Lomas. 170 Lehman Brothers Australia ("LBA") claimed in the English administration of Lehman Brothers International (Europe) ("LBIE") for the net balance of sums due from LBIE to LBA as an unsecured net creditor of LBIE. The request was approved subject to a "Claims Determination Deed" ("CDD"), which precluded LBA's agreed claim from being revised upwards. After the discovery of a material mistake in the arithmetic calculation of the claim, LBA applied for a variation in the approved claim as a consequence of the application of the rule in ex parte James 171 or, alternatively, pursuant to the court's powers to prevent "unfair harm" by administrators. In rejecting the second claim, the court adopted a conservative approach. It held that paragraph 74 of Schedule B1 of the IA 1986 concerns the misuse or abuse of the powers vested in an administrator for the purposes of conducting the administration. The statutory provision provides for the intervention of the court by controlling or preventing the exercise of the powers so vested. It is not intended as a procedure or mechanism to impose overriding moral constraints on the exercise of legally enforceable contractual rights or to prevent the unjust enrichment of the estate. 172 In Brewer et al. (as joint liquidators of ARI Digital UK ltd) v Iqbal, 173 an administrator (Mr Iqbal) was charged with allegations that he acted negligently or in breach of his equitable duty of care 174 in a pre-packaged sale to a connected purchaser. In particular, the case concerned the sale of intangible assets, that is, three valuable Sky satellite television channels and their EPGs, and the goodwill of the debtor. 175 The case falls squarely within the established judicial approach to valuations, and to the determination of the existence of fair value and due consideration for the debtor's assets. Despite finding for the claimants, Briggs J followed a long line of precedents 176 in holding that reliance on apparently competent advice, such as a valuation provided by an independent and qualified expert, does not result in personal liability for the administrator should the advice turn out to be wrong. The only exception is if such decision is taken outside the scope of the administrator's powers or contrary to the law. 177 If, however, the administrator departs from proper market testing and does not rely on competent and timely independent advice (as in Brewer), the court is not bound to conclude that the sale price represents a truthful assessment of the value of the assets and/or the business. Still, this occurs only when the administrator's decision does not withstand logical analysis and notas suggested in this articlewhen the administrator fails to take reasonable steps to get the fair price for the assets.
Less controversially, the decision in Brewer also follows the established judicial approach on the assessment of conflicting expert evidence. This was also the key issue in the two decisions in AMT Coffee, 178 where Matthews J had to determine if excessive remuneration was paid to directors and the price of the petitioners' shares. Once again, in AMT Coffee the learned judge followed the established approach that, in case of similarly objective and independent valuations, courts should not average among them, but should distinguish them on the basis of their persuasiveness. Matthews J clearly explained the reasons why he took no account of that expert evidence. Nevertheless, the metaphor of the heap of grain used to justify the conclusion that directors' remuneration was excessive shows that courts still have to find proper, replicable and sound approaches to value assets in the absence of independent valuations.
These decisions, therefore, show that recent case law does not embrace the revised, socially just notion of fairness advocated in this article. Priority is given to ensuring consistency and predictability, while the protection against abuse is limited to fraudulent or exceptional cases.

| Abstract
"Fair value" is likely to remain a very contentious and highly litigated notion in the future in the absence of clear statutory guidance. As stated elsewhere: "anyone attempting to determine the 'fair' price also has to contend with the risk that any of her embedded assumptions could be wrong, as well as the fact that she could be wrong about the possible size of those errors." 179 It is argued, however, that some statutory guidance should enhance the fairness of the insolvency framework, and result in more balanced and equitable decisions in valuation issues. A critical assessment of English case law suggests that more should be done to ensure that assets and businesses are properly assessed and that unsecured creditors are not unfairly harmed.

| CONCLUSION
The purpose of this article was to investigate the degree of fairness (and consistency) in the valuation practices adopted by English courts by providing an original interpretation of values underpinning the modern English insolvency framework. The overarching research questions were to determine if English case law: i achieves a fair valuation of the debtor's assets and business; and ii protects interested parties (mainly creditors and shareholders) who have realistic prospects of receiving a distribution in foreseeable circumstances against unfair harm.
This article argued that a fairness-oriented approach should be made transparent and become an express part of English insolvency law and policy. Under the framework developed here, valuations of assets and businesses in formal insolvency procedures should be based on an enhanced, procedural and substantive notion of fairness.
The documentary analysis of this article shows that courts only implement a consistent but procedurally fair approach to valuations. Case law falls short of implementing substantially fair practices. This situation prompts calls for transparency and implementation into law of the substantially and not just the procedurally fair framework. If the specific fairness-oriented framework proposed in this article was applied in insolvency cases, a flexible yet prescriptive notion of "fair value" should be introduced into the IA 1986. This notion should apply absent any different choice by the parties and should be developed based on internationally accepted standards such as the IFRS 13 and the regulation on valuation before resolution.
Pursuant to the same framework, courts should challenge the valuations produced by IPs and independent experts not only when they do not withstand logical analysis but also when the interested claimants submit sufficient evidence to question the fairness of the value paid for the debtor's assets and business. If the notion of "fair value" is linked not only to the concept of "market value" but also to "disposal value," courts and IPs should be able to dismiss petitions that fail to consider the peculiar conditions of the market at the time of the sale.
With reference to "unfair harm" -a notion expressly mentioned only in administration cases but, in reality, relevant to liquidation procedures as well -this article showed that the problem does not lie primarily in the clarity and scope of the notion. English courts have adopted a flexible definition, capable of encompassing any differential treatment from equally ranking claimants, including the decision to sell an asset at an undervalue, provided that claimants can demonstrate that the decision cannot be justified by reference to the interests of creditors. It is submitted that this represents a reasonably adequate balance between the competing rights of the creditors to have their interests protected and the IPs' rights not to see any of their decisions pretentiously challenged in front of a court.
In the case of "unfair harm," substantially fair outcomes are not achieved mainly due to the high burden of proof required by the courts to reverse or modify the act or decision challenged by the interested party. The High Court in Edennote suggested that this threshold should be lowered by judging the IPs' decisions on the basis of the Wednesbury test. If that approach was followed, an exercise of statutory power or discretion may be called into question if it was shown that the person exercising the power, by acting in good faith, has taken into account considerations which he or she ought not to have taken into account or failed to take into account considerations which he ought to have taken into account. As a result, it is argued here that there is the need for codification of the Wednesbury test into the relevant sections of the IA 1986 dealing with the duties of administrators and liquidators.
This study (reported in two separate articles) has highlighted the importance of social justice in insolvency and bankruptcy cases, evidenced the inadequacy of existing theories to implement social justice tenets in this context, and proposed a specific, fairness-oriented framework to understand whether assets and businesses are fairly valued in insolvency and bankruptcy cases. It has subsequently discussed the extent to which existing valuation techniques and their practical implementation by the English courts promote a fairness-oriented approach to valuation of assets and businesses in insolvency. Finally, it has discussed the impact that a fairness-oriented framework which addresses substantive as well as procedural issues would have on judicial powers. The conclusions of this article can be applied to valuation of assets for both corporate insolvency and personal bankruptcy cases.
This second article has made a case for regulatory reforms to address the shortcomings demonstrated in this article rather than prescribing more detailed and prescriptive procedures to assess corporate assets in insolvency. The issue is not primarily the availability of valuation methodologies, but their proper and informed use by the judiciary.
Further research may be needed to examine the extent to which the fairness-oriented framework discussed in this article is suitable for transplantation more generally into English corporate insolvency and personal bankruptcy law. In fact, issues of balance between conflicting interests may feature more prominently in areas such as distribution of assets and creditors' voting rights. Further research may also be needed to investigate if there are significant and important value differences as to what is fair, as suggested by some authors, 180 and the extent to which the consent of those affected by a decision is relevant to its fairness. 181 The judicial approach to valuations of the assets and businesses of failing companies is not flawed in its entirety. It is in need of retuning, in order to better deal with fair measurement issues, especially in connected sales or where expert valuations are not fully persuasive, and to protect those interested parties who are affected by unfair transactions and who suffered unfair harm from the IPs. If regulatory changes are limited to the areas suggested in this article, it is expected that the distributive policies advocated in it would not decay into base rent seeking or in windfalls for those who have political sway. 9 This is a requirement for pre-packaged sales in administration, as set out in SIP16. SIP 16 defines "connected party" with reference to sections 249 and 435, Insolvency Act 1986 ("IA 1986"), and Articles 4 and 7, Insolvency (NI) Order 1986. Directors, shadow directors, associate persons of the debtor, close family members, companies in the same group and anybody with significant prior connection to the debtor fall within the definition of connected party. However, SIP 16 contains a carve out for secured lenders over one third or more of the shares in the insolvent company. 10 I am grateful to Nikhil Gokani for drawing my attention to a potential issue here. 11