BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £5, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
England and Wales High Court (Chancery Division) Decisions |
||
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ve Vegas Investors IV LLC & Ors v Shinners & Ors [2018] EWHC 186 (Ch) (08 February 2018) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2018/186.html Cite as: [2018] EWHC 186 (Ch) |
[New search] [Printable RTF version] [Help]
BUSINESS AND PROPERTY COURTS
COM PANIES COURT
In The Matter Of VE INTERACTIVE LIMITED (In Administration)
And In The Matter of THE INSOLVENCY ACT 1986
<
Rolls Building, Fe tte r La ne , Londo n |
||
B e f o r e :
____________________
(1) VE VEGAS INVESTORS IV LLC (2) DOMAX INVESTMENTS LIMITED (3) PETER SIMPSON (4) WOODLANDS VENTURES LIMITED |
Applica nts |
|
- and - |
||
(1) HENRY SHINNERS (2) FINBARR O'CONNELL (3) COLIN HARDMAN (4) MARK FORD |
||
(VE INTERACTIVE LIMITED'S JOINT ADMINISTRATORS) |
Responde nts |
____________________
MS MARCIA SHEKERDEMIAN Q.C. and MR KAVAN GUNARATNA (instructed by EDWIN COE LLP) for the Respondents
Hearing dates: 16-19 and 22-23 January 2018
____________________
Crown Copyright ©
MR REGISTRAR JONES:
Introduction
"We … resign our positions as joint administrators … with effect from 30 January 2018 on the grounds set out in IR r.36(1)(c)(i) namely that the further discharge of the duties of the administrators is now prevented or made impractical by a conflict of interest (actual or potential) relating to the issues which are to be investigated with regard to the sale of the business and assets of the Company to Rowchester Limited and with regard to the conduct of immediate post management, the joint administrators recognising in light of the proceedings before the Court from 16 to 22 January 2018 that there may be a perception that the court or creditors would not have confidence in the continued discharge of their functions relating to those investigations".
Issues
(i) Whether the Court should grant an oral application made on behalf of the Respondents to abridge time for service of the notice of intention to resign upon the creditors' committee?
If so:
(ii) Whether the Court should no longer decide whether to remove the Respondents as administrators?
If appropriate instead:
(iii) Whether the Court should exercise its discretion to remove the Respondents as administrators pending their resignation on 31 January 2018?
(iv) If deciding to remove, whether a reasoned judgment should be delivered?
23 January 2018 Orders
Abridgement of Time
i) The evidence was complete when the application was made. The Applicants opposed and continued to pursue the relief of removal. Submissions had to be heard and a decision reached. Reasons would have had to be given to deal with the matters identified within paragraph 15 above, whatever the outcome.
This was not a case requiring further work to reach a decision on removal. Abridgement was sought at a stage when it was obvious to the Respondents and not disputed that an Order for removal (at least of Mr Shinners and Mr Hardman) would otherwise be made. In practice the submission of saving time and cost only concerned the additional work delivering this judgment. However, that could be and has been achieved without adversely affec ting the Court's resources or the interests of other court users. The overriding objective is not offended.
ii) The grounds justifying removal will be addressed below (from paragraph 17). It is sufficient here to record that I am satisfied those grounds lead to the conclusion that it is right that the decision to remove was made.
iii) It is trite that reasons must be given for the Orders made. I have considered the decisions relied upon by Ms Shekerdemian including Ainsbury v Millington [1987] 1 WLR 379, HL. This judgment is not a pronouncement on an abstract question of law.
iv) It is also necessary for consequential relief and future issues within the insolvency that findings and reasons exist. There is every possibility that such matters would raise further expensive litigation should I have failed to give reasons.
This applies to the fourth of the Orders identified in paragraph 8 above and to a future application for discharge from liability. It is a ground to be taken into account which stands on its own but it is also relevant in this case because the letter of intention to resign does not express the Court's findings. As will be explained below when dealing with the decision to remove, the letter refers to conclusions drawn from the litigation, whereas (as will be apparent) my judgment is that conclusions arising from conflict of interest should have been drawn from or about the date of appointment.
v) It is also important that all interested in the insolvency understand what has happened and why. The Application concerns all. As mentioned, the letter of resignation does not achieve that aim. A decision which abridged time and left the matter to rest upon resignation would not reflect the true position. Namely, that grounds for removal are established and that is the appropriate remedy. The decision to refuse abridgment and to remove the Respondents achieves transparency. It is a decision in the interests of creditors and shareholders. Transparency is also in the public interest to ensure confidence in the statutory, insolvency regime.
The Decision to Remove
(i) From 3 March 2017 pursuant to a settlement deed with the Company and the former controlling director, Mr Brown, the Treyew Consortium injected £3 million of capital and took practical control of the Company through a new management team. The consortium included Mr Barrowman and Mr Pearson, who became directors of the Company.
ii) As at and following 3 March the Company was in serious financial difficulty. The new directors and management team decided that £40 million of capital needed to be raised to place the Company in a strong financial position. They decided that a minimum of £20 million was required urgently to pay creditors and provide short term working capital.
iii) Between 3 March and 13 April the new directors and management team sought to raise the £20 million. They also sought to convert debt into equity. They negotiated with, amongst others, the Clerkenwell Consortium, a group of existing shareholders .
iv) On 4 April 2017 Mr Barrowman and Mr Pearson formed Rowchester Limited, which they subsequently used for the pre-pack purchase.
v) On 10 April S&W met the directors and management team to advise upon insolvency options. Pre-pack was the favoured conclusion. Their retainer to advise upon and achieve that outcome was delayed until 13 April whilst the Company tried to raise the £20 million. The Respondents acted for S&W throughout.
vi) From the date the directors decided to proceed with a pre-pack purchase, a conflict of interest plainly arose, as it will always arise when directors and/or the management team are seeking to purchase a company's business and/or assets.
vii) The sale was far from straightforward. The financial position of the Company in the absence of the £20 million investment meant urgency was required. S&W needed to be provided with the financial information potential purchasers would require. There were also issues over what would or could be sold, in particular (but not only) concerning Ve Interactive LLC. This US company provided some 30% of the Company's turnover and had been identified as a subsidiary in the Company's accounts. This was considered incorrect by the new directors and management. Purchasers would need to know if it was excluded from the sale and, if so consider the financial consequences.
viii) The first time a potential purchaser other than Rowchester Limited was identified to S&W by the Company was during the evening of Thursday 20 April 2017.
ix) For whatever reason, there was also delay in the Company's directors and management providing financial and other relevant and requested information to S&W. The information ultimately provided did not provide S&W with what they had requested. It was deficient for purchasers if judged by the normal requirements for a sale of a business and/or assets.
x) Rowchester Limited had a head start and significant information unavailable to the market including information later provided by S&W relevant to negotiating the purchase price. For example, on 20 April, S&W informed that company alone that "up front consideration in the region of £2m" would be needed for a sale.
xi) Any potential purchaser other than Rowchester Limited would have to make an offer before 26 April 2017 based upon the deficient information and without a memorandum of sale describing what was being sold and dealing with the Ve Interactive LLC issue. None of this appears to have been disclosed by S&W to the Court making the administration order.
i) Those facts occurred within a significantly short time-scale because of the Company's dire financial position, deficient books and records and issues of dispute (in particular with Ve Interactive LLC) which meant that the directors/management and/or S&W did the best they could in the circumstances and/or in any event achieved the only realistic sale, for good value at the best possible price.
ii) Those behind Rowchester Limited took advantage of their position as directors of the Company and used that position and resulting knowledge to achieve an advantage for themselves and intentionally or unintentionally in practice effectively exclude others from a realistically competitive pre-pack process. This enabled Rowchester Limited to agree a pre-pack purchase on terms at an undervalue.
i) Whether the pre-pack was entered into in circumstances of the directors acting in breach of duty having put their own interests first with the result that a pre- pack was pursued at the expense of other options and outcomes or the market value or (if different) the best price for the sale of the Company's business and assets was not achieved.
ii) Whether S&W whilst acting in accordance with their contractual retainer breached their duties of reasonable skill and care with the result that loss was caused to the Company as a result of or upon the sale of its business and assets (see generally Re Charnley Davies Ltd (No 2) [1990] BCLC 760).
"the further discharge of the duties of the administrators is now prevented or made impractical by a conflict of interest (actual or potential) relating to the issues which are to be investigated … the joint administrators recognising in light of the proceedings before the Court from 16 to 22 January 2018 that there may be a perception that the court or creditors would not have confidence in the continued discharge of their functions relating to those investigations". (my underlining)
Reasons
Other Relief
Order Accordingly