Jersey Unreported Judgments

[2011]JRC155

Royal Court

(Samedi)

4 August 2011

Before     :

M. C. St. J. Birt, Esq., Bailiff, and Jurats Marett-Crosby and Olsen.

 

REPRESENTATION OF ANDREW HUNTER AND JAMES BOYD RE CHARLES LE QUESNE (1956) LIMITED

Advocate M. Goulborn for the Representors.

Advocate N. Santos-Costa for the remaining directors of Charles Le Quesne (1956) Limited, Mr Roger Simmons and Mr Paul Barter.

H. Sharp, Q.C., Solicitor General for the States of Jersey.

judgment

the bailiff:

1.        This is an application by two of the directors of Charles Le Quesne (1956) Limited ("the Company") for an order that the Company be wound up under Article 155 of the Companies (Jersey) Law 1991 ("the Law") on the ground that it is just and equitable to do so.  The Court announced its decision at the conclusion of the hearing on 27th July and now gives its reasons.

Background

2.        The factual background can be shortly stated.  The Company is a long established building contractor incorporated in Jersey.  It is part of a group of companies which has been referred to as the CLQ Group of companies.  The group includes Charles Le Quesne (Guernsey) Limited and two other Jersey companies.  Until recently, the majority owners of the CLQ Group of companies were Mr Simmons and Mr Barter. 

3.        During the latter part of 2010 and early part of 2011 discussions took place between Mr Hunter and the previous owners concerning the possible acquisition of the group.  In due course a share purchase agreement was entered into on 7th April 2011 for the purchase of CLQ Group Limited, which was the holding company for all the other companies in the group.  The purchaser was Havard C&D Limited ("Havard").  Since the acquisition the directors of the Company and the other companies in the group have been Mr Hunter and Mr Boyd representing Havard and Mr Simmons and Mr Barter as the previous vendors. 

4.        Prior to the purchase there were discussions concerning the cash flow position of the Company and various warranties were given by the vendors.  A dispute has now arisen as to whether those warranties were correct but we need say no more about that at this stage.  It is solely because of the existence of that dispute that Mr Simmons and Mr Barter have not joined in this representation. They consider that certain statements in Mr Hunter's affidavit concerning the negotiations and the warranties are not accurate.  However, all four directors are united as to the current financial position of the Company and the need for this application. 

5.        The Company is at present engaged as main contractor in two substantial contracts with the States of Jersey.  The first relates to the construction of certain facilities at Grainville School and is due for completion in January 2012.  The second is for the overhaul and refurbishment of Clos Gosset Estate.  This contract began in June 2011 and is due to last 66 weeks.  The Company has no other current contracts although there are a few contracts which have recently been completed and where ongoing warranty work etc may arise. 

6.        The Company is almost at the limit of its overdraft and substantial further sums will be due in the immediate future in order to continue to perform under the contracts. In the absence of a cash injection, the Company is unable to meet its debts as they fall due and is accordingly insolvent.  The directors are therefore unable to allow the Company to continue to trade without some remedial action being taken.  The creditors of the Company presently total some £1.2 million excluding staff costs whereas the assets are comparatively small.  Accordingly, if the Company were to be declared en désastre or enter into a creditors' winding up, the Company would cease business, the two States contracts would come to a premature end and creditors would receive comparatively little.  The purpose of the present application is to allow the Company to complete the two States contracts as part of its winding up.

7.        The evidence before the Court suggests that the Company should make a profit of some £14,260 on the Grainville School contract.  In relation to the Clos Gosset contract it is estimated that the Company should generate a profit of some £118,928 in the course of 2011 and £245,120 in 2012.  Retentions should produce a further surplus of some £28,951 in 2013 i.e. £392,999 in total.  Thus, if all goes well, completion of the two contracts would result in a profit of some £407,619.  The Company cannot of course be assured that this exact sum will be made, given the uncertainties of building contracts, but there is a reasonable prospect of a profit of sufficient significance to materially improve the position of creditors.  We were assured by Mr Adrian Rabet of Moore Stephens, one of the proposed liquidators, that these figures allow for all the employment and management costs of the Company despite an implication to the contrary in the affidavit of Mr Hunter.

8.        What is proposed therefore is that the Company should be wound up on the grounds that it is just and equitable to do so and that the Court should authorise the liquidators to complete the two contracts (paying the expenses of completion as they go along as part of the expenses of the winding up) in the expectation that there will as a result be an additional sum, which would not otherwise be available, to contribute towards the existing creditors of the Company.

9.        The evidence of Mr Hunter is supported by the proposed liquidators, who are both directors of Moore Stephens.  They have examined the cash flow statements prepared by the directors in respect of the completion of the two contracts and they agree that these seem reasonable and that, if they are met, the existing creditors will receive more than would currently be the case.

10.      In order to complete the contracts, it will be necessary for there to be an injection of cash and Havard has agreed to provide the Company with an immediate unsecured loan of up to £100,000, which Mr Rabet feels is a comfortable margin over the actual cash flow requirements.  Havard will also be responsible for the liquidators' costs and expenses, so that these will not come out of the amount available for creditors.

11.      Decision

12.      The Court would repeat what it said in Re Poundworld (Jersey) Limited [2009] JLR N13, [2009] JRC 042 to the effect that the Law provides a specific procedure for the winding up of an insolvent company and this is by way of a creditors' winding up.  This gives the creditors a voice in choosing the liquidator and in supervising the conduct of the liquidation through a liquidation committee appointed under Article 162.  This is clearly appropriate because, in the case of an insolvent company, the creditors are the persons with the financial interest in the outcome of the liquidation rather than the shareholders.  The Court should therefore be cautious before ordering a winding up under Article 155 in the ordinary case of an insolvent company.  The Law provides for the appropriate procedure by way of a creditors' winding up and this is the one which should normally be followed.  However, as stated in a number of cases, the Court's jurisdiction to order a winding up under Article 155 is a wide one and the Court may be persuaded to proceed under Article 155 in the case of an insolvent company where it is satisfied that there is particular advantage in doing so.

13.      We are satisfied that that is the case here.  If the Court refuses to proceed by way of a just and equitable winding up, the Company will either be placed en désastre or there will be a creditors' winding up.  In either case the Company would not be able to continue to carry on business so as to complete the two contracts.  This would mean that the creditors would be worse off by the anticipated sum of over £400,000.  The Court notes in this respect the undertaking of Havard to contribute up to £100,000 by way of loan and to be responsible for the costs and disbursements of the liquidators, which will ensure that the assets available for creditors are not reduced by the cost of liquidation. 

14.      We accept of course that there can be no guarantee of this more favourable outcome for creditors.  In particular, the Solicitor General emphasised that the States had not been apprised of the position prior to this emergency hearing and there were provisions in the various contracts which would enable the States to terminate the contracts on the grounds of the liquidation of the Company.  As against that, it may well be thought to be in the interests of the States to allow continuity rather than having to enter into negotiations for a new contractor to take over the work halfway through the contract.  Should the States terminate the contracts, the liquidators would of course be able to revert to the Court for further directions.

15.      As in the Poundworld case, we are conscious that we are making this order in the absence of the main body of creditors.  Accordingly, we direct that notice of the order be given forthwith to all the creditors and that any creditor shall have liberty to apply to the Court with a view to seeking to set aside the Court's order, so that the process would revert to that necessary for a creditors' winding up or an application for a désastre. We would also record that the Viscount was given notice of the application but he did not seek to argue that a désastre was the appropriate route to follow in this case. 

16.      It was for these reasons that the Court ordered a winding up under Article 155 of the Law and conferred certain powers upon the liquidators, including in particular the power to perform the two contracts.

Authorities

Companies (Jersey) Law 1991.

Re Poundworld (Jersey) Limited [2009] JLR N13.

Re Poundworld (Jersey) Limited [2009] JRC 042.