Aib Group (UK) Plc v St. John Spencer Estates & Development Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Robert Ham |
| Judgment Date | 07 August 2012 |
| Neutral Citation | [2012] EWHC 2317 (Ch) |
| Docket Number | 5471 of 2012 |
| Court | Chancery Division |
| Date | 07 August 2012 |
[2012] EWHC 2317 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice,
7 Rolls Building,
Fetter Lane,
London EC4A 1NL
Mr Robert Ham, QC
(sitting as a deputy Judge)
5471 of 2012
In the Matter of St. John Spencer Estates & Development Limited
And in the Matter of the Insolvency Act 1986
Adam Al-Attar (instructed by Kennedys Law LLP) for the Applicant
Lexa Hilliard, QC (instructed by Harris Cartier LLP) for the Respondent
Hearing date: 30 July 2012
APPROVED JUDGMENT
I direct pursuant to CPR PD 39A para 6.1 that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
Mr Robert Ham, QC:
Introduction
1. This is an application for an administration order by AIB Group (UK) plc (“the Bank”) as holder of a floating charge created by a mortgage debenture (“the debenture”) dated 11 November 2005 granted by the Respondent, St. John Spencer Estates & Development Limited (“the Company”).
2. The Company opposes the application on a number of grounds:—
(1) Its primary case is that the Bank is not a current creditor of the Company, because:—
(a) the Bank's lending was compromised by what is described as a profit sharing agreement set out in a supplemental facility letter dated 13 July 2009;
(b) the Bank repudiated that agreement;
(c) the Company accepted the repudiation; and
(d) as a result the Company is discharged from any obligation to the Bank.
(2) Alternatively, the Company says that its indebtedness to the Bank was discharged by a corporate voluntary arrangement.
(3) In the further alternative, the Company says that it has very substantial cross-claims against the Bank, and that it should be permitted to litigate them.
(4) The Company is not insolvent.
(5) The proposed purpose of the administration is not capable of achievement.
The Company complains, moreover, that it has had relatively little notice of the application and has not been able to marshal its case fully in the time available.
3. The Company did not, however, take any point about failure to comply with any other statutory requirements and I am satisfied that the Bank has met them.
The court's jurisdiction
4. The application is made under para 35 of Schedule B1 to the Insolvency Act 1986:—
(1) This paragraph applies where an administration application in respect of a company—
(a) is made by the holder of a qualifying floating charge in respect of the company's property, and
(b) includes a statement that the application is made in reliance on this paragraph.
(2) The court may make an administration order—
(a) whether or not satisfied that the company is or is likely to become unable to pay its debts, but
(b) only if satisfied that the applicant could appoint an administrator under paragraph 14.
Para 14 provides as follows:—
(1) The holder of a qualifying floating charge in respect of a company's property may appoint an administrator of the company.
(2) For the purposes of sub-paragraph (1) a floating charge qualifies if created by an instrument which —
(a) states that this paragraph applies to the floating charge,
(b) purports to empower the holder of the floating charge to appoint an administrator of the company,
(c) purports to empower the holder of the floating charge to make an appointment which would be the appointment of an administrative receiver within the meaning given by section 29(2) …
(3) For the purposes of sub-paragraph (1) a person is the holder of a qualifying floating charge in respect of a company's property if he holds one or more debentures of the company secured —
(a) by a qualifying floating charge which relates to the whole or substantially the whole of the company's property,
(b) by a number of qualifying floating charges which together relate to the whole or substantially the whole of the company's property, or
(c) by charges and other forms of security which together relate to the whole or substantially the whole of the company's property and at least one of which is a qualifying floating charge
5. The Bank is the holder of a qualifying floating charge since the debenture satisfied the requirements of sub-paragraph (2) of para 14. Before making an order under para 35 the court must be satisfied that the Bank could appoint an administrator under para 14. If the court is satisfied of this para 35 provides that it “may” make the appointment, so that the court has a discretion whether or not to do so. However, under para 35(2)(a) it is not necessary for the Bank to show that the Company is insolvent.
The facts
6. The Company is a land acquisition and property development company, whose two directors are Alan Deville and Nigel Lewis. Most of the Bank's dealings with the Company were with Mr Deville.
7. The Company's relationship with the Bank began in 2005. It says that it was looking for a “risk funder” (who would take a profit share) in connection with its portfolio of properties. Mr Deville was initially sceptical of the Bank's ability to provide this sort of funding, but according to Mr Deville's evidence the head of the Bank's specialist property finance team, John McConvey, expressly reassured him on a number of occasions that such funding was available and would be made available to the Company. Mr Deville relies in particular on representations made at a meeting on 23 September 2005, after the Company had rejected an offer made earlier that month. He goes so far as to say that there was a representation by the Bank (by Mr McConvey) to commit the Bank to fund “circa £100m”. The Company contends that these reassurances amounted to misrepresentations, and that it has a claim for damages for negligent misrepresentation based on them. It does not allege fraud or deceit on the part of the Bank. Nor does it allege that there was any contractual promise by the Bank.
8. The Bank granted a facility to the Company in the sum of £9.25 million on the terms set out in a facility letter dated 28 October 2005. It was a term of that letter that the Company should provide security in the form of (amongst other things) a debenture over its assets.
9. The Company complied with that term by granting the debenture, which included a covenant not to create any security interest in the property charged to the Bank except with its written consent. The debenture was registered on 17 November 2005.
10. The Bank granted the Company additional facilities by supplementary facility letters dated 18 November 2005, 2 August 2006 and 28 October 2006. None of these facilities took the form of risk funding.
11. As set out in a further facility letter dated 28 November 2006, the Bank restructured the existing facilities and made available a further facility. The aggregate amount of the facilities was £15.91 million made up of an overdraft of £250,000 and eight loan accounts for particular properties. The overdraft was to be repayable on demand and the loans were for various fixed terms. The letter provided for specified sums to be payable to the Bank on the relevant repayment date or earlier disposal of the relevant property.
12. The Company's facilities were again restructured and varied by a facility letter dated 22 January 2007. It was a condition of this letter that the Company provide all the security provided for in the earlier facility letters, plus a further legal charge. The facility letter was subject to the Bank's General Conditions, para 10 of which provided that all payments of principal interest or commission would be paid to the Bank without set-off or counterclaim. Again there was nothing that could be described as risk funding.
13. The Company complains that the Bank's failure to make facilities available on a risk funding basis made it unable to expand its development programme and other operations as originally envisaged and as discussed with the Bank. In particular, the Company claims to have been unable to commit to the purchase of 300 residential plots, which it is said resulted in a loss to the Company of £15 million. In total the Company says that by April 2008 it had sustained losses of £23 million.
14. The Company says that, in an attempt to mitigate the situation, Mr Deville and his co-director, had no choice but to “gap-fund” the Company both personally and through a separate company, Samuel Beadie (Investments) Limited (“Beadie”) from about May 2007. It was (it says) agreed with the Bank that in so far as they funded a particular acquisition, they would be entitled to take security in respect of it.
15. In April 2008 Mr Deville made clear to the Bank in strong terms his dissatisfaction with the failure of the Bank to honour its alleged commitment to the Company. By late 2008 the position between the Company and the Bank was one “of dispute” and the Company had given the Bank notice that it had substantial claims against the Bank by reason of the misrepresentations made by the Bank to the Company.
16. Without prejudice negotiations with the Bank followed. Mr Deville prepared a draft letter, which was sent to John Reape, the manager then dealing with the matter on behalf of the Bank, on 20 November 2008 as an attachment to an email. Under the draft letter there would have been a full and final settlement of the Company's claims against the Bank, and the Bank would have compromised its historic debt in return for the Company's commitment to “work out” the properties left in the portfolio and return to the Bank a profit share on the basis of a 75:25 split between the Bank and the Company. The Company's case is that this was the basis of the agreement ultimately reached and embodied in the facility letter of July 2009.
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