Anglo Petroleum v TFB (Mortgages)

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE PETER SMITH
Judgment Date24 February 2006
Neutral Citation[2006] EWHC 258 (Ch)
Date24 February 2006
Docket NumberCase No: HC04C00197/HC03C00073/HC04C00148

[2006] EWHC 258 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

Mr Justice Peter Smith

Case No: HC04C00197/HC03C00073/HC04C00148

Between:
Anglo Petroleum Ltd
Claimant
and
TFB (Mortgages) Ltd
Defendant
and
TFB (Mortgages) Ltd
Claimant
and
Paul Sutton
Defendant
and
TFB (Mortgages) Ltd
Claimant
and
(1)Anglo Petroleum Ltd
(2)Paul Sutton
Defendants

Michael Todd QC & Andrew George (instructed by Byrne & Partners) for TFB (Mortgages) Ltd

John Martin QC & Edward Davies (instructed by Stockler Brunton) for Anglo Petroleum and Paul Sutton

1

Hearing dates: 24, 25, 26, 27, 30 & 31 January 2006

2

Approved Judgment

3

I direct that pursuant to CPR PD 39A para 6.1 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 JUSTICE PETER SMITH
4

Peter Smith J :

5

INTRODUCTION

6

1 This judgment is in respect of the trial of the Preliminary Issue ordered by Master Moncaster on 15 th March 2005 namely :-

i. Whether either or both of the Credit Agreement and the Security Agreement are valid and enforceable or illegal and void as a result of the application of Section 151 of the Companies Act 1985 or at common law.

ii. Whether the Guarantee (in whole or in part) is valid and enforceable or unenforceable as a result of the said section in the Companies Act 1985 or at common law.

7

2 The other Preliminary Issues directed by the order have been disposed of by the parties.

8

3 To make the Preliminary Issue intelligible the Credit Agreement is an agreement dated 23 rd February 2001 where Anglo Petroleum Ltd ("APL") borrowed �15,000,000 from TFB (Mortgages) Ltd ("TFB") repayable on 22 nd August 2001.

9

4 On the same day APL entered into a Security Agreement ("the Security Agreement") under which it granted a floating charge over its assets and mortgaged 46 petrol stations to TFB as security for its indefinite liability under the Credit Agreement.

10

5 The Guarantee is a guarantee of the same date given by Paul Sutton under which he guaranteed APL's liabilities to TFB under the Credit Agreement and the Security Agreement subject to a maximum of �15,000,000 plus interest and costs in enforcing the Guarantee.

11

6 On 22 nd August 2001 the Credit Agreement was extended until 22 nd February 2002 on terms that APL paid an immediate pre payment of �750,000 and agreed to the arrangement fee being increased by �1,662,499.92 payable in monthly instalments of �277,083.32. On 9 th November 2001 TFB demanded payment by APL of a sum of �14,250,000 outstanding under the Credit Agreement. On the same day TFB also appointed administrative receivers over APL's assets.

12

7 On 7 th December 2001 TFB demanded payment by Paul Sutton of �14,250,000 under the Guarantee.

13

8 There have been realisations of approximately �10,000,000 but there are disputes over the realisations none of which is for consideration before me.

15

9 The Preliminary Issue addresses whether or not the Credit Agreement and Security Agreement are valid under Section 151 of the Companies Act 1985 and whether or not the Guarantee also fails on the basis that it too infringes those provisions.

16

10 The relevant provisions for the purpose of this Preliminary Issue are sections 151, 152 and 153 which are as follows:-

"151.�(1) Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place

(2) Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

(3) If a company acts in contravention of this section, it is liable to a fine, and every officer of it who is in default is liable to imprisonment or a fine, or both.

152.�(1) In this Chapter�

(a) "financial assistance" means�

(i) financial assistance given by way of gift,

(ii) financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifier's own neglect or default, or by way of release or waiver,

(iii) financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under, a loan or such other agreement, or

(iv) any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets;

(b) "distributable profits", in relation to the giving of any financial assistance�

(i) means those profits out of which the company could lawfully make a distribution equal in value to that assistance, and

(ii) includes, in a case where the financial assistance is or includes a non-cash asset, any profit which, if the company were to make a distribution of that asset, would under section 276 (distributions in kind) be available for that purpose,

and

(c) "distribution" has the meaning given by section 263(2).

(2) In subsection (1)(a)(iv), "net assets" means the aggregate of the company's assets, less the aggregate of its liabilities ("liabilities"to include any provision for liabilities or charges within paragraph 89 of Schedule 4).

(3) In this Chapter�

(a) a reference to a person incurring a liability includes his changing his financial position by making an agreement or arrangement (whether enforceable or unenforceable, and whether made on his own account or with any other person) or by any other means, and

(b) a reference to a company giving financial assistance for the purpose of reducing or discharging a liability incurred by a person for the purpose of the acquisition of shares includes its giving such assistance for the purpose of wholly or partly restoring his financial position to what it was before the acquisition took place.

153.�(1) Section 151(1) does not prohibit a company from giving financial assistance for the purpose of an acquisition of shares in it or its holding company if�

(a) the company's principal purpose in giving that assistance is not to give it for the purpose of any such acquisition, or the giving of the assistance for that purpose is but an incidental part of some larger purpose of the company, and

(b) the assistance is given in good faith in the interests of the company.

(2) Section 151(2) does not prohibit a company from giving financial assistance if�

(a) the company's principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or the reduction or discharge of any such liability is but an incidental part of some larger purpose of the company, and

(b) the assistance is given in good faith in the interests of the company.

(3) Section 151 does not prohibit�

(a) a distribution of a company's assets by way of dividend lawfully made or a distribution made in the course of the company's winding up,

(b) the allotment of bonus shares,

(c) a reduction of capital confirmed by order of the court under section 137,

(d) a redemption or purchase of shares made in accordance with Chapter VII of this Part,

(e) anything done in pursuance of an order of the court under section 425 (compromises and arrangements with creditors and members),

(f) anything done under an arrangement made in pursuance of section 582 (acceptance of shares by liquidator in winding up as consideration for sale of property), or

(g) anything done under an arrangement made between a company and its creditors which is binding on the creditors by virtue of section 601 (winding up imminent or in progress).

(4) Section 151 does not prohibit�

(a) where the lending of money is part of the ordinary business of the company, the lending of money by the company in the ordinary course of its business,

(b) the provision by a company in accordance with an employees' share scheme of money for the acquisition of fully paid shares in the company or its holding company,

(c) the making by a company of loans to persons (other than directors) employed in good faith by the company with a view to enabling those persons to acquire fully paid shares in the company or its holding company to be held by them by way of beneficial ownership.

(5) For the purposes of subsection (4)(bb) a company is in the same group as another company if it is a holding company or subsidiary of that company, or a subsidiary of a holding company of that company."

17

11 The ambit of these sections in relation to the facts in the Preliminary Issue involved extensive citation of authorities which I shall refer to further in this judgment.

18

BACKGROUND

19

12 There are three actions to which this Preliminary Issue relates. They arise out of the purchase by Kaluna Ltd ("Kaluna") of the whole of the issued share capital of APL (then known as Repsol Petroleum Ltd) from Repsol (UK) Ltd ("RUK") a company owned by Repso Petroleo a Spanish company.

20

13 Kaluna was a special purpose vehicle formed for the purpose of this acquisition. It is a company registered in the British Virgin Islands and its beneficial owner is a British Virgin Island discretionary trust where the main beneficiaries (according to Mr Riches a witness called by APL) are the 2 daughters of Paul Sutton. He is...

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