Anthony King v Kings Solutions Group Ltd
| Jurisdiction | England & Wales |
| Judge | Tom Leech |
| Judgment Date | 29 October 2020 |
| Neutral Citation | [2020] EWHC 2861 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2018-002335 |
| Date | 29 October 2020 |
[2020] EWHC 2861 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (CH D)
Royal Courts of Justice
Strand, London, WC2A 2LL
Tom Leech QC (sitting as a Judge of the Chancery Division)
Case No: CR-2018-002335
Ms Catherine Addy QC and Mr Joseph Sullivan (instructed by Macfarlanes LLP) for the Respondents
Mr Christopher Newman (instructed by Claremont Litigation Limited) for the Petitioners
Hearing dates: 7 and 8 October 2020
Approved Judgment
I direct that pursuant to CPR PD39A 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.
Tom Leech QC:
I. Introduction
By Application Notice dated 20 December 2019 the Second to Fifth Respondents apply to strike out parts of the Points of Claim served in proceedings under section 994 of the Companies Act 2006 (“ section 994”). By a petition presented on 19 March 2018 (the “ Petition”) Mr Anthony King and his parents, Mr James King and Mrs Susan King, claim relief in relation to the affairs of the First Respondent, Kings Solutions Group Ltd (the “ Company”), which is not an active party and played no part in this application. The Sixth Respondent, Kings Security Systems Ltd (“ KSSL”), is the operating subsidiary of the Company.
In this judgment, I will refer to the three petitioners together as the “ Petitioners” and to them individually as “ Anthony”, “ James” and “ Susan”. I do so for ease of reference and without intending any disrespect to them. I will also refer to the Second to Fifth Respondents as the “ Applicants”. In their Skeleton Argument and throughout the hearing Ms Catherine Addy QC, who appeared with Mr Joseph Sullivan on behalf of the Applicants, referred to them as the “ Active Respondents” in contrast to KSSL, which she submitted should not be treated as an active party. Mr Christopher Newman, who appeared on behalf of the Petitioners, did not accept this characterisation. In the event, it was unnecessary for me to decide whether KSSL is – or should be treated as – an active party. But I prefer to employ the neutral expression the “ Applicants” to refer to the Second to Fifth Respondents.
The Petition is one of a number of sets of proceedings involving the parties (or a number of them) and it is necessary for me to explain those proceedings briefly as part of the background to the present application. The other proceedings have been issued either under CPR Part 7 or CPR Part 8 and for ease of reference I will use the umbrella term the “ Claims” to refer to them collectively. In the following sections of this judgment I deal with the following topics in the following order:
Section II: Background: [5] to [17]
Section III: The Claims: [18] to [47].
Section IV: The Petition (the allegations): [48] to [72].
Section V: The Petition (procedural chronology): [73] to [79].
Section VI: Legal Principles: [80] to [113]
Section VII: Decision: [114] to [138].
Section VIII: KSSL: [139].
Section IX: Disposal: [140].
In the Appendix I set out the extracts from the Points of Claim served by the Petitioners which the Respondents have challenged on this application (rather than set them out in the body of this judgment below). I briefly summarise those extracts in section IV (below). Those summaries are no more than that and in deciding this application I have had full regard to the detailed wording of the relevant extracts themselves.
II. Background
The Petitioners
The Company is a holding company for a group of operating companies which provide security and fire services to domestic and commercial customers. Before 20 December 2013 the Petitioners and a family trust called the JPK No 1 Discretionary Settlement (Trust) (the “ Trust”) owned the entire issued share capital of the Company. Anthony and the Trust still own ordinary shares whilst James and Susan now hold six non-voting B shares.
The Applicants
The Second Respondent, Primekings Holding Ltd (“ Primekings”), holds all the other issued ordinary shares in the Company. The Third Respondent, Mr Robin Fisher, and the Fourth Respondent, Mr Barry Stiefel, are directors of the Company, KSSL and Primekings. The Fifth Respondent, Mr Geoffrey Zeidler, is the Chairman of the board of directors of both the Company and KSSL. The Petition and the Claims all arise out of the investment by Primekings in the Company which was completed on 20 December 2013.
The Transaction
By a share purchase agreement dated 20 December 2013 (the “ SPA”) and made between James and Susan (1) and Primekings (2), Primekings agreed to purchase the 402 ordinary shares in the Company for £2,000,000. £750,000 of the purchase price was payable immediately. The balance of £1,250,000 was to be paid whenever and as soon as Primekings acting reasonably and in good faith determined that the Company could lend or distribute sufficient funds to pay this sum but with the intention of paying it entirely by the third anniversary of completion.
By a second agreement also dated 20 December 2013 (the “ Subscription Agreement”) and made between Primekings (1), Anthony and the Trust (2) and the Company (3) Primekings agreed to subscribe for a further 1,507 ordinary shares at a total subscription price of £1,000,000. Clause 10 of the Subscription Agreement contained both put and call options. In clause 10.1 the Trust granted an option to Primekings to acquire its 402 shares in the Company. In clause 10.3 Primekings also granted Anthony an option to require it to acquire up to 50% of his shares on or after the third anniversary of the date of completion.
Schedule 5 to the Subscription Agreement set out the terms on which Anthony could require Primekings to acquire his shares (defined as the “ AK Option Shares”). Paragraph 2.2 provided that the consideration was to be their fair value calculated in accordance with paragraph 4. Paragraph 3.3 provided that on completion Anthony was required to deliver stock transfer forms, share certificates and a waiver of any applicable pre-emption rights duly signed by (or on behalf of) all members of the Company. Paragraph 4.1 provided as follows:
“The ‘fair value’ of the AK Option Shares shall be (as agreed between AK and the Investor [Primekings] or, in the absence of such agreement, as calculated by an independent accountant appointed by the board under paragraph 5) of the AK Option Shares shall be valued on the following assumptions…..”
For present purposes, it is unnecessary for me to set out the assumptions on which the independent accountant was to value the AK Option Shares and it is enough to note that he or she was to be appointed by the Company's board of directors. Paragraph 5 provided for the appointment of the independent accountant who was to act as an expert and not an arbitrator. Paragraph 5.3 provided that the fees of the appointed accountant should be borne equally by the parties.
On completion James and Susan were allotted six B shares which carried no voting rights. Article 31 of the Company's Articles of Association provided that those shares were to be redeemable over a period of three years at £500,000 per share if the EBITDA of the Company was equal to or greater than £3,000,000 or in accordance with a detailed formula if the EBITDA of the Company was less than that figure. The Company's obligation to redeem the shares was, however, dependent upon the Company having sufficient distributable profits to do so (or other monies which could lawfully applied for their redemption): see Article 31.10.
The effect of the Subscription Agreement was that Primekings became the owner of c. 76% of the share capital of the Company and Anthony and the Trust retained approximately c. 24%. In November 2014 Primekings voluntarily agreed to reduce its shareholding from c. 76% to c. 60% and also agreed to reduce the number of the Trust's shares subject to the call option from 402 to 242 ordinary shares. The Company did not have sufficient funds to pay the additional £1,250,000 to James and Susan. But Primekings voluntarily paid this sum to them making the final instalment on 31 March 2015. I was taken to an email dated 24 October 2014 in which Anthony expressed real gratitude to Mr Fisher and Mr Stiefel.
The Applicants described the investment in the Company as a rescue package and the agreements signed and completed on 20 December 2013 as the “ Rescue Package Agreements”. Again, it is unnecessary for me to decide the extent to which Primekings' investment had this effect and I will use the neutral term the “ Transaction” to describe the whole package or suite of documents which were completed on that day.
The Shares
After the Transaction had been completed and the voluntary reduction by Primekings of its shareholding in the Company the parties held the following shares in the Company:
i) Anthony held 201 ordinary shares;
ii) The Trust held 402 ordinary shares;
iii) Primekings held 904 ordinary shares; and
iv) James and Susan held six B shares.
Ki Finance SARL (“ KI Finance”) which had provided additional finance to strengthen the Company's capital base also held 200m preferred shares of 1p each. It was the Applicants' evidence that further finance was necessary and that the Company is currently indebted to Primekings...
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