Atlasview Ltd v Brightview Ltd
| Jurisdiction | England & Wales |
| Judge | Jonathan Crow |
| Judgment Date | 06 April 2004 |
| Neutral Citation | [2004] EWHC 1056 (Ch) |
| Docket Number | No. 6233/2003 |
| Court | Chancery Division |
| Date | 06 April 2004 |
[2004] EWHC 1056 (Ch)
Jonathan Crow (sitting As A Deputy Judge Of The High Court)
No. 6233/2003
HC03 CO3443
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
In The Matter Of Brightview Limited
And In The Matter Of The Companies Act 1986
And In The Matter Of The Insolvency Act 1986
Royal Courts Of Justice
Strand, London WC2A 2LL
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
DAVID OLIVER QC & MARCIA SHEKERDEMIAN (instructed by Teacher Stern Selby) for the 2nd, 3rd, 4th, 5th, 6th, 11th and 13th Respondents in the Petition, and the 1st – 5th Defendants in the Action
STEPHEN ATHERTON (instructed by Isadore Goldman) for the 8th – 10th Respondents in the Petition, and the 6th Defendant in the Action
MICHAEL BRIGGS QC & DAVID BLAYNEY (instructed by Bird & Bird) for the Petitioners in the Petition, and the Claimants in the Action
The 1st, 7th, 12th, 14th, 15th and 16th Respondents in the Petition did not appear and were not represented
Hearing dates: 26th & 27th February 2004
Pursuant to CPR PD 39A, paragraph 6.1, I direct that no official shorthand note shall be taken of this judgment, and that copies of this version handed down may be treated as authentic.
INTRODUCTION
The principal applications before the court are to strike out the Petition (which has been brought under s.459 of the Companies Act 1985 and s.27 of the Insolvency Act 1986) and the Action (which has been brought under CPR Part 7) pursuant to CPR rule 3.4(a) or (b). There are also applications to amend the Petition and the Particulars of Claim. The argument on the strike-out was advanced on the assumed basis that leave to amend had been given: it was not suggested that permission to amend should be refused on any ground other than that the claims, even as amended, were doomed. Applications for security for costs were also listed before me, but it was common ground that there is no point in hearing any argument on those applications until the outcome of the strike out application is known. Finally, there was an application by the Petitioners and the Claimants ("the Barton Parties") for permission to adduce a 4th witness statement from Philip Barton ("Mr Barton"), which in the end was not resisted. Permission to rely on that witness statement was given at the start of the hearing.
The grounds upon which the applications to strike out the Petition and the Action are based fall broadly under three headings. First, it is said that the Petition discloses no reasonable grounds for bringing a claim under s.459 of the Companies Act 1985. Secondly, it is said that the Particulars of Claim disclose no reasonable grounds for bringing the Action for breach of contract. Thirdly, it is said that both sets of proceedings amount to an abuse of the process. In order to understand these allegations, it is necessary first to give a brief outline of the facts. Given the multiplicity of parties, and the occasional change of company name, a list of dramatis personae and definitions is attached to this judgment in an Appendix.
THE FACTS
Brightview Limited ("Brightview") was incorporated on the 10th April 2001. The share capital was divided into three classes – A, B and C shares. None of the C shares was ever issued. The various allotments and transfers of shares in the company's short history do not affect the issues in this application, but for convenience they are set out in the Appendix to this judgment. Suffice it to say that Peter Shalson ("Mr Shalson") through Reedbest Properties Limited ("Reedbest") controlled the majority of the A shares, while Mr Barton's wife ("Mrs Barton"), through Atlasview Limited, formerly JGR Nominees Limited ("JGR"), controlled the majority of the B shares. For present purposes, it is important to note that neither Mr Barton nor his wife was registered as a shareholder, nor was Mr Barton the beneficial owner of any shares.
The idea behind the company was to acquire a number of internet service providers, consolidate them, and then sell off the combined business as a going concern when the right moment came. The principal individuals behind the company were Mr Shalson, who provided the bulk of the capital, and Mr Barton, who provided the idea, know-how and contacts. In the event, the plan failed, and the company went into administration on the 9th April 2003. The business was then sold by the administrators, the Seventh and Twelfth Respondents in the Petition ("the Administrators") to Freshbox Limited ("Freshbox"), which is owned by the A Shareholders in Brightview pro rata to their A Shareholdings. The Barton Parties and the other B Shareholders have therefore lost their financial stake in the business. That is the nub of the dispute.
The A and B Shareholders were each entitled to appoint two directors. In the event, the B Shareholders only appointed Philip Felman ("Mr Felman") as their director. The other directors were David Laurie ("Mr Laurie"), Giles Vardey ("Mr Vardey"), John Coleman ("Mr Coleman") and Jeremy Menell ("Mr Menell"). Their respective dates of appointment and (where appropriate) resignation are set out in the Appendix.
The terms on which the parties agreed to participate in Brightview were set out in an agreement dated the 20th April 2001 ("the Investment Agreement"). The original parties to the Investment Agreement were Mr Shalson, Mr Laurie, Plaza Rose Limited, Secure Browser Limited, Fenton Conway ("Mr Conway"), Paul Hesketh ("Mr Hesketh"), John Hyslop ("Mr Hyslop"), Mr and Mrs Barton, Mr Felman and Brightview. When shares were allotted to them, Richard Hatter ("Mr Hatter"), Star Alliance Limited (" Star Alliance"), Finparco NV ("Finparco"), IGS Com Limited, formerly Otterdale Company Limited ("IGS") and Reedbest also became parties to the Investment Agreement.
Under the terms of the Investment Agreement, Mr Shalson was obliged to enter into a Loan Agreement, under which he was to provide finance in the form of a secured loan of £9.5 million, which was to be repayable on the 20th April 2004. Prior to that date, Brightview could make early repayments, but could not be required to do so unless an Event of Default occurred. The full amount of £9.5 million was duly drawn down, and a Second Advance of £6.16 million was made on the same terms in November 2001.
The crucial term in the Investment Agreement for present purposes was clause 7.1.3:
"7.1 The Shareholders shall exercise all rights available to them in relation to [Brightview] so as to procure (so far as they are able) that neither [Brightview] nor any of its Subsidiaries without Shareholder Approval: …
7.1.3 borrows any monies other than pursuant to the Loan Agreement or on terms which are not more onerous than those of the Loan Agreement save for [certain immaterial exceptions]".
The term "Shareholder Approval" was defined in the Investment Agreement as meaning "the prior approval in writing of the Majority A Shareholder and the Majority B Shareholder", which (after August 2001) meant Reedbest and JGR respectively.
In March 2002, an opportunity arose for Brightview to purchase part of the business of XO Communications Inc ("XO"), an American company that had filed for Chapter XI bankruptcy ("the XO business"). Brightview did not have sufficient funds from its own resources to acquire the XO business, and had to borrow £5.24 million. In the event, the A Shareholders (principally Reedbest) lent it the necessary money on terms that it was repayable on demand ("the £5.24 million loan"). The circumstances leading up to this loan are in dispute. In particular, there is a dispute as to whether Mr Barton, Mr Conway and Mr Felman, and through them the B Shareholders, knew and agreed to the loan being made on terms that it was repayable on demand, and there appears also to be a dispute as to whether any oral consent Mr Barton or Mr Felman may have given would bind JGR, the Majority B Shareholder, in any event. What is clear is that (i) Mr Barton knew that a loan was made by Reedbest, (ii) in the event, the terms of the £5.24 million loan were "more onerous" than the terms of the Loan Agreement, and (iii) no Shareholder Approval under clause 7.1.3 of the Investment Agreement was provided by JGR.
Efforts were subsequently made by the A and B Shareholders to renegotiate the terms of the £5.24 million loan, but those efforts had failed by late May 2002. Thereafter, the pleadings allege that no or no adequate efforts were made to refinance the loan.
After the purchase of the XO business, efforts were also made to sell Brightview. The pleadings allege that a third party offer was received at £25 million, and that Mr Barton offered £34 million. The offers were rejected. The pleadings invite the inference that the business was therefore worth more.
Just over a year after the £5.24 million loan was made, Reedbest demanded repayment on the 27th March 2003. The stated reason for the demand was that Mr Shalson had been asked by Brightview's auditors to indicate whether Reedbest was prepared to continue to support the company. This, he said, prompted him to obtain a valuation of the company ("the Symmons Report") which in his opinion...
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