BHS Group Ltd ((in Administration)) (Petitioner) v Retail Acquisitions Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Registrar Briggs |
| Judgment Date | 05 May 2017 |
| Neutral Citation | [2017] EWHC 1057 (Ch) |
| Court | Chancery Division |
| Date | 05 May 2017 |
| Docket Number | Case No: 5520 OF 2016 |
[2017] EWHC 1057 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr. Registrar Briggs
Case No: 5520 OF 2016
Ruth den Beston (instructed by DLA Piper LLP) for the Petitioner
Matthew Parfitt (instructed by New Media Law) for the Respondent
Max Evans (instructed by Linklaters LLP) for the Supporting Creditor, Arcadia Group Limited
Hearing dates: 3 May 2017
Introduction
This is a petition for the winding up of Retail Acquisitions Ltd ("RAL") presented to the court on 7 September 2016. The petition was presented by BHS Group Limited (the "Company" or I shall refer to the individual company within the Group) acting by its administrators Philip Duffy and Benjamin Wiles of Duff and Phelps Ltd who were appointed by the directors of the Company on 25 April 2016. The petition as presented was based on an unsatisfied demand for the sum of £5,981,871.65 arising from a loan advanced by the Company in December 2015 (the "Loan"). The joint administrators claimed that RAL was unable to pay its debts as they fell due, pursuant to sections 122(1)(f) and 123 (1)(e) of the Insolvency Act 1986. The petition was amended by an order of the court dated 23 February 2017 to include a claim that RAL is balance sheet insolvent pursuant to section 123(2) of the Insolvency Act 1986.
Background in brief
Mr Duffy has provided two witness statements in support of the petition. He explains RAL was incorporated on 20 November 2014 as a special purpose vehicle to acquire the shares in the Company. It acquired the shares on 11 March 2015 for £1. The sole director of RAL is Dominic Chappell. He also controlled Swiss Rock Ltd which entered liquidation on 1 September 2016. The accounts of RAL dated 31 October 2015 disclose that Swiss Rock owed RAL £315,000 but due to the liquidation it will only be entitled to a dividend.
On incorporation RAL had no assets. It incurred liabilities to purchase and fund the Company. The liabilities came from two undisputed sources. The first was the Loan from the Company for £6,177,000. The second a loan from Arcadia Group Limited of £3.5m. The evidence of Mr Duffy is that shortly after the Company was acquired by RAL, there was a transfer of the money from the Company to RAL to enable it to pay various fees and other liabilities said to have been incurred by RAL in the acquisition of the Company, which included paying £2.8 million to its directors or commercial parties controlled by those directors. The transfer of money was recorded on an intercompany account between RAL and the Company which gave rise to a substantial debt due from RAL. Part of this debt became the Loan which is dated on its face December 2015, but all the parties agree it was executed on 3 March 2016. This was the day before BHS Limited (the main trading company within the BHS Group) sent out proposals to its creditors for a company voluntary arrangement. In his witness statement, Dominic Chappell qualifies the contention that RAL had no other sources of income and identifies the existence of the Management Services Agreement ("MSA"). However, the MSA did not come into existence until after the acquisition of the Company. I will turn to the detail of the MSA below.
Mr Parfitt for RAL submits that although the £100,000 instalment became due under the Loan on 31 August 2016 it has been paid by way of a set-off of liabilities due under the MSA. Ms den Beston, for the joint administrators, argues that the Loan prohibits set-off and there has been no variation of the Loan agreement. Mr Parfitt submits, that no winding up order should be made as there is a bona fide dispute on substantial grounds as to whether the set-off can be applied. Mr Parfitt further submits that when undertaking the exercise of valuing the assets of RAL at their present value and determining whether the amount of its liabilities (including contingent and prospective liabilities) is greater, the court should find that the balance sheet is positive and no winding up order should be made. Ms den Beston argues that such an analysis will result in a finding that RAL is insolvent on a balance sheet basis.
Two agreements
The MSA is expressed to be between "Those Companies listed in Schedule 2….(the "Target Group"). The schedule lists BHS Group Limited; BHS Limited; Davenbush Limited; BHS Properties Limited; Lowland Homes Limited; BHS Services Limited; Carmen Properties Limited and BHS (Jersey) Limited. BHS Limited and BHS (Jersey) Limited are now in liquidation, the rest (save for Carmen Properties Limited) are in administration. The recitals state that RAL acquired direct and indirect control of the Target Group on 11 March 2015, and following that acquisition agreed to provide certain management services to the Target Group. RAL "has continued to provide such services and the parties have agreed to amend and restate this Agreement having taken third-party advice and reached agreement in relation to the agreed fees (which was the subject of an agreement in or about July 2015) ….".
Clause 2 of the Agreement sets out the provision of services, clause 3 additional services, including the provision of fundraising services, and clause 4 the fees. The fees provision provides that in consideration for the services or for additional services RAL shall prepare and deliver an invoice to the relevant Target Group member who was the recipient of such services for the Agreed Fees or, where relevant, the additional services. It continues (where relevant):
"Where such services were provided for the benefit of multiple Target Group members, the cost of the relevant services and thus the quantum of each relevant invoice shall be allocated fairly amongst the members, such allocation to be determined by [RAL] and the Target Group members, at all times acting in good faith. The Agreed Fees shall be calculated in accordance with the terms of schedule 3 and shall be payable on each quarter day quarterly in advance on each court today …….. Upon receipt of the relevant invoice….. Each recipient Target Group member shall be responsible for paying its relevant invoice. Should a different Target Group member pay an invoice or invoices on behalf of another recipient Target Group member, a relevant intercompany balance shall arise between such members."
Clause 5 concerns payments and clause 6 deals with termination. It provides:
"This Agreement shall commence on the date of this Agreement and shall continue until terminated pursuant to clauses 6. 2 or 6.3"
Clauses 6.2 permits the parties to terminate the agreement on six months notice and 6.3:
"The Company (on behalf of itself or any other member of the Target Group) or [RAL], as the case may be, shall be entitled to immediately terminate this Agreement on written notice and require payment of any amounts due under this Agreement….. in the event that the relevant Target Group member or [RAL] as the case may be…… becomes insolvent or unable to pay its debts (as defined in section 123 of the Insolvency Act 1986), proposes a voluntary arrangement, has a receiver, administrator or manager appointed over the whole or any part of its business or assets, suffers the presentation of any petition………..
Clause 7 concerns confidentiality, clause 8 liability for breach of contract, tort or statutory duty, and there is an entire agreement, governing law and force majeure clause. Clause 14 provides:
"No modification, variation or amendment to this Agreement shall be effective unless such modification, variation or amendment is in writing and has been signed by or on behalf of both Parties."
The Loan instrument (which is in the form of a letter but signed by all the relevant parties) states:
"By this letter, the company acknowledges receipt of a loan from the lender which remains outstanding as at the date of this letter, the terms and conditions of which are set out below…"
The Loan sum is stated as being repayable in full on 31 December 2020. In the period between the date of the letter and 31 December 2020 £2 million was payable in 20 equal instalments on quarter days. By clause 2 of the loan instrument the whole sum became due if there was a failure to pay any sum, clause 4 provided for a default interest rate. By clause 7:
"[RAL] will make all payments under this agreement free and clear of any withholding or deduction, save as may be required by law. If [RAL] is required to make any such withholding or deduction, [RAL] shall pay such additional amounts so that [the Company] receives and retains a new amount equal to the full amount had no such withholding or deduction been made."
The loan instrument expresses the Loan to be unsecured, clause 10 restricts assignments and clause 14 provides that there should be no modification or variation unless it is in writing and signed by and on behalf of the parties, and:
"Unless expressly so agreed, no modification or variation of this agreement shall constitute or be construed as a general waiver of any provisions of this agreement, nor shall it affect any rights, obligations or liabilities under this agreement which have already accrued up to date of such modification or waiver, and the rights and obligations of the parties under this agreement shall remain in full force and effect, except and only to the extent that they are so modified or varied."
The instrument (letter) includes clauses concerning remedies, waiver, applicable law, and a jurisdiction clause.
As foreshadowed, the Company petitioned to wind up RAL on the basis that it did not meet the quarterly repayment on 31 August 2016 of £100,000 due under the Loan. According to figures produced by Mr...
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