Bilkus v King and Another

JurisdictionEngland & Wales
Judge(Mr Justice Lawrence Collins,Mr Justice Lawrence Collins
Judgment Date29 October 2003
Neutral Citation[2003] EWHC 2516 (Ch)
CourtChancery Division
Docket Number720 of 2002
Date29 October 2003

[2003] EWHC 2516 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Before:

(Mr Justice Lawrence Collins

720 of 2002

In the Matter of

Clearsprings (Management) Ltd

Between:
Michael Bilkus
Petitioner
and
(1) Graham Ian King
(2) Clearsprings (Management) Limited
Respondents

Mr George Bompas QC and Mr Paul Greenwood (instructed by Stockler Brunton) for the Petitioner

Mr Robin Potts QC and Mr Andreas Gledhill (instructed by Isadore Goldman) for the Respondents

October 28, 2003

I direct that pursuant to CPR 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 Lawrence Collins

)

Mr Justice Lawrence Collins

Mr Justice Lawrence Collins:

I Introduction

1

This judgment is given following the hearing of a petition pursuant to section 459 of the Companies Act 1985 ("the 1985 Act") presented on January 30, 2002.

2

Clearsprings (Management) Limited (the "Company") was incorporated on September 30, 1999. Its principal business is the provision of services to asylum seekers under a contract with the Home Office (the "NASS Contract") dated March 16, 2000, which is due to expire in April 2005. The NASS Contract is with the Immigration and Nationality Directorate, and is for the provision by the Company of accommodation and related services for asylum seekers. The turnover of the company in the period to January 2003 was almost £32.5 million, which was almost entirely attributable to the NASS Contract. Its direct costs were more than £23 million and its administrative expenses were somewhat in excess of £6 million, with a pre-tax profit of about £3 million. It had cash at bank of about £5.8 million. By August 2003 its monthly turnover was in the region of £3.8 million.

II Background

3

Prior to the incorporation of the Company, Mr King and Mr Bilkus reached an oral agreement as to its future ownership and control. In August 2000, Mr King excluded Mr Bilkus from further participation in the management of the Company. He subsequently also declined to issue to Mr Bilkus a one half shareholding in the equity of the Company. He now accepts that in doing both these things, he acted wrongfully and in breach of the pre-incorporation oral agreement.

4

On May 9, 2001, Mr Bilkus issued proceedings for specific performance, seeking to have his half shareholding issued to him and to secure the appointment of either himself or his nominee to the Company's board as sole co-director with Mr King. In doing so, he made it clear that those proceedings were merely preparatory to a petition he intended issuing (if successful) under section 459 of the Act. The specific performance proceedings were determined in Mr Bilkus' favour by Judge Weeks Q.C. (sitting as a deputy High Court judge) on November 2, 2001. Under Judge Weeks' order of November 8, 2001: (1) Mr Bilkus was issued with a share in the Company (the only other issued share being been held by Mr King); and (2) Mr Bilkus' nominee, Stuart Marsh, was appointed to the Company's board.

III Section 459 petition

5

On January 30, 2002 Mr Bilkus presented a section 459 petition. The relief sought was that Mr King be ordered to sell to Mr Bilkus the share registered in his name, alternatively that Mr King be ordered to purchase it, in either case at a price to be fixed by a valuer (to be agreed, or in default of agreement to be appointed by the President of the Institute of Chartered Accountants), and that the valuer be directed to value the shares by reference to the assets, profitability and future prospects of the Company (at such date as the court thought fair and reasonable) and as to 50% of the share capital, without discount for the fact that it represents a minority holding in a private company. The date of valuation was to be such date as the court thought fair and reasonable.

6

On March 1, 2002, Mr King's solicitors, Isadore Goldman, wrote to Mr Bilkus' solicitors, Stockler Brunton, making an O'Neill v. Phillips [1999] 1 WLR 1092 (H.L) offer, expressed to remain open for acceptance for 21 days. The letter conceded unfair prejudice in relation only to Mr Bilkus' exclusion in August 2000, and offered to purchase Mr Bilkus' shareholding without discount at a price to be determined by an independent valuer. It also offered to pay Mr Bilkus' costs of the petition, to be assessed if not agreed, down to and including the date of the letter.

7

In the light of Mr King's O'Neill v. Phillips offer, at the first hearing of the petition on March 4, 2002, Mr Registrar Simmonds directed Mr Bilkus to serve points of claim limited to setting out his case on the following issues: (1) why he should be entitled to buy out Mr King rather than vice versa (the "Control Issue"), and (2) such factual issues as he contended needed determination by the court before remission to a valuer for valuation.

8

On March 25, 2002 Mr Bilkus served points of claim pursuant to the order of Mr Registrar Simmonds. The points of claim mirrored the petition as regards the relief in relation to sale by Mr King, or purchase by Mr King, on the assumption that the profitability and future prospects of the Company were not to be diminished by the exclusion of Mr Bilkus and the subsequent indifference, incompetence and mismanagement of Mr King (in the case of valuation as at August 24, 2001) or (in the case of valuation as at the date of the order) on the assumption that the Company had not, since Mr Bilkus' exclusion, been mismanaged, but had instead been operated competently and with a view to the full exploitation of its commercial potential.

9

It was also pleaded that in the event that the court made an order for valuation as at the date of the order it should direct that Mr Bilkus' share be valued after taking account of the matters in paragraph 11 (the "Challenged Payments"), which were as follows:

(1) In respect of the period from March 16 to November 2, 2001 Mr King was paid by the Company by way of remuneration £110,115.30 whereas Mr Bilkus had received nothing, and to the extent of that excess the valuation ought to ignore the fact of the payment.

(2) On November 2, 2001, the day on which Judge Weeks QC gave judgment, the Company paid to NVF Limited the sum of £290,000, and continued to make regular payments in the sum of approximately £7,500 per week to an employee of NVF Limited. The purpose of the payments was purportedly to pay cash on delivery items and in the absence of documentary evidence, they ought to be ignored for the purposes of the valuation.

(3) On November 2, 2001, the Company paid to Jeffrey King the sum of £34,215.30 as salary for an unspecified period and to Kings Chalets Limited (one of the Kings Group of companies) the sum of £305,099.85 for purchase ledger invoices for items purchased on its behalf. In the absence of a proper explanation, they ought to be ignored for the purposes of the valuation.

(4) The Company made payments (including some payments to its solicitors) of about £55,000 which were not for the benefit of the Company, and in the absence of a proper explanation, these payments ought to be ignored for the purposes of the valuation.

10

The points of claim made many allegations of mismanagement and improper payments (the "Mismanagement Issues"). Among them were (a) (in para 7.5) that, although the Company has enjoyed no or virtually no media coverage, whether in the press or elsewhere, it employed Mr King's wife as an alleged public relations executive under a contract pursuant to which she was entitled to an annual salary of £64,000, plus expenses; and (b) (in para 7.10) that the Company had entered into a contract with Jeffrey King at an annual salary of £75,000 notwithstanding that he played no part in its business and provided to it no valuable services.

11

Paragraph 10 pleaded that the date of valuation ought to be either (1) the date of Mr Bilkus' exclusion from participation in the Company; or (2) the date of the order, but on the assumption that the Company had not (as Mr Bilkus alleged) been mismanaged by Mr King since Mr Bilkus' exclusion in the respects identified in paragraph 7 (the "Mismanagement Issues"). Points of defence were served on April 24, 2002, setting out Mr King's case on the Control Issue, and the Challenged Payments.

12

Settlement discussions having failed to produce agreement, on July 9, 2002 Mr Registrar Jaques made an order by consent for "split trials on … which party is to purchase the other's share … [and] valuation of the shares", with consequential directions.

IV Settlement proposals and concessions

13

On July 31, 2003 Stockler Brunton on behalf of Mr Bilkus wrote to Isadore Goldman offering to settle the petition proceedings on terms that Mr Bilkus sell his share to Mr King, but only on the basis of a two-stage valuation process (the first to be conducted forthwith, the second if and when the NASS Contract were renewed at the end of its 5-year term):

"4.3.1 It will be based on 50% of the value of the Company as a going concern at the date of the valuation, with no discount to be attached to reflect our client's lack of majority interest;

4.3.2 It will assume that the contract between the Secretary of State for the Home Department ('the Home Office') and the Company dated 16 th March 2000 ('the Home Office Contact') will terminate on 2 nd April 2005 and will not be renewed;

4.3.3 It will take into account the matters set out in paragraphs 10.2, 11.1, 11.2, 11.3 and 11.4 of our client's Points of Claim dated 25 th March 2002;

4.5 If

4.5.1. the Home Office Contact is renewed for any period or

4.5.2. a new contract for the provision of accommodation and/or related services to asylum seekers or any other persons is granted by the Home Office, another government...

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