Blomqvist v Zavarco Plc; Blomqvist v Peng and Others
| Jurisdiction | England & Wales |
| Judge | HHJ David Cooke |
| Judgment Date | 17 May 2016 |
| Neutral Citation | [2016] EWHC 1143 (Ch) |
| Docket Number | Case No: 2692 and 2693 of 2015 |
| Court | Chancery Division |
| Date | 17 May 2016 |
[2016] EWHC 1143 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
The Rolls Building,
Fetter Lane, London, WC4A 1NL
HHJ David Cooke
Case No: 2692 and 2693 of 2015
Zoe O'Sullivan QC (Instructed by Gallant Maxwell) appeared on behalf of the Claimant/Petitioner
Andrew Latimer (Instructed by Needle Partners Ltd) appeared on behalf of the First Defendant and the Third Respondent
Hugh Norbury QC (Instructed by Cooke Young & Keidan LLP) appeared on behalf of the Second Defendant
Hearing dates: 1–3 March 2016
Mr. Blomqvist brings two sets of proceedings relating to Zavarco Plc. It is a company incorporated in England but whose shares are or were listed on the Frankfurt Stock Exchange (FSX). Its principal asset (which it described as "the jewel in the crown", see bundle C/p59) is or was a fibre optic network in Malaysia, owned by a Malaysian company called V Telecoms Bhd ("VTel"), which was an indirect subsidiary of Zavarco plc. Mr Blomqvist is the registered holder of 100m shares of Eur 10 cents each in Zavarco plc, and has an interest in 16m further shares held by nominees or trusts of which he is a beneficiary. On his case, he has spent a substantial amount to acquire these shares because he and other investors with whom he was in collaboration saw Zavarco plc as an undervalued asset of which they might obtain control.
On 20 February 2015 Mr Blomqvist served notice on Zavarco plc under Companies Act 2006 s303 requesting that the directors call a general meeting for the purpose of removing the existing directors and appointing himself and others named by him. That was met by an allegation that his shares were not fully paid (and therefore gave no right under s303). This, on Mr Blomqvist's case, was the first he had heard of such an allegation, which was wholly inconsistent with all the company's public accounts and records and with the listing of the shares on the FSX.
When the directors did not comply with this request, Mr Blomqvist sent out his own notice convening a meeting under Companies Act 2006 s305, on 16 March 2015. This was met by a letter from solicitors for Zavarco plc (C/232) stating that as at 17 March 2015 Mr Blomqvist's holding, previously over 6%, now amounted to just over 1%. They sent a copy share register showing a very recently issued massive holding of 7,052,159,653 shares (referred to as "the 7Bn shares") in the name of Open Fibre Sdn Bhd ("OFSB") which had the effect of diluting all previous holdings by a factor of about 6.
These proceedings were issued in April 2015. In the first ("the petition") Mr Blomqvist seeks relief under 994 Companies Act 2006 declaring that his notice convening a meeting under s305 is valid and a direction that the meeting be held. In the second ("the Part 8 claim") he seeks rectification of the share register so as to delete the 7Bn shareholding in the name of OFSB.
Mr Blomqvist has discovered, subsequent to the issue of proceedings, that on 23 July 2014 Zavarco plc had entered into a consent order ("the consent order") settling litigation in Malaysia brought by OFSB under which Zavarco plc agreed to transfer its entire indirect shareholding in VTel to OFSB and in addition issue shares in itself to OFSB with a market value of RM (Malaysian Ringitts) 150m, equivalent to about Eur 34m. It is not clear when the VTel shares were transferred. The board of Zavarco plc only resolved to issue new shares in itself to OFSB on 27 February 2015, a week after Mr Blomqvist's first notice. A simplistic calculation was done showing that at the average of the closing prices of Zavarco plc shares over the past 5 days of about EUR 0.005, or half a Euro cent; this came to 7,052,159,653 shares, enough to swamp the previously issued shares (of which there were 1.5Bn in total). In truth of course, on the basis of that price the entire market capitalisation of Zavarco plc would have been about Eur 7.5m, so unless additional capital was contributed no amount of newly created shares would ever be worth Eur 34m.
Mr Blomqvist considers this transaction to be deeply suspicious. In his evidence, he said that in his view he had been "royally screwed over". There are, I am told, a number of claims pending in the Malaysian courts in which it is alleged to be a fraudulent device to strip Zavarco plc of its asset, ie VTel. However, the issues in these proceedings are limited by the pleadings. In order to explain those issues, I will need to refer to the history of events, including matters which are not agreed but where the facts are not in issue before me. In doing so I shall endeavour to make clear where this is the case.
In December 2010 OFSB exchanged its then shareholding of about 91% of the ordinary shares of VTel for shares in Vasseti Bhd, since renamed Zavarco Bhd, which name I will use throughout for clarity. The sale agreement (C/2) does not show who were the holders of the remaining 9% of VTel shares, or what other shares were in issue in Zavarco Bhd.
On June 2011, as a precursor to obtaining a listing on the FSX, Vasseti plc (since renamed Zavarco plc, which name I will again use throughout) was incorporated. By a share sale agreement bearing the same date ( CB/2, referred to as "the SSA") Zavarco plc and four individuals who between them were the registered owners of all the shares of Zavarco Bhd agreed to sell those shares to Zavarco plc in exchange for the issue of 1.5Bn shares of Eur 0.1 each in Zavarco plc. A table ( CB/6) shows that Zavarco Bhd had an issued capital of RM411m, of which by far the largest part was held by OFSB, which had 396,000,000 shares of RM100 (96.35%). The next largest holding was of Mr. Ranjit Singh Sidhu ("Mr. Sidhu") who had 9,999,999 shares of RM1 (2.43%). Tan Sri Syed Mohammed Yusof Bin Syed Nasir ("Mr Nasir") held 4m shares of RM1 (0.97%).
The SSA provided for completion on 23 July 2011 (cl 1.1). Clause 4.2 provided for the consideration to be satisfied by the issue of shares in Zavarco plc (referred to as "the VUK shares") as follows:
"The Parties hereby agree that the VUK shares shall be issued to the persons named in Schedule 2, which will be made available to the Purchaser by 23 July 2011 or such other dates to be agreed by the Parties herein… Schedule 2 shall consist of detailed particulars of the names and allotment of the Consideration for the 1.5 billion VUK shares."
The SSA contained a page headed "Schedule 2 Settlement of purchase consideration", but it was blank, merely containing the note "To be provided to the Purchaser by 23 July 2011 or such other dates to be agreed by the Parties".
By this unusual mechanism, the sellers reserved to themselves the decision as to who should receive the consideration shares. It must presumably be the case that they did not envisage that those shares would be issued to themselves in proportion to the shares they sold, since otherwise the SSA could have said so when signed. What factors were to influence this distribution of the consideration are not explained in the documents.
A further document headed "Schedule 2" has been produced, which does contain a list of names and numbers of shares. It contains no date or signature, save that the secretary of Zavarco plc has signed a stamp certifying it as a "true copy". The authenticity of this document is challenged; a document serving the purpose of allocating the consideration due to the vendors would have to be authorised or agreed by them, but the certification by the secretary of the purchaser on its face shows only that he confirms that this document is a true copy of some other, and says nothing about the origin of either or whether they have been approved by the vendors or any of them.
This document has been referred to as "Sch 2" and I will use that term, though as I say its authenticity is not admitted. According to it, 1,395,000,000 Zavarco plc shares should be issued to OFSB, amounting to 93.0%, so less than its apparent pro rata entitlement. 36,500,000 shares should go to Mr. Sidhu, which does correspond to his 2.43% holding in Zavarco Bhd. Just over 30m shares are "to be held in trust as Treasury shares…for purpose of employee subscription and for other future cash investors as per board of directors approval". Mr Nasir is to receive 17,598,540 shares or 1.17%, so more than his apparent entitlement. The remainder are to go to a list of some 30 names, mostly individuals but including two investment companies. So far as I can see, neither of the other two vendors appears in this list. If they are behind the investment companies, the shares to be issued to those companies do not correspond to the original holdings of those vendors. There is no explanation in the evidence for this pattern of distribution.
In fact the incorporation documents of Zavarco plc state that 1.2 Bn shares were issued to the subscribers at incorporation, 840m to Mr. Sidhu and 360m to Mr Nasir (D/209). All these shares are said to be fully paid. Since the incorporation was on 29 June 2011, the date of the SSA, this issue would necessarily have preceded the date for completion of the SSA, so on the face of it these shares should not be part of the consideration.
Some indication of what may have been going on in the background may perhaps be gleaned from email traffic originating from Mr. Shailen Gajera (also known as Shailen A/L Poplatl) ("Mr. Shailen"), who gave evidence stating himself to be a consultant engaged to assist the directors of Zavarco plc. Some of these documents were produced by him at the start of the trial. I should say that...
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Zavarco Plc v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir
...were to be paid for in some form other than cash. That is, in my view, correct. It is to be contrasted with the position in Blomqvist v Zavarco plc and Another [2016] EWHC 1143 (Ch), which concerned a person who acquired shares subsequently, when they were already listed and with the benefi......