BRG Noal GP S.à r.l. v Stefan Kowski
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Joanna Smith |
| Judgment Date | 11 April 2022 |
| Neutral Citation | [2022] EWHC 867 (Ch) |
| Docket Number | Case No: BL-2022-000345 |
| Year | 2022 |
| Court | Chancery Division |
[2022] EWHC 867 (Ch)
THE HONOURABLE Mrs Justice Joanna Smith DBE
Case No: BL-2022-000345
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Marshall QC, Mr Gareth Tilley and Adil Mohamedbhai (instructed by McDermott Will & Emery) for the Claimants
Mr Ben Strong QC and Ms Patricia Burns (instructed by Humphries Kerstetter LLP) for the First Defendant
Mr Daniel Hubbard and Ms Sabrina Nanchahal (instructed by Keystone Law Limited) for the Second Defendant
Hearing dates: 18, 21 & 22 March 2022
Approved Judgment
I direct that pursuant to CPR PD 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.
This judgment has been handed down by the judge remotely by circulation to the parties' representatives by email and released to Bailii. The date for hand-down is deemed to be 11 April 2022.
The Claimants seek an interim injunction to restrain alleged ongoing breaches of contractual undertakings on the part of the Defendants. The evidence is voluminous, contested on all sides and has been expanding over the course of the hearing but, in summary, the essential facts are as follows.
Since 27 August 2021, the First Claimant (“ NOAL GP”) has been the General Partner of the Second Claimant, NOAL SCSp (formerly known as Novalpina Capital Partners I SCSp) a Luxembourg Limited Partnership that operates a private equity fund (“ the Fund”) focusing on mid-market European investments.
The Fund was established pursuant to a Limited Partnership Agreement dated 23 August 2017, as subsequently amended (“ the LPA”). The LPA is governed by Luxembourg law and contains an exclusive jurisdiction clause in favour of the courts of Luxembourg. As General Partner, NOAL GP has unlimited liability and is responsible for the management of the Fund. The investors in the Fund are its Limited Partners, each of whom agrees to contribute up to the amount of their respective Commitment when called upon to do so by the General Partner. They have no rights in respect of the management of the Fund.
Prior to 27 August 2021, the General Partner of the Fund was Novalpina Capital Partners I GP S.à r.l. (“ Novalpina GP”). As General Partner to the Fund, Novalpina GP was entitled to a Priority Profit Share in priority to returns to Limited Partners. As required by Luxembourg regulations, it appointed an authorised alternative investment fund manager (the “AIFM”). The LPA provided for two English limited partnerships (the “ English LLPs”) to be appointed investment advisers (“ IAs”) to provide investment advice to Novalpina GP and the AIFM in respect of the Fund.
The Defendants are two of the three founders of the Fund, together with Mr Stephen Peel (“ Mr Peel”) (together, the “Founders”). The Founders put in place the structure under which the fund management business was established through Luxembourg entities. They and their team acted (through the English LLPs) as IAs delivering advice based on their investment experience in the form of non-binding recommendations.
The structure of the entities created by the Founders is extremely complex, but for present purposes suffice to say that each of the Founders owns a one third share in Novalpina Capital Group SàRL (“ Novalpina Topco”), which in turn owns 100% of the shares in Novalpina Capital Partners 1 Group GP S.à.r.l (“ Group GP”). Novalpina GP, the original General Partner of the Fund, is a wholly owned subsidiary of Group GP. These entities in the Novalpina group of companies are all established under Luxembourg law.
The Founders' economic interest in the Fund was represented by Novalpina GP, Novalpina Capital Partners I FP SCSp (the “ Carried Interest Partner”, a Luxembourg law limited liability partnership whose General Partner is Group GP and whose limited partners are the Founders and other members of the investment advisory team) and the Trustee of the Clarendon Trust (the “ Trust”), a Guernsey trustee company and Mr Peel's family trust. These three entities were the initial Limited Partners in the Fund and were called Special Limited Partners. Together they committed a total of EUR 78.862 million to the Fund on establishment (the “ Sponsor Commitment”).
The Fund investments (the “ Portfolio Companies”) were held primarily through a holding company originally called Novalpina Capital Partners 1 Luxco S.à.r.l. (“ Master Luxco”), a Luxembourg private limited liability company. Master Luxco's shareholders are the Fund itself, Novalpina GP and three Luxembourg companies owned 100% by the Fund.
Following differences between the Founders arising in about December 2020, the Limited Partners voted overwhelmingly for removal “without cause” of Novalpina GP as General Partner at a meeting on 9 July 2021.
Specific provisions in clause 20 of the LPA governed the removal of the General Partner and were triggered by the vote to remove Novalpina GP without cause. In summary these included that a new General Partner could be elected by Special Consent of the Limited Partners but that the removal of the existing General Partner would not be effective until the new General Partner was appointed; absent approval of a new General Partner, the Fund would be wound up by the existing General Partner. Where the removal was without cause (i) the outgoing General Partner was to be paid its Priority Profit Share within 20 business days of the Special Consent for its removal and its removal was not effective until that payment was made; (ii) the Carried Interest Partner was entitled to be paid a Removal Entitlement, the value to be determined by an independent valuer appointed by the outgoing General Partner and approved by the Advisory Committee of Limited Partners (“ LPAC”); and (iii) if the Fund continued, any Novalpina company was entitled to elect that the new General Partner acquire or procure the acquisition of the Sponsor Commitment at a value to be determined by a valuer appointed by the outgoing General Partner with the approval of the LPAC. In the event of such an election, it was a condition of the appointment of the new General Partner that it would acquire or procure the acquisition of the Sponsor Commitment on or before the date on which it was appointed the new General Partner.
In addition, pursuant to clause 19 of the LPA, a new General Partner had to be approved within the period of 20 days (i.e. by 6 August 2021) to avoid termination of the Fund.
By letter dated 23 July 2021, Novalpina GP availed itself of the option to request that the new incoming General Partner should purchase the Sponsor Commitment. A Third Amended and Restated LPA was put in place on 5 August 2021 to extend time for the payment of the Priority Profit Share and the approval of a new General Partner to 35 business days from the removal of Novalpina GP.
On 6 August 2021, NOAL GP was nominated by the Limited Partners by Special Consent to replace Novalpina GP as General Partner. On 18 August, the LPAC's lawyers (Proskauer Rose (UK) LLP (“ Proskauer”)) proposed that NOAL GP should take over as General Partner without any valuer being appointed “on agreed terms asap”, with promissory notes issued in respect of the Sponsor Commitment. This would permit a “decoupling” of the effective date of removal/replacement of the General Partner from the requirement to make cash payments pursuant to the provisions of clause 20 of the LPA.
In the early hours of the morning of 25 August, Proskauer confirmed by email that “the limited partners have no interest in having the removed Novalpina GP remaining responsible for the day to day management of the portfolio pending the determination of the valuations by the independent expert” (a reference to the requirements of the LPA). They proposed (i) that NOAL GP should step into the role as General Partner on or before 27 August; (ii) the Fund should issue the Special Limited Partners with promissory notes in respect of the Sponsor Commitment; (iii) NOAL GP would, at the same time, enter into a pledge/security agreement in respect of the promissory notes; and (iv) “valuer engagement and process is agreed promptly – aim to have made material progress in next 48 hours”.
Also on 25 August 2021, the Priority Profit Share, which did not depend on a valuation of the Fund, was paid to Novalpina GP.
It is the Claimants' case that Novalpina GP's replacement by NOAL GP then took effect on 27 August 2021, at which time the interests of the Special Limited Partners in the form of the Sponsor Commitment were acquired by the Fund by issuing promissory notes to each (“ the Promissory Notes”) (pursuant to a fourth LPA, amended by NOAL GP to permit this new mechanism on the same day). NOAL GP also executed a pledge in favour of the Special Limited Partners securing their claims under the Promissory Notes by pledging the right of NOAL GP as General Partner of the Fund to call down unpaid investment commitments from Limited Partners (“ the Pledge”).
The Defendants' perception of events is rather different. They say that in circumstances where the LPAC was unwilling to implement the terms of the LPA (and in particular the payments required on a termination without cause) it permitted NOAL GP effectively to force its way in to the position of General Partner by purporting to execute a new amended LPA (which it did purporting to act as General Partner, even though it was not the existing General Partner) providing for the issue of the Promissory Notes and for the Fund (rather than any incoming General Partner) to buy out the Sponsor Commitment. None of the Special Limited...
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