Carillion Construction Ltd v Zelf Hussain and Robert Jonathan Hunt (the Joint Liquidators of Simon Carves Ltd) and Another
| Jurisdiction | England & Wales |
| Judge | Sir William Blackburne |
| Judgment Date | 27 March 2013 |
| Neutral Citation | [2013] EWHC 685 (Ch) |
| Docket Number | Case No: 5940 of 2011 |
| Court | Chancery Division |
| Date | 27 March 2013 |
In the Matter of Simon Carves Limited (company number 04169897)
And In the Matter of the Insolvency Act 1986
[2013] EWHC 685 (Ch)
Sir William Blackburne
Case No: 5940 of 2011
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Millett QC and Peter Cranfield (instructed by Reynolds Porter Chamberlain LLP) for the Applicant
Stephen Davies QC (instructed by Chadbourne & Parke (London) LLP1) for the Respondents
Hearing date: 15 March 2013
Introduction
This application which is dated 15 October 2012 is by Carillion Construction Ltd ("CCL") for leave under section 424(1)(a) to make an application for relief under section 423 of the Insolvency Act 1986 ("the 1986 Act") against Simon Carves Ltd ("SCL") (now in liquidation) and its ultimate parent company Punj Lloyd Ltd ("PLL").
PLL, which is a company incorporated and registered in India, is and was at all material times the ultimate parent company of SCL. I mention, because CCL attaches importance to this, that at all material times two of the directors of SCL, a Mr Punj and Mr Chhabra, were respectively chairman and executive director of PLL.
CCL is the subcontractor under two engineering contracts with SCL. They relate to the design and installation of a bio-ethanol processing plant in Wilton, Teeside. The two contracts were entered into between SCL and CCL on 3 March 2009 and 17 April 2009 respectively. Under those contracts CCL undertook to carry out electrical, control and instrumentation installation works and also mechanical and piping installation works at the plant. The value of the contracts was in the region of £37 million. CCL duly carried out works under the contracts and submitted invoices for payment to SCL. From about October 2009 onwards SCL failed however to pay the amounts which CCL claimed. This led CCL to commence arbitration proceedings. On 17 June 2011 the arbitrator made an award on a number of preliminary issues. On the basis of that award CCL has quantified its claim against SCL in a sum exceeding £12 million.
Less than a month later, on 7 July 2011, Zelf Hussain, Robert Hunt and David Kelly of PricewaterhouseCooper LLP ("PwC") were appointed joint administrators of SCL. The following day, 8 July 2011, SCL's business and assets were sold to Simon Carves Engineering Ltd ("SCEL") which is a company within the PLL Group and was incorporated for the purpose of the acquisition. The sale was a pre-pack transaction and had been negotiated with the benefit of the involvement and advice of the persons who were appointed SCL's joint administrators.
The purpose of the proceedings which CCL seeks the court's leave under section 424(1)(a) to bring is to compel PLL to honour what CCL contends is a series of binding obligations which PLL had entered into by way of three separate "letters of support" respectively dated 12 May 2008, 14 May 2009 and 31 March 2010. It was on the basis (or partly on the basis) of those letters that SCL had continued to trade after March 2008 until 7 July 2011(when the administration order was made) notwithstanding that it had posted significant losses over that period. I come later to the letters and the circumstances in which they were provided.
Because SCL had entered administration, CCL needed and therefore sought the consent of the joint administrators. The joint administrators have declined to give that leave. Hence the present application.
There is also before the court an application under section 112 of the 1986 Act for the appointment of an additional joint liquidator to investigate and, if thought fit, pursue, subject to the control of the court and subject to funding, claims against PLL under the letters of support. The section 112 application is before the court only for directions. Whether that application will be pursued depends on the court's decision on CCL's application under section 424(1)(a).
On 19 December 2012, which was after the application under section 424(1)(a) had been issued, CCL went into creditors' voluntary liquidation and Mr Hussain and Mr Hunt, two of the three joint administrators, were appointed joint liquidators for the purposes of the winding up.
The relevant background facts
The relevant background to the issues which arise for decision is the following.
SCL became part of the Punj Lloyd Group in 2006 when PLL purchased 88% of the capital of SCL's then parent company.
In SCL's financial year ended 31 March 2008 the directors reported a loss before tax of £0.9 million. In their report, accompanying SCL's financial statements for the year, the directors of SCL stated that PLL had provided to them a letter of financial and business support "to ensure that the company continues as a going concern" and that the accounts had been prepared on a going concern basis.
The letter in question was dated 12 May 2008 and was addressed to "The Board of Directors, Simon Carves Limited". It is headed "Letter of Support". It provided as follows:
"This has reference to your request that we provide you with financial support. We are aware of the financial position of your Company, its state of affairs and the results of its operations.
Accordingly, by this letter we, Punj Lloyd Limited, confirm that we shall provide the necessary financial and business support to Simon Carves Limited to ensure that the Company continues as a going concern."
During its financial year to 31 March 2009 SCL recorded a loss before tax of £110.7 million. Its balance sheet, as at 31 March 2009, disclosed an excess of liabilities over assets of just over £107 million. In their report for that year the directors stated:
"The Directors have constantly reviewed the going concern status of the Company throughout the year. In particular as a minimum, the Directors have undertaken going concern reviews at each of the quarterly Board meetings in the year. The Directors have also had the benefit of three independent legal assessments on the ongoing trading status of the Company by its panel law firms. Upon each of these independent reviews, the Company's external legal advisers have concluded that the Company remains a going concern and that the Directors may continue to trade the Company as such. The going concern status has been principally confirmed on the basis of the open letter of continuing financial support provided by the Company's ultimate parent company, Punj Lloyd Limited. At the date of this Report, the Directors had no reason to consider that this support will be withdrawn from the Company by the ultimate parent company.
The company has notified its principle [sic] bankers, ICICI Bank UK PLC, that it has during the year breached its banking covenants in respect of a facility agreement originally dated 12 September 2008 for the provision of an overdraft and short-term loan facility. This notification was issued to ICICI Bank pursuant to the terms of the facility agreement. The Company's ultimate parent company has provided guarantees in support of these facilities. ICICI Bank UK PLC has not responded to this notification at the accounts date.
The ultimate parent company Punj Lloyd Limited has agreed to provide sufficient funds to the company for these purposes; it and other group companies has [sic] advanced to the company funding …[the details are set out] On this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis."
The financial statements were approved on 15 May 2009.
The "open letter of continuing financial support" referred to in the above statement was dated 14 May 2009 and was again addressed to "The Board of Directors, Simon Carves Limited…". It was headed "Letter of Support — Financial Year ended 31 st March 2009" and stated:
"This has reference to your request that we provide you with financial support.
We are aware of the financial position of your company, its state of affairs and the results of its operations, and we hereby agree to provide sufficient funds to the company for these purposes, to enable it to continue operating and to meet its liabilities as and when they fall due for the period until 31 st May 2010, to ensure that the Company continues as going concern.
We are aware that a financial covenant has been breached with respect to the "Secured Overdraft and Loan Facility Agreement" dated 12 th Sept 2008 between Simon Carves Limited and ICICI Bank UK plc. We confirm that Punj Lloyd Limited is a guarantor to the agreement and will provide the necessary financial support to meet the financial obligations under the agreement.
We undertake to inform you immediately in the event that circumstances change in a manner such that it would or might no longer be open to us to continue to provide such financial support."
During its financial year to 31 March 2010 SCL recorded a loss before tax of £96.6 million with the result that its balance sheet disclosed an excess of liabilities over assets in the sum of £203.5 million. In their report accompanying SCL's financial statements the directors stated that:
"The Directors have constantly reviewed the going concern status of the Company throughout the year. In particular as a minimum, the Directors have undertaken going concern reviews at each of the quarterly Board meetings in the year. The Directors have also had the benefit of an independent legal assessment of the ongoing trading status of the Company by one of its panel law firms. As part of this independent review, the Company's external legal adviser has concluded that the Company remains a going concern and that the Directors may continue to...
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