Carl Stuart Jackson and Philip Duffy (as Joint Officeholders of the Schedule 1 Companies) v Huda F Q H Alshammari
| Jurisdiction | England & Wales |
| Judge | Prentis |
| Judgment Date | 16 October 2020 |
| Neutral Citation | [2020] EWHC 2685 (Ch) |
| Date | 16 October 2020 |
| Court | Chancery Division |
| Docket Number | CR-2019-005589 |
[2020] EWHC 2685 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT (ChD)
IN THE MATTER OF CHF 2 LIMITED
(AND 23 OTHER COMPANIES IDENTIFIED IN SCHEDULE 1 TO THE APPLICATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
The Rolls Building, 7 Rolls Buildings,
Fetter Lane, London, EC4A 1NL.
ICC JUDGE Prentis
CR-2019-005589
Thomas Robinson (instructed by Crowell & Moring) for the Applicants
James A Davies (instructed by Gateleys) for the First, Second and Fifth Respondents
Tom Carpenter-Leitch (instructed by Shortlands) for the Third Respondent
Jonathan Edwards (instructed by Charles Russell Speechlys) for the Fourth Respondent
Hearing dates: 2, 5 October 2020
The Carlauren Group acquired hotels and care homes for conversion into luxury care homes. Each home was owned by a separate property company (a “PropCo”). The PropCos offered to the public 125-year leases of individual studios at their premises. Each investor selected the same of the three options on offer, being a fixed 10% per annum return payable monthly through an underlease with another Group company, Accordiant Limited. That return was due whether the studio was in occupation or not; whether it was renovated or not; or even whether it was built or not. Absent substantial capitalisation the Group therefore depended on cashflow, largely generated by further sales, to survive. From mid-2019 there were severe cashflow difficulties. The one company before me which is in liquidation, CHF 3 Limited, was wound up on 8 July 2019. All of the others entered administration over the Autumn of 2019, either through the Court or outside, save for one in which administrators were appointed earlier this year.
An estimated £79m was collected in by the Group. However, while the purchasers of studios (“Investors”) believed, rightly or wrongly, that their purchase monies were ringfenced, to be applied only to the property in which their studio was located and hence for the relevant PropCo, in fact monies were all passed up to one of the two topcos, Carlauren Group Limited, and then distributed on an as-needed basis to the subsidiaries, without any accompanying contractual documentation. Until about the last quarter of 2018, 10% was also paid to the Group's founder, Sean Murray.
According to a valuer's desktop estimate from late 2019, were the PropCos' properties sold they would raise about £24.75m; and that only if the Investors' leasehold interests were extinguished. The companies before me granted 781 leases (the “Leases”). Carl Jackson and Philip Duffy are the joint officeholders for each PropCo (the “Officeholders”), being those particularised in Schedule 1 to their 23 June 2020 application. Mr Jackson describes their strategy as being to sell the freeholds on the open market, but “unencumbered” by the Leases. That way maximum value will be achieved.
The Officeholders' application (the “Application”) seeks directions under paragraph 63 of Schedule B1 and section 168 of the Insolvency Act 1986 (the “Act”). Mr Jackson has provided the evidence in support. His first statement identifies that the Application is “for an order under the court's jurisdiction to grant directions to its officers and under the jurisdiction set out in Re Berkeley Applegate (Investment Consultants) Ltd [1989] Ch 32”, which he says will “certainly apply” to Investors with equitable liens or equitable leases. The Officeholders “seek an order entitling them to payment of their remuneration, costs and expenses incurred in getting the PropCos into administration, investigating the Investors' interests in the Properties and administering and realising the Properties owned by each PropCo, from the proceeds of sale of those Properties”.
Were there any doubt that the aim of the Application was to meet costs and expenses from certain Investors' property, that is allayed by the next sentence which promises that “the investors be notified of this application”: nothing is said about the creditors.
Mr Jackson goes on to describe how of the 781 Leases, 687 are registered and 94 unregistered. Those registered take effect as legal interests. The advice the Officeholders have received is that there is “no real market” for the freeholds unless they are sold free of the leasehold interests, so they have been negotiating, unsuccessfully, for the surrender of Leases “in return for an agreement to share in the net sale proceeds of the Property”. He describes their concern about the time and cost of bringing the properties to the point of sale, and hence this application being brought to “seek the Court's direction that the Joint Office-Holders be permitted to incur fees and costs in carrying out those tasks, and may recover those fees and costs from the proceeds of sale of the Properties”. Among the categories of costs identified are communicating with each Investor, as well as “holding costs”, being “insurance, security and, where relevant, energy costs”.
His concluding basis for the Application is wider than his first. The direction sought is “clearly analogous to Berkeley Applegate relief, but I am advised that the equitable nature of the Berkeley Applegate jurisdiction means that it may be necessary for the court to use its jurisdiction to grant directions to its officers in order to achieve the same effect as Berkeley Applegate relief in this case. That is because of the apparent presence of legal interests as well as equitable interests in the Properties… the only viable strategy to make any recovery for creditors is to investigate the interests of each investor and then effect a sale of each of the Properties on an unencumbered basis”. “It is proposed, if the relief sought in this application is granted, that the Properties will be sold at the best value achievable and that each investor, whatever category they fall into, will be paid pari passu out of the net sale proceeds of each Property after deduction of the costs of dealing with the relevant PropCo and realising the Property”.
The relief proposed would not, though, achieve the purpose of a sale on an “unencumbered” basis, nor effect a mutation of existing legal or equitable rights into those of a pari passu creditor: at this point, what the Application sought was that the Officeholders “be entitled to pay, from the proceeds of sale of each of the freehold properties owned by the companies listed in Schedule 1, the Applicants' costs and expenses relating to (i) investigating the claims of investors in the respective company and property, (ii) realising the proceeds of sale of the respective property, (iii) the holding costs of the respective property, and (iv) the administration of the respective company and property”. Nothing was said about the priority of those categories, nor the subsequent distribution of any remaining proceeds; as to priority, presumably the ordinary categories expressed in rule 3.51 Insolvency (England and Wales) Rules 2016 (the “Rules”) would apply. Nor were the “proceeds of sale of each of the freehold properties” otherwise defined, but one must take from Mr Jackson's evidence that these were in some way to incorporate the Investors' interests, whatever the status of their Leases.
On 2 July Deputy ICCJ Barnett directed that by 4pm the next day “all creditors” of the companies were to be notified that representatives “for categories of creditors” were sought; any “creditor” wishing to act was to provide details by 4pm on 10 July.
The second statement of Cathryn Williams, solicitor to the Applicants, addressed communications consequent on the 2 July order. It makes no mention of any communication with any creditor; instead, notification was to certain Investors. I note as well that she has equated creditors with Investors. In a fifth statement, filed following circulation of this judgment in draft, she has said that the Application and supporting evidence were uploaded onto the relevant creditor portal for each PropCo on 27 June, and that the 2 July order was also uploaded “when that Order was made”; no creditor responded. Further as the only “active creditors” have been the Investors “there has been no distinction in practice”. She tells the court that twelve of the PropCos have creditors' committees, and these are filled entirely with Investors.
On 15 July Deputy ICCJ Baister ordered the Officeholders to provide a draft of the order they sought at the final hearing; and on the attendance of those who are now the First to Fourth Respondents gave directions for evidence leading to an expedited hearing before himself if possible which would determine any CPR19.6 representation order.
The Officeholders' draft final order (the “Draft Order”) was an extension from the original application notice. I must set it out as it is the order in issue before me. Two declarations are now sought.
“1. The Applicants are entitled to pay, from the proceeds of sale of each of the respective freehold properties owned by the companies listed in Schedule 1, their fees, costs and expenses of:
1.1 holding and protecting that respective property, and remedial works where required by local authorities, to include insurance, security and energy costs where applicable;
1.2 investigating the claims and interests of investors in the respective company and property;
1.3 liaising with the investors to achieve consensual realisation of the value in the respective properties;
1.4 the costs of sale of the respective property, including liaison with legal chargeholders regarding redemption and release of legal charges to allow...
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