CFL Finance Ltd v Jonathan Bass
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 15 July 2019 |
| Neutral Citation | [2019] EWHC 1839 (Ch) |
| Court | Chancery Division |
| Date | 15 July 2019 |
| Docket Number | Case No: BR-2015-002338 |
[2019] EWHC 1839 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT
Rolls Building
7 Fetter Lane
London
EC4A 1NL
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: BR-2015-002338
Stephen Atherton QC AND Blair Leahy (instructed by Mishcon de Reya LLP) for the Applicant/Petitioner
Andrew Shaw (instructed by Isadore Goldman) for the First and Second Respondents
Mark Phillips QC, Jonathan Kirk QC, Frederick Philpott and Hannah Thornley (instructed by Teacher Stern LLP) for the Third Respondent
Felicity Toube QC AND Robert Amey (instructed by Stephenson Harwood LLP) for the Fourth Respondent
Hearing Dates: 25, 26, 28 June 2019
Judgment Approved
Chief Insolvency and Companies Court Judge:
Introduction
This is the final hearing of a bankruptcy petition. It has a long history and considerable sums are involved. The petitioning creditor seeks a bankruptcy order. Its debt arises out of a settlement agreement where proceedings were compromised in the form of a Tomlin Order. The schedule to the Tomlin Order provided for the debtor to pay a sum by instalments. One of the questions asked is do such compromises offend the provisions of the Consumer Credit Act 1974 making the compromised debt unenforceable?
An opposing creditor (the “Laser Trust”) is an assignee of a debt of £799,360,216 (as at March 2019), far in excess of the petitioning creditor's debt. The opposing creditor seeks an adjournment to allow a meeting to be convened for the purpose of putting proposals for an Individual Voluntary Arrangement to creditors. This raises the question of what principles should be applied to an adjournment application. The context is important. The debtor had previously obtained a voluntary arrangement when the assignor, Kaupthing Bank hf (“Kaupthing”) had voted in favour of proposals put to creditors. The voluntary arrangement was revoked by the Court on a challenge by the petitioning creditor. The Court found that the debtor and Kaupthing had agreed to a private agreement whereby Kaupthing would financially benefit from assets outside of the voluntary arrangement. This constituted a breach of good faith. The Court of Appeal agreed and found that there was a material irregularity. This judgment addresses whether the debtor should be given a second chance to put proposals to creditors in such circumstances. The petitioning creditor argues that it is against principle, and an abuse of process to have a “second bite of the cherry”. This judgment also takes account of the evidence produced by the petitioning and opposing creditor in order to reach conclusions about the nature and quality of their debts.
The background
The background to the debt and the Individual Voluntary Arrangement (“IVA”) has been set out in detail in two previous judgments. The first is the judgment of HHJ Keyser QC (sitting as a judge of the High Court) [2017] EWHC 111 (Ch) (the “First Judgment”) and the second the Court of Appeal comprising Patten, Floyd and Coulson LJJ [2018] EWCA Civ 1781 (the “Appeal Judgment”). I have been addressed on the background by counsel, but it is unnecessary to repeat the detail in this judgment. I shall set it out in brief and refer to the First Judgment and Appeal Judgment where required.
CFL Finance Limited (CFL) served a statutory demand on Moises Gertner (MG) dated 10 September 2015 demanding he pay £11,128,611. The demand was not met and was not set aside. CFL petitioned for MG's bankruptcy. The petition was adjourned pending the outcome of a creditors' meeting called to consider a proposal made by MG for the IVA. The proposal was approved by 97.85% of creditors in value with Kaupthing constituting 90.43% by value. Two creditors, including CFL, who together constituted 2.15% of the creditors voted against the proposal. If Kaupthing's votes were excluded, the value of the debts of the two creditors who voted against the proposal would have exceeded 50% of the value of unconnected creditors' claims with the result that the proposal would not have been approved.
The origin of the debt owed by MG to CFL is succinctly set out by Patten LJ in the Appeal Judgment. In short, the CFL debt arose by reason of a personal guarantee entered into by MG on 13 June 2008 to guarantee a loan made to Lanza Holdings Limited (“Lanza”), a Gibraltaran company, owned by a Gertner family trust. Patten LJ explains (paragraphs 1–5 of the Appeal Judgment):
“Lanza defaulted and in November 2010 CFL sued Mr Gertner on his guarantee for some £1.7m together with compound interest from June 2008 which was payable under the loan agreement in the event of a default.
In October 2011 the proceedings were compromised on terms recorded in a Tomlin Order under which Mr Gertner agreed to pay £2m to CFL by instalments together with a further £50,000 on account of its costs. It was a term of the settlement that if Mr Gertner failed to make the instalment payments as agreed then the entire amount claimed in the proceedings would become due and payable. By early 2013 that had happened. Later in March 2015 Mr Gertner's solicitors, Teacher Stern, offered CFL the sum of £10,000 in full and final settlement of the debt which was stated then to amount to £2,185,973. With interest this would have increased to £10,857,183 but Mr Gertner disputes his liability for interest even though under the terms of the settlement with CFL interest was payable.
In the event the negotiations came to nothing and on 11 September 2015 CFL served a statutory demand on Mr Gertner in respect of the debt which with interest was then over £11m. An offer was made to settle the debt with a payment of £487,500 which was rejected but no application was made by Mr Gertner to set aside the statutory demand. CFL presented a bankruptcy petition on 6 October 2015 which was served on 22 October 2015 and the hearing of the petition was fixed for 23 November 2015.
On 20 November 2015 CFL was served with a proposal by Mr Gertner for an IVA. This included CFL as a creditor in a sum of £11,128,611. Although no application had been made for an interim order, CFL agreed to the hearing of the bankruptcy petition being adjourned over the creditors' meeting and it now stands adjourned generally with liberty for it to be restored.
In Mr Gertner's Estimated Statement of Affairs attached to his IVA proposal his father was shown as a creditor in the sum of £28,666,666. The proposal stated that his father had agreed to subordinate his claim for dividend purposes to those of the other unsecured creditors whose claims totalled £582,809,270. Of these the largest debt was £547,261,182 owed to Kaupthing [an Icelandic bank] ……”
The Kaupthing debt also arose out of a personal guarantee. Patten LJ explains:
“Mr Gertner's liability to Kaupthing is based on a personal guarantee dated 19 September 2008 which was given to secure loans made to Crosslet Vale Limited (“Crosslet Vale”) which was another Gertner family company. The loans had been made to finance various investments by Crosslet Vale including in September 2008 the purchase of some 18.5m shares in Kaupthing. Crosslet Vale also defaulted and proceedings for the recovery of the loans and under the guarantee were commenced by Kaupthing in October 2010. Mr Gertner was sued for over £300m. The proceedings were stayed by agreement and negotiations took place. Mr Gertner has asserted in evidence that the loan made in September 2008 was part of a fraud on the part of Kaupthing's directors and was therefore unenforceable. But that point has never been pursued in the litigation and no discount was made on account of it when formulating the IVA proposal.”
I shall be returning to look at the Appeal Judgment in more detail when I consider the debt owned by the Laser Trust and in particular when deciding if the Laser Trust is entitled to vote at a meeting of creditors for the Arrangement (as defined below). For now, the proposals for the IVA included an expected return to creditors of £0.07 in the pound. This was to be achieved by a single payment of £487,500 provided by a third party. It was proposed that MG's tax liability would be paid in full.
Prior to the creditors' meeting, Kaupthing entered into a settlement agreement (the “KSA”) with MG, his brother Mendi Gertner, Crosslet Vale Limited and the Laser Trust. The KSA was described as being in full and final settlement of the liabilities owed by MG, Mendi and Crosslet Vale to Kaupthing. The Appeal Judgment refers to the creditors noting, at the creditors' meeting “that Mr Gertner was a party to arbitration proceedings in Israel which appeared to include claims for high value assets, and asked for details of the litigation and why any possible recoveries were not included in the proposal”.
Under the terms of the KSA, Kaupthing would receive $6 million from the Laser Trust by “close of business on 15 December 2015”. By clause 3.6 of the KSA “on or before execution of this agreement the parties shall enter into or procure that the relevant parties enter into and adhere to the profit sharing agreements in substantially the form of the draft agreements in Appendices 2, 10 and 11 regarding the future profits of Indus Trading Limited, Maskelyn Limited and Readinise Limited respectively.” The profit-sharing agreements gave Kaupthing a “potential share in the recoveries in the Israeli arbitration” (the Appeal Judgment at para 25). This is because the agreements set out in the Appendices to the KSA referred to in clause 3.6 are with three named companies each of which is a claimant in the arbitration. “The claim is being pursued by Mr Gertner and his brother,...
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