County Bookshops Ltd v Grove
| Jurisdiction | England & Wales |
| Judge | Mr Justice Neuberger |
| Judgment Date | 13 June 2002 |
| Neutral Citation | [2002] EWHC 1160 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 382 of 2001 |
| Date | 13 June 2002 |
[2002] EWHC 1160 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Neuberger
Case No: 382 of 2001
Mr Stephen Davies QC (instructed by TLT Solicitors, Bristol) for the Applicant.
Miss Lexa Hilliard (instructed by Martineau Johnson, Birmingham) for the First and Second Respondents.
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.
Mr Justice Neuberger
This application is brought by County Bookshops Ltd ("the Company") under section 7(3) of the Insolvency Act 1986 ("the 1986 Act"). The issue it raises is whether Mr Alistair Grove and Mr James Martin ("the Supervisors"), the Supervisors of a company voluntary arrangement, or CVA, relating to the debts of the Company were entitled to reject a claim made by Anker Systems Limited ("Anker"). The Supervisors contend that Anker's debt remains payable by the Company, whose shares are now owned by Chapter Two Books Limited ("Chapter Two"). The issue has been fought out between the Company and the Supervisors, with Anker being content to abide by the decision of the Court.
The Company operated, and indeed continues to operate, over 50 leasehold discount retail bookshops. It got into difficulties, and, on 23rd March 2001, it was put into administration by the Court, and the Supervisors were appointed the administrators. In order to avoid the delays and problems inherent in the assignment of the bookshop leases, the administrators decided to sell the two issued shares of the Company. In May 2001, they summoned a meeting of creditors and circulated a Proposal for a CVA ("the Proposal"), with a view to it being approved on 8th June 2001. In anticipation of that meeting, the Supervisors entered into negotiations for the sale of the shares in the Company ("the shares"). On 8th June 2001, the creditors of the Company approved the CVA substantially as proposed, and the Supervisors exchanged contracts for the sale of the shares to Chapter Two for £3.75m. Completion of the sale occurred on 10th July 2001, when, according to its terms, the CVA became unconditional.
During Summer 2001, Anker submitted two proofs in the CVA in respect of services allegedly rendered prior to the administration. The first, signed by a financial manager and dated 22nd June, was in the sum of £16,008.82. The second proof, signed by Anker's financial director and dated 25th July, was in the sum of £332,305, and it was in substitution for the first. The Supervisors wrote to Anker rejecting their claim to be included in the CVA, and their Proof of Debt of 25th July. It is this latter proof which the Company now contends the Supervisors should have admitted.
The first issue is whether Anker are and were entitled to submit a proof to the Supervisors in respect of all or any of the monies not yet paid to them under a Supply Agreement entered into between the Company and Anker on 20th December 2000. There is a second issue, namely, the basis upon which Anker's claim in the CVA is to be assessed, if Anker are entitled to submit a proof.
The Supply Agreement was a contract for the delivery and installation of certain hardware and software by Anker to all the Company's bookshops. Following testing of the hardware and software, Anker were obliged, pursuant to Clause 3.2, to effect installations in a limited number of the Company's shops as a pilot scheme. Once that was successfully concluded, Clause 3.1 required Anker to install the software and hardware in all the Company's shops. Clause 4.1 provided that title to the hardware would pass to the Company on payment of the full purchase price for the hardware, but that until that time, the hardware would be held by the Company "as bailee for Anker". Title to the software was not to pass to the Company.
Clause 13 of the Supply Agreement was headed "Charges and Payment", and, so far as relevant, it was in the following terms:
"13.1 Charges to be paid by the [Company] to Anker in respect of the software, the hardware and the services are as set out in Schedule 6 [together with VAT] …
13.2 …
13.3 Anker invoices the charges at the times specified in Schedule 6 …
13.4 All Anker's invoices must be paid by [the Company] not later than 30 days from the date of invoice … Anker shall be entitled to charge interest on amounts not paid when due from the due date of payment to the actual date of payment …"
Schedule 6 provided for two initial payments of £100,000 and £72,144 on 30th November and 31st December 2000 respectively, three subsequent "payment[s]" each of £105,314 described as being "in 31st January 2001", "28th February 2001" and "31st March 2001". It also provided for a "credit 31st March 2001" of £24,407, which was subject to the following note:
"5% discount payable only on meeting the above payment schedule. Any anomalies to be rectified end March 2001."
Schedule 7 to the Supply Agreement contained a "Statement of Requirements". It referred to the Supply Agreement as "cover[ing] the supply and installation of an EPOS System to County Books Limited", and continued:
"Each site will contain one or two tills. In addition a Shop Management System is required to update price and product information, set up promotions, poll stores and provide a consolidated transaction log for the stores. This information will then be passed to Panacea Limited, who will provide the ASP part of the solution for head office functions."
Schedule 7 went on to explain that the EPOS System in each shop was to consist of a "PowerTill", a processor unit, a scanner, a cash drawer, a printer, a monitor and a display. Schedule 7 also provided that there would be supplied to the Company's head office by Anker certain software "to effect communications with branches" and other systems "to provide reporting facilities and data output to Panacea".
The final provision of the Supply Agreement to which I should refer is Clause 20.1. This entitled Anker to terminate the contract "immediately if the [Company] fails to pay any sums due to Anker and such sum remains unpaid for 14 days after Anker has given notice … that such sum has not been paid …".
On the same day, 20th December 2000, Anker and the Company entered into a "Support Agreement" under which Anker agreed to provide ongoing help-desk and software support, and hardware maintenance in respect of the electronic till system, i.e. the EPOS System, which they had agreed to install under the Supply Agreement. The sums payable by the Company under the Support Agreement depended on the services provided by Anker from time to time.
When the Company went into administration 23rd March 2001, the position under these two contracts was as follows. The dates for invoicing the first two of the last three instalments under the Supply Agreement totalling £210,628 plus VAT had passed, but neither sum had been invoiced by Anker nor paid by the Company. The date for invoicing the last instalment of £105,314 plus VAT, 31st March 2001, had not arrived. About £19,500 plus VAT had fallen due under the Support Agreement.
In addition to these two contracts with Anker, the Company entered into an agreement with a company called Pasporte Limited ("Pasporte") on 7th November 2000 ("the Pasporte Agreement"). The Pasporte Agreement provided for the supply of a so-called ASP service by Pasporte to the Company. Pasporte sub-contracted the supply of the relevant IT equipment to a company called Panacea Ltd ("Panacea"), and Pasporte was to provide data analysis, together with associated support. In effect, Pasporte was to install a system, which transmitted the data, collected from the EPOS System (installed by Anker pursuant to the Supply Agreement) in each of the shops, to the Company's headquarters, where Pasporte would organise the analysis and reporting of such data.
Although the services to be provided under the Pasporte Agreement were intended to be linked to the EPOS System supplied by Anker, the obligations and rights of the Company under the Pasporte Agreement were independent of its obligations and rights under the Supply or Support Agreements. The Pasporte Agreement was for an initial term of three years, and provided for 36 monthly payments, the first and last of which were to be made respectively on 1st December 2000, and 30th November 2003.
I now turn to the Proposal. Part 1 contained definitions. "Scheme Creditor" was defined as meaning "any creditor, other than one who was preferential or secured", as at 23rd March 2001 (the date of the administration order) "who would be entitled to prove in a winding of the Company if it had gone into liquidation" on that date. It was stated to include "an actual, contingent or prospective creditor". "Claim" meant the amount which a Scheme Creditor "would be entitled to prove for and receive a dividend in the winding up of the Company were the Company to have gone into liquidation on [23rd March 2001] on the assumption Scheme Creditors would not be paid in full". Finally, "Effective Date" was the date on which the CVA became unconditional.
In Part III of the Proposal, the Supervisors explained that, while initially proposing to sell the assets of the Company, they had decided that "the best prospect of an optimal return to creditors" was to sell the Company.
Part IV of the Proposal was headed "Statutory Requirements of the CVA". Paragraph 4.4 stated:
"Details of the Company's secured, unsecured and preferential creditors and the amounts of their respective...
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