Darty Holdings SAS (as Successor to Kesa International Ltd) v Geoffrey Carton-Kelly as Liquidator of CGL Realisations Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 23 April 2021 |
| Neutral Citation | [2021] EWHC 1018 (Ch) |
| Date | 23 April 2021 |
| Docket Number | Case No: CH-2020-000190 |
| Court | Chancery Division |
[2021] EWHC 1018 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
ON APPEAL FROM:
THE ORDER OF DEPUTY ICC JUDGE AGNELLO QC
DATED 10 JULY 2020
Royal Courts of Justice, Rolls Building
Fetter Lane, London EC4A 1NL
Mr Justice Miles
Case No: CH-2020-000190
Tom Smith QC and Alex Barden (instructed by Sidley Austin LLP) for the Appellant
Andreas Gledhill QC and Tiran Nersessian (instructed by Jones Day) for the Respondent
Hearing dates: 30 and 31 March 2021
This is an appeal from the order of Deputy ICC Judge Agnello QC (“the judge”) of 10 July 2020 by which she declared that the Appellant (“KIL”) was a connected person of Comet Group Limited (“the Company”) for the purposes of an alleged preference under s. 239 of the Insolvency Act 1986 (“the Act”).
The preference alleged by the liquidator of the Company consists of a number of payments totalling about £115m. These were repayments of intercompany debts made in the context of an acquisition of the shares in the Company which was completed on 3 February 2012. The payments took place that day. The Company went into administration on 2 November 2012 and liquidation on 13 October 2013. The claim is for some £82m (being the difference between £115m and the amount it is said KIL would have recovered in an insolvent liquidation).
The viability of the preference claim depends on KIL being connected with the Company at the time of the payments.
By sections 239 and 240(1)(a) of the Act a claim may be made in the case of a preference given to a person who is connected with the company where the preference occurred within two years of the onset of insolvency. A claim may be made in the case a preference is given to a person not connected with the company if the onset of insolvency occurs within six months. Here the alleged preference was given on 3 February 2012 and the onset of insolvency was 13 October 2013 — a period of more than six months, but less than two years.
There is a second important consequence of the connection issue. By s. 239(5) a court may not make an order for a preference unless the company which gave the preference influenced in deciding to give it by a desire to put the person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done. By s. 239(6) where a preference is given to a person connected with it the company is rebuttably presumed to have been influenced by such a desire.
The judge decided, as I have said, that KIL was connected with the Company at the time of the alleged preference. KIL seeks to challenge that decision on two grounds. The first is that, as a matter of fact, there was no proper basis for concluding that the impugned payments happened before the registration of the transfer of the shares in the Company to the purchaser (“the timing point”). The second is that, properly applying the statutory provisions to the linked sequence of transactional steps in this case (which severed the connection between the selling group and the Company) KIL was not connected with the Company at the time of the alleged preference (“the severance of connection point”).
The facts
The facts were largely agreed before the judge and I take them from her judgment with some adaptions.
The Company was a well-known high street electrical retailer. Before the sale transaction of which the intercompany payments were part it was owned by the Kesa group of which Kesa Electricals plc (“KE”) was the parent. KE owned Kesa Holdings Limited (“KHL”) which in turn owned the Company. KIL (the party alleged to have received the preference) was also a member of the Kesa group. It sat below KHL (via two wholly owned subsidiaries). So KIL and the Company were under the common control of KHL.
The Company was not profitable and the Kesa group decided to sell it together with a (profitable) captive insurance company called Triptych Insurance NV (“Triptych”).
After a sale process, KHL reached terms with a private equity firm called OpCapita LLP. OpCapita's offer for the shares was on a “cash and debt free” basis.
The parties entered heads of terms. OpCapita's acquisition vehicle was called Hailey Acquisitions Limited (“HAL”). A detailed sale and purchase agreement (“the SPA”) was executed by KHL, KE, Hailey Holdings Limited (“HHL”, the parent of HAL) and HAL on 9 November 2011.
The SPA related to the sale and purchase of the entire issued share capital of the Company and Triptych.
There were various conditions to completion of the SPA. These were satisfied by the end of January 2012.
On 3 February 2012, various parties entered another agreement, called the Completion Agreement (“the CA”). The parties were KE, KHL, KIL, HHL, HAL, Hailey 2 LP (another part of the acquiring group), the Company, Triptych and Macfarlanes LLP (the purchasers' solicitors). The purpose of the CA was to set out how various payments were to be made in relation to the completion of the SPA.
The Company and KIL were both parties to the CA but neither was a party to the SPA.
As already explained, KIL was a treasury company in the Kesa group. Before the agreed acquisition, there were various intercompany balances owed to and by KIL. The Company was indebted to KIL under a revolving credit facility (“the KIL RCF”). KIL in turn owed substantial amounts to Triptych.
The SPA
In outline the SPA worked like this. The shares in the two companies were to be sold by KHL for £2. Part of the net intercompany debt was to be capitalised (effectively written off) before the sale of the shares. HHL was to provide the Company with a new facility of up to £186.6m (“the HAL RCF”). KIL would repay Triptych the £73.1m intercompany balance it owed. This would be lent by Triptych to HAL to fund in part the HAL RCF. The HAL RCF would also be funded by OpCapita investing £35m (via Hailey 2 LP and HHL), (ii) KIL making a capital contribution to Hailey 2 LP (a limited partnership) of £50m, and (iii) the payment by Kesa of a “Net Additional Amount” (ultimately calculated at £28.5m). The Company was to draw down part of the HAL RCF to enable it to repay the KIL RCF, leaving the balance of the facility as working capital. The Kesa group was also to accept pension liabilities estimated at £76.2m.
KIL emphasises general features of the SPA. First, it reflected the proposal that the intercompany balances to and from KIL would be paid off at completion. OpCapita was putting in place its own funding arrangements. In essence the Company's unsecured borrowing was replaced by secured borrowing from HAL. Second, the agreement was the result of arm's length negotiations. OpCapita wished to obtain the Company in its best state while giving away as little as possible. It had no reason or incentive to give KIL any beneficial treatment.
The SPA included the following terms.
KHL was the defined as “the Seller”, KE as “the Parent”, HHL as “Topco”, and HAL as Bidco (together with Topco “the Purchasers”).
Clause 1 (“Interpretation”) gave the following definitions:
i) “Completion” means “completion of the sale and purchase of the Shares under this Agreement”.
ii) “Completion Date” means “the first Business Day falling after the Effective Time which the parties agree is practicable (taking account of the process described in sub-clauses 7.2 and 7.3) but, in any event, no later than the third Business Day after the Effective Time”.
Clause 7.5 provided:
“Subject to sub-clause 7.6, at Completion:
(A) the Purchasers shall procure that there is paid by or on behalf of each relevant member of the Group [sc. the Company and its subsidiaries and Triptych] to each relevant member of the Retained Group the amount of the Group Debts which that member of the Group owes to that member of the Retained Group and, to the extent the same is paid to the Seller, the Seller shall hold each such amount as trustee on behalf of each member of the Retained Group which is owed that relevant amount;
(B) the Seller shall procure that there is paid by or on behalf of each relevant member of the Retained Group to each relevant member of the Group the amount of the Retained Group Debts which that member of the Retained Group owes to that member of the Group and, to the extent the same is paid to the Purchasers, the Purchasers shall hold each such amount as trustee on behalf of each member of the Group which is owed that relevant amount; and
(C) the Parent and the Purchasers shall procure (so far as each of them is able) that, to the extent not satisfied as a result of sub-clauses 7.5(A) and 7.5(B), payments are made to ensure that the obligations of KIL, Triptych, Hailey 2 LP, Topco, Bidco and the Company referred to in sub-clauses 8.6 – 8.21 (inclusive) are satisfied.”
Clause 7.6 provided:
“The amounts payable pursuant to sub-clause 7.5 shall be satisfied as follows:
(A) in respect of the payment obligations of KIL, Triptych, Topco, Bidco and the Company referred to in sub-clauses 8.11 to 8.15 (inclusive), by way of set-off against one another;
(B) in respect of the payment obligations referred to in sub-clauses 8.9 and 8.10 of Bidco to the Company, and of the Company to the relevant member of the Retained Group, by way of a payment made directly from Bidco to the relevant member of the Retained Group under direction by the Company; and
(C) in respect of the payment obligations of KIL,...
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