David Brown v MML Capital Europe VI Equity II SA
| Jurisdiction | England & Wales |
| Judge | Mr James Pickering |
| Judgment Date | 22 January 2020 |
| Neutral Citation | [2020] EWHC 23 (Ch) |
| Docket Number | Claim No: CR-2019-004377 |
| Date | 22 January 2020 |
| Court | Chancery Division |
[2020] EWHC 23 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF R-SQUARED HOLDCO LIMITED (Company No, 10708321)
AND IN THE MATTER OF THE COMPANIES ACT 2006
Mr James Pickering
(sitting as a Deputy Judge of the High Court)
Claim No: CR-2019-004377
Timothy Collingwood (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Petitioners/Applicants
Andrew Charman (instructed by Pinsent Masons LLP) for the First Respondent
Sonia Nolten and Luka Krsljanin (instructed by Gateley PLC) for the Second to Fourth Respondents
Hearing dates: 21–22 November 2019
APPROVED JUDGMENT
Mr James Pickering (sitting as a Deputy Judge of the High Court):
PART I: INTRODUCTION
PART II: THE BACKGROUND
PART III: WHETHER OR NOT AN INJUNCTION SHOULD BE GRANTED TO RESTRAIN
BREACH OF THE ALLEGED CONTRACTUAL UNDERTAKING
PART IV: WHETHER OR NOT AN INTERIM INJUNCTION SHOULD BE GRANTED ON
CLASSIC AMERICAN CYANAMID PRINCIPLES
PART V: OVERALL CONCLUSION
PART I: INTRODUCTION
The matter before me is an application for injunctive relief to prohibit the holding of certain disciplinary proceedings in respect of the Petitioners. It is made within the context of an unfair prejudice petition brought under section 994 of the Companies Act 2006 (“ the CA 2006”).
In one of the skeleton arguments, counsel described the matter as “a sorry and increasingly complex story”. The matter may or may not be complex but there is no doubt that it is a sorry one. Ultimately, it will be for the trial judge to determine who is right and who is wrong in the underlying dispute; but whatever the outcome it is clear that a great deal of time and money will have been spent fighting over what was once a highly profitable business.
PART II: THE BACKGROUND
The Browns and the incorporation of PIE
In 2006 David and Alix Brown (“ the Browns”) arranged for the incorporation of Property Information Exchange Limited (“ PIE”). Originally, they were its principal shareholders and directors. Under the guidance of the Browns, over the next 11 years PIE then carried on the business of providing electronic search services to solicitors and other licenced conveyancers involved in conveyancing transactions. The business was successful and by 2016 had an annual turnover of about £16 million. In this matter the Browns are the Petitioners and PIE, in the circumstances set out below, is the Fourth Respondent.
The introduction of MML and the corporate restructuring
In the course of 2016, the Browns became interested in PIE acquiring a competitor business. One option for the Browns was for PIE to fund the proposed acquisition by way of a loan from a bank. Another option was for the acquisition to proceed by way of a private equity investment – in other words, an arrangement by which a private equity house would invest in PIE in return for a shareholding in the business. By the end of 2016, the Browns had been introduced to a number of private equity houses including MML UK Partners LLP. It is that private equity house's special purpose vehicle, MML Capital Europe VI Equity II SA (“ MML”), which is the First Respondent to the underlying unfair prejudice petition.
In the first half of 2017, negotiations took place between all concerned. On 2 June 2017 the matter completed. Amongst other things, a corporate restructuring took place. Under that corporate restructuring, the entire shareholding in PIE (which had previously been controlled by the Browns) was transferred to a recently incorporated company called R-Squared Bidco Limited (“ Bidco”). Bidco's shareholding was completely owned by another recently incorporated company called R-Squared Holdco Limited (“ Holdco”). At the same time, MML invested some £10.45 million into the business. In return for its investment, MML received a 33.3% minority shareholding in Holdco, with the bulk of the remaining majority shareholding in Holdco becoming owned by the Browns 1 who also received some £1,131,564.25 in deferred consideration together with a further sum of £14,470,308 which they immediately reinvested in the business in return for loan notes 2 issued by Bidco. The net effect, therefore, was that the Browns gave up a significant amount of their equity in (and control of) the underlying business in return for cash and loan notes, thereby enabling the purchase of the competitor company. In any event, Holdco is the Second Respondent to the underlying unfair prejudice petition (as well as being “the Company”) and Bidco is the Third Respondent.
A further important feature of the restructuring was the inclusion of leaver provisions in both the articles of association and the loan stock instruments. Under these documents, a person leaving the business was defined either as a “Good Leaver”, an “Intermediate Leaver”, a “Bad Leaver” or a “Very Bad Leaver”. In short, in the event of either of the Browns becoming a Bad Leaver (which included leaving by reason of summary dismissal, resignation, committing a criminal offence or breaching certain covenants) or a Very Bad Leaver (which included leaving by reason of fraud or material dishonesty), he or she could be deprived of their shareholding in Holdco for a nominal sum and, moreover, Bidco would become entitled to redeem their loan notes – again for a nominal sum.
The investigations and the proposed disciplinary hearing
For the first year or so following the restructuring things were relatively uneventful. On 27 September 2018, however, a group board meeting took place. At that meeting questions were raised of Mr Brown as to a payment of £57,000 to EJ Winter & Son – an important solicitor client of PIE. According to PIE, Mr Brown's response was unsatisfactory and gave rise to a suspicion that the payment was in reality a bribe. According to the Browns, the meeting was a “scripted sham” motivated by a desire to remove the Browns from the group as Bad or Very Bad Leavers and therefore at a nominal price.
In any event, the outcome of the meeting was the commissioning of an investigation report. That report and subsequent investigations highlighted various further perceived financial irregularities. The investigations continued into 2019 and on 11 March 2019 a further meeting took place at which the Browns were asked to provide explanations as to various matters. Again, the explanations given were perceived as being unsatisfactory and accordingly on 2 April 2019 a further board meeting took place at which it was allegedly 3 decided that PIE would conduct disciplinary hearings against the Browns. The potential impact of this on the Browns should not be understated. In the event of either of them being dismissed (or found to have acted in breach of covenant or to have left by reason of their fraud or material dishonesty), under the above-mentioned leaver provisions they would be deemed as Bad or Very Bad Leavers and in such circumstances not only would they be deprived of their shareholding for a nominal sum but also some or all 4 of their loan notes would be redeemed at a nominal sum too.
Originally, the date fixed for the disciplinary hearings was 18 April 2019 but due to the unavailability of the Browns this was rescheduled for 8 May 2019. On 30 April 2019, the Browns' solicitors sent a letter before action threatening to present an unfair prejudice petition pursuant to section 994 of the CA 2006. In addition, the letter threatened injunctive relief restraining PIE from conducting the disciplinary hearing pending the outcome of the petition. Following the above, the hearings were rescheduled – but only to 19 and 20 June 2019. Again, injunctive relief was threatened and further an issue was raised as to Mrs Brown's availability. In any event, once again the hearings were rescheduled, this time to 4 and 5 July 2019.
The email of 2 July 2019 and the presentation of the petition
On 2 July 2019 (and therefore just two days before the adjourned disciplinary hearings were due to start), the Browns once again threatened to apply to court for an injunction restraining PIE from conducting the hearings. On the same day, 2 July 2019, PIE's solicitors sent an email to the Browns' solicitors (“ the 2 July Email”) stating:
“On the basis that the unfair prejudice petition is issued and served by your client tomorrow (as you confirm in your letter your clients will do) then the hearings will be placed on hold until such time as the petition has been determined.”
On the following day, 3 July 2019, the Browns presented an unfair prejudice petition. A previous draft of the petition which had been sent to PIE had included injunctive relief; because of the arrangement which had been made by way of the 2 July Email, however, the petition as in fact presented by the Browns did not include any such injunctive relief. In any event, as had been discussed in the above-mentioned solicitors' correspondence, the disciplinary hearings which would otherwise have started on 4 July 2019 were once again put on hold, albeit this time no new date was fixed — presumably on the basis that they were not to be reconvened until after the petition had been determined.
On 6 August 2019, MML filed and served its Points of Defence 5. Suffice to say, those Points of Defence denied that the Browns were entitled to the relief claimed in the unfair prejudice petition or indeed any relief at all.
The proposed reconvening of the disciplinary hearing
To continue reading
Request your trial