Diana Langer v John McKeown

JurisdictionEngland & Wales
JudgeMr Nicholas Thompsell
Judgment Date21 December 2020
Neutral Citation[2020] EWHC 3485 (Ch)
Docket NumberCase No: CR-2019-002315
CourtChancery Division

[2020] EWHC 3485 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (CHD)

IN THE MATTER OF THE STRATOS CLUB LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2006

Royal Courts of Justice

Rolls Building, Fetter Lane,

London, EC4A 1NL

Before:

Mr Nicholas Thompsell

sitting as a Deputy Judge of the High Court

Case No: CR-2019-002315

Between:
Diana Langer
Petitioner
and
(1) John McKeown
(2) The Stratos Club Limited
Respondents

Ms Anna Lintner (instructed by Russells) for the Petitioner

Mr Romie Tager QC and Mr Maxwell Myers (instructed by Brook Martin & Co.) for the Respondents

Hearing dates: 18 – 30 November 2020

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 Nicholas Thompsell

INTRODUCTION

1

In June 2018, The Stratos Club Limited (“ Stratos” or the “ Company”), through its subsidiaries, owned and operated two lap dancing clubs in Marylebone (“ the Marylebone Club”) and Soho (“ the Soho Club”) both of which traded under the name “ Sophisticats”. The Marylebone Club had had a long trading history and was very profitable. The Soho Club had been acquired more recently, had been expensively fitted out and was not trading profitably, although its turnover had been growing.

2

By the end of February 2019, the Company was an empty shell. The companies in its group held only a small amount of cash, debt receivables and debt liabilities. The Soho Club had been acquired by companies owned by the First Respondent, Mr John McKeown (who I will refer to variously as “ Mr McKeown” and, for convenience although he is technically only the First Respondent, the “ Respondent”). The Marylebone Club had closed and had transferred its assets, staff, dancers and trade to other premises owned by a company that operated another lap dancing club based in the Euston area (the “ Euston Club”) which Mr McKeown had recently acquired (or was in the course of acquiring).

3

Mr McKeown was throughout the controlling director of Stratos and all of its subsidiaries and at the relevant times was the largest shareholder of Stratos, holding 50% and then later 75% of the shares. At the relevant times, the Petitioner, Mrs Diana Langer (who I will refer to variously as the “ Petitioner” or “ Mrs Langer”) was a minority (25%) shareholder in Stratos.

4

Mrs Langer complains that she has been unfairly prejudiced by the conduct of the Company in a number of ways. Chiefly she complains that the sale of the business and assets of the Soho Club, and that of the assets and goodwill of the Marylebone Club, were each undertaken improperly at the instigation of Mr McKeown in breach of his duties as a director and that in acquiring the Euston Club Mr McKeown had diverted from the Company a valuable opportunity which would have allowed the Company to continue trading the business that it had pursued successfully at the Marylebone Club.

5

The Respondent denies each of the instances of unfair prejudice alleged by Mrs Langer. As regards the central allegations, the broad thrust of the Respondent's case is that his actions in bringing about the transfer of the assets and business of the Soho Club and the assets and goodwill of the Marylebone Club operated in the interests of the Company. This was because these assets had no significant value and the transactions benefited the Company. In the case of the sale of the Soho Club, he says that this relieved the Company from an intrinsically loss-making business. In the case of the Marylebone Club, he says that the Company benefited by avoiding liabilities for staff redundancies which otherwise it would have inevitably incurred. As regards the acquisition of the Euston Club, the Respondent denies that this was an opportunity that came to him in his role as a director of the companies in the Stratos group and he denies that it is an opportunity that the Company could ever have been able to take up. Furthermore, to the extent that any of these events involved a breach of a director's duty, he says that this was remedied by later board and shareholders' resolutions.

6

Mrs Langer also says that she has suffered unfair prejudice as a result of financial mismanagement of the Company and its subsidiaries, including improper payments of salary to Mr McKeown and his friends and family and payments being made from the Company that were not for the benefit of the Company. Each of these accusations is denied by Mr McKeown.

7

Mrs Langer further complains that she has been unfairly prejudiced by being falsely accused of being indebted to the company on a shareholder loan account and through demands being made in a menacing manner for the repayment of these debts. Mr McKeown answers this by saying that the accusations of indebtedness were not false and that requiring repayment of these debts did not unfairly prejudice Mrs Langer.

8

Mr McKeown also refers to various actions taken by Mrs Langer which he says were to the detriment of the Company and which, he says, explain certain elements of his conduct. He says that, even if the Court finds anything in his conduct to criticise, Mrs Langer's conduct should be weighed against his own conduct.

9

Before considering these claims and defences in detail it is helpful to set out the relevant facts, which for the most part are agreed. They are complex and it will assist in understanding the issues involved to commence with a description of the events which took place in a broadly chronological order.

II. KEY EVENTS

10

It is important to understand that there has been a long history of dealings between the parties.

The acquisition of the Marylebone Club

11

The opportunity to acquire the Marylebone Club was identified by Mr Simon Langer (“ Mr Langer”) in 2001. Mr Langer and Mr McKeown had had business dealings before and were friends. By all accounts they became the best of friends, each respecting the other's abilities and taking holidays together. At this point Mr Langer had more experience of operating central London clubs of a similar nature to Sophisticats. Mr McKeown had a more general business experience and was stronger in relation to financial matters. He appears to have taken the lead in negotiating and structuring the acquisition.

12

Mr Langer at this point was developing a romantic relationship with the Petitioner, who later became his wife.

13

The Marylebone Club was acquired in 2001, at which point it was already a well-established club, having achieved a degree of fame (or notoriety) through its being featured on the television programme “Naked in Soho”.

14

A notable feature of the arrangements at this point was that they included the payment of a royalty of 5% of net profits in return for the licensing or assignment of the trademark, a logo featuring a stylised “S” with catlike features. This trademark was not in fact used in the business and I accept Mr McKeown's evidence that the pricing of this was not separately considered in any depth – it was regarded by all parties just as a way of providing a payment in a manner that the seller would find tax effective.

15

Another feature of the arrangement was that the sale agreement was conditional on a Company Voluntary Arrangement being entered into in relation to Mondrealm Limited (“ Mondrealm”), the company which held the lease for the Marylebone Club.

16

A feature of how the Sophisticats business was operated over the years was that the operating companies and holding companies involved were liable to change to suit the needs of the business; to protect key assets where a company might be at a risk of bankruptcy; and to save tax.

17

At this point the top company through which the Sophisticats business was held was Futureproof Investments Ltd (“ Futureproof”). The percentage ownership of this company is a matter of some dispute, but it is common ground that its beneficial owners included Mr McKeown, his then wife, Mr Langer, Carlo Cura (a friend and long-time business partner of Mr Langer) and the Petitioner.

18

It seems that the intention was that each of these would have a 20% interest, although it is Mr McKeown's evidence that this interest would be dependent on each having made the same contribution to the financing, which he says was not initially the case. Mr McKeown considered himself the arbiter of this arrangement and arranged for all of the company's shares (initially 510 shares) to be issued to himself, although eventually he did arrange for 20 shares to be issued to the Petitioner and 20 shares to Mr Cura. Mrs Langer did not understand that these were 20 shares out of 550 rather than 20 out of 100 and I formed a suspicion that the choice of giving her 20 shares rather than some other number may have been to give her that impression. Mr McKeown said that he considered himself to be holding the other parties' interests in shares on trust but there was no formal trust arrangement.

19

The rights and wrongs of these arrangements were not fully explored during the trial, and there is no particular reason why they should be. However, I consider it is noteworthy that these arrangements show at an early stage that Mr McKeown was keen to retain control of the company in which he was only a minority holder at this stage and that there was clearly a large degree of trust placed in him by the other beneficial owners.

20

There was some discussion in the evidence of the relative contribution of the different parties to the acquisition of the Marylebone Club and of the early days in running it. It is...

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1 cases
  • John McKeown v Diana Langer
    • United Kingdom
    • Court of Appeal (Civil Division)
    • November 26, 2021
    ...be determined, the appropriate basis and mechanism for the valuation of those shares. 3 Judgment was given on 21 st December 2020 ( [2020] EWHC 3485 (Ch)) (“ the liability judgment”). The judge found that the appellant had unfairly prejudiced the interests of the respondent: (i) by causing......
2 firm's commentaries
  • Unfair Prejudice: Flexible But Unpredictable?
    • United Kingdom
    • Mondaq UK
    • August 19, 2021
    ...out over participation and dividends between founding members of a hotel business from a Coptic congregation; and Re Stratos Club Ltd [2020] EWHC 3485 (Ch) - a director asset-stripping (pun intended) a dancing company. There are lessons to be learned from each, but the overall message is th......
  • Unfair Prejudice: Flexible But Unpredictable?
    • United Kingdom
    • Mondaq UK
    • August 19, 2021
    ...out over participation and dividends between founding members of a hotel business from a Coptic congregation; and Re Stratos Club Ltd [2020] EWHC 3485 (Ch) - a director asset-stripping (pun intended) a dancing company. There are lessons to be learned from each, but the overall message is th......

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