Elliot Green v David Christian Chubb and Another
| Jurisdiction | England & Wales |
| Judge | Mr Registrar Briggs |
| Judgment Date | 12 February 2015 |
| Neutral Citation | [2015] EWHC 221 (Ch) |
| Docket Number | Case No: 19098 of 2009 |
| Court | Chancery Division |
| Date | 12 February 2015 |
[2015] EWHC 221 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF CORPORATE JET REALISATIONS LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
No. 7 The Rolls Buildings
Fetter Lane, London, EC4A 1NL
Mr. Registrar Briggs
Case No: 19098 of 2009
Mr. Paul Burton (instructed by Freeth Cartwright LLP) for the Applicant
Mr. Adam Al-Attar (instructed by Hogan Lovells) for the Respondents
Hearing dates: 17 December 2014
Introduction
Corporate Jet Realisations Limited (the "Company") was incorporated on 29 August 2001 and became a holding company for 6 trading subsidiaries, all of which carried on business in the private jet charter industry. Upon a creditor's petition the Company was wound up by the court on 25 November 2009. Mr. Green was appointed as its liquidator on 1 March 2010. The insolvent liquidation of the Company succeeded the appointment of David Chubb and Michael Jervis as joint administrative receivers (the "Joint Receivers") on 26 September 2007. The Joint Receivers vacated office on 5 March 2013.
By an application dated 27 June 2013 (the "Application") Mr. Green (in his capacity as liquidator of the Company) asks for immediate delivery up of 'all books and records and other documents of the Company and all documents, files and other information which came into existence as a result of the Respondents position as Joint Receivers". Perhaps more controversially the Application also asks that the Respondents deliver up of the 'management buyout sales reports prepared by PricewaterhouseCooper LLP ("PwC") ……', and details and documents relating to 'all work undertaken by PwC prior to entering receivership.' The Application is made pursuant to Sections 234, 235 and/or 236 of the Insolvency Act 1986.
The factual background
The Company was a holding company for 6 trading subsidiaries. It was dependent upon lending from the start. The lending came chiefly (if not exclusively) from the Governor and Company of the Bank of Scotland (the "Bank") which provided overdraft and loan facilities. By a debenture dated 28 November 2002 the Bank obtained a debenture securing its loans and, as I understand it, also obtained specific security by way of aircraft mortgages. On 4 April 2007, PwC was engaged by the Bank to investigate the financial position of the Company and its subsidiaries and to report back on the options open to the Bank and the Company. During the course of the independent business review PwC established that the Company was balance sheet insolvent with net current liabilities of £111m and a negative net monthly cash flow of about £110,000. The Bank instructed PwC to realise its property interests in the Company in order to pay down the liabilities owed. According to the evidence provided by Mr Chubb (the first Respondent) the existing management team made an offer to purchase the business of Company during the course of a marketing campaign.
By a letter dated 14 August 2007 the Bank appointed PwC to advise it in relation to the proposals for a management buyout ("MBO"). The letter of engagement was sent to the Company. The Bank required the Company to pay PwC's fees in accordance with the Bank's rights against the Company under the finance documents. Whether or not the Company actually paid the sums due to PwC is not clear; it may be that the Bank paid PwC adding the costs to its security. It was agreed that the advice provided by PwC to the Bank would be confidential as between those parties.
The Bank appointed the Joint Receivers on 26 September 2007 and on the same day they effected a sale of the business and assets to a company incorporated by the MBO team. It is uncontested that the sale documentation identifies that the value obtained for the Company related to the shares of the subsidiaries. The consideration for four of the subsidiaries was £1–00 each save. One subsidiary (Fly Euromanx) obtained a sale price of £50,000. The price for Fly Euromanx however was deferred but it was eventually realised. As regards the last subsidiary the shares in 328 SSG, were the subject of an option to purchase. That option was exercised in 2011 for a price of £5,000,000. The sale to the MBO did not include 5 aircraft owned by the Company. The Joint Receivers instructed agents to assist in valuing, leasing and disposing of the aircraft. I shall return to these valuations below. Mr Chubb explains that there was a decline in demand for corporate jets as a result of the recession but nevertheless they obtained sales. In total, the Joint Receivers realised approximately £17,000,000, of which £14,500,000 was paid to the Bank under its security and £2,500,000 was paid in fees and expenses incurred in the course of the receivership.
The Joint Receivers ceased to act on 5 March 2013. The final result of the receivership was a shortfall to the Bank of some £98,500,000 with no assets available for distribution to the unsecured creditors of the Company.
As regards the winding up, Mr. Chubb says that he was surprised when he heard that a petition had been presented to wind up the Company. He was surprised because the creditor (CALL) knew about the appointment of the Joint Receivers and he says the creditor would have known or could have established without too much trouble that there would have been no assets to collect-in and distribute to the unsecured creditors. Mr Chubb instructed solicitors Hogan Lovells to write to CALL to find out more. The response came in an e-mail dated 5 October 2009 in which solicitors for CALL wrote his client had "serious concerns that the administrative receivership proceedings were flawed……They require details of all transactions concluded by the receivers which can also be reviewed and investigated by a liquidator as can the actions of directors of the company." This communication put the Joint Receivers on notice that there may be challenges to the receivership and may have coloured their view regarding the liquidator's subsequent requests for documentation and information.
Within a week of his appointment as liquidator of the Company Mr. Green wrote to the Joint Receivers asking for an up to date receipts and payments account and the location of the Company records. The request started a chain of correspondence in which the liquidator consistently sought information and documents and the Joint Receivers questioned the reasons for delivery up and denied having the Company records stating that they were handed over to the MBO team. Mr. Green did not accept the answers provided, referred to the obligations of the Joint Receivers under the Statement of Insolvency Practice number 1 and eventually issued the Application. The Joint Receivers also identified privilege and confidentiality as reasons for not delivering the documents they held. In an e-mail dated 17 September 2010 the liquidator asked for a list of documents held and 'identify upon it those which you claim some form of qualified privilege'. One issue that seemed to loom large in the liquidator's mind was a payment of c£2.4million to an Isle of Man bank account. The liquidator was of the view that the payment was made by the Joint Receivers on behalf of the Company and wanted to know the reasons for such a large payment.
The Joint Receivers say that they provided (on 27 September 2013 — after the issue of the Application), Mr Green with a great volume of books and records which amounted to some 11 lever arch files. This did not satisfy Mr Green. In evidence Mr. Chubb contends that the Joint Receivers' policy in relation to the Company was to correspond with third parties by letter, and the Receivers' disclosure of Company property was made on that basis. He explains that the Joint Receivers produced several thousand e-mails in relation to receivership and that 'the majority of these emails will not be Company property, as they are made up of PwC internal correspondence, or correspondence which came into being as a result of PwC's duties to the Bank'.
The Application
In support of the Application Mr. Green says that he needs to review the documents set out in the Application in order to establish the work carried out by the Joint Receivers and examine the justification for the substantial fees they were paid. In his first statement dated 12 June 2013 he explains:
"I need to establish exactly what assets the Respondents' realised as Administrative Receivers and whether the assets sold were for proper consideration. In addition, I need to establish why the Respondents paid £20 million from the Company's assets to the Isle of Man Bank as referred to in Mr Meens email dated 30 July 2010. Further, there are a number of complex conduct issues, relating to the Respondents' appointment as Administrative Receivers of the Company, and possible criminal issues which I need to investigate and such need all available information including the information sought in the application."
In his second witness statement dated 8 July 2013 Mr. Green states that the Joint Receivers have continually refused to provide him with all documents they created, received or issued in relation to their duty to manage the affairs of the Company. He elaborates in his third witness statement dated 17 December 2013:
"As stated, I have a duty to investigate the affairs of the Company and this includes establishing what assets of the Company have been sold, at what price and the circumstances surrounding the sale of the same. This can only be achieved by reviewing contemporaneous documentation including all sales agreements and emails sent at the time of sale(s)…… Notwithstanding this and that the Application does not make specific...
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...512. 75 Strong reliance was placed by Mr Lynch on the decision of Re Corporate Jet Realisations Ltd (in liquidation); Green v Chubb [2015] EWHC 221 (Ch); [2015] 2 BCLC 95. He referred in particular to [18], [20], [22], [25], [48], [52] and the summary taken from the headnote as follows: “......