Hanover Investors Management LLP (on Behalf of Hanover Catalyst Fund) v Hawkwing Plc
| Jurisdiction | England & Wales |
| Judge | Barber |
| Judgment Date | 28 February 2023 |
| Neutral Citation | [2023] EWHC 407 (Ch) |
| Docket Number | CR 2022 004652 |
| Court | Chancery Division |
[2023] EWHC 407 (Ch)
ICC JUDGE Barber
CR 2022 004652
CR 2022 004631
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF HAWKWING PLC
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
7 The Rolls Building
Fetter Lane
London
EC4A 1NL
Stephen Robins KC (instructed by Cadwalader, Wickersham & Taft LLP) for the Applicant
Timothy Collingwood KC and Timothy Benham-Mirando (instructed by Fladgate LLP) for the Respondent
Hearing date: 10 February 2023
Approved Judgment
This judgment was handed down remotely by email. It will also be sent to The National Archives for publication. The date and time for hand-down is 9.30 a.m. on 28 February 2023.
ICC Judge Barber
On 10 February 2023, after a one-day hearing, I ordered that Sarah Megan Rayment and Robert John Armstrong of Kroll Advisory Limited be appointed as joint administrators of Hawkwing Plc, with written reasons to follow. This judgment sets out my reasons for that decision.
Background
Hawkwing Plc (‘the Company’) was incorporated on 16 August 2011 and is registered in England and Wales. Its registered address is at its current solicitors, Fladgate LLP. According to its financial statements, the Company is a ‘cash shell whose principal activity is to identify potential acquisition opportunities’. The Company's shares are listed on the London Stock Exchange. It is subject to the UK City Code on Takeovers and Mergers.
According to the Company's website (1) the directors of the Company are Keith Sadler, Ken Wotton, Ian Robinson and Dwight Mighty; and (2) its shareholders are as follows:
Reverse Takeover Heads of Terms: July 2021
| Company | No of Shares | Percentage |
| Gresham House Asset Management | 14,227,380 | 28.29% |
| Strand Associates | 5,893,586 | 11.72% |
| Nigel Wray | 5,629,000 | 11.19% |
| OBERON Investments | 2,374,999 | 4.72% |
| David Walker | 2,500,000 | 4.97% |
| Stephen Hemsley | 1,950,000 | 3.88% |
| Adam Reynolds | 1,666,666 | 3.31% |
| Jonathan Satchell | 1,666,666 | 3.31% |
| Current shares in issue | 50,288,019 | 68.09% |
| Percentage of shares not in public hands | - | 33.10% |
On 12 July 2021, the Company announced the signing of a non-binding agreement to acquire a company incorporated in England and Wales called Internet Fusion Group Limited (company number 08751197) (‘IFG Limited’) through a reverse takeover transaction whereby shareholders in IFG Limited would be offered shares in the Company as the purchase consideration (‘the Reverse Takeover’).
In the lead-up to the Reverse Takeover, the Company proposed making a loan to IFG Limited to fund two acquisitions and the associated transaction costs of these acquisitions (‘the Acquisitions’). The target companies of the Acquisitions were Northcore Limited (‘Northcore’) and Shade Limited trading as Shade Station (‘Shade Station’).
The CULS Instrument: August 2021
To raise funds for this process, in August 2021, the Company issued £16,500,000 Convertible Unsecured Loan Notes (‘the Notes’). The Applicant, Hanover, subscribed for £2,000,000 of the Notes.
Clause 2.3 of the Convertible Unsecured Loan Note Instrument (the ‘CULS Instrument’) provided that the Company would use the proceeds of the Notes as follows:
‘(a) in an amount not exceeding £13,000,000, the making of one or more loans by the Company (on such terms as the Company shall see fit) to IFG or members of its Group for the purposes of financing the Northcore Acquisition and/or the Shade Station Acquisition (the aggregate of such loans being the ‘IFG Loan’) and related fees, costs and expenses;
(b) the making of one or more other loans by the Company (on such terms as the Company shall see fit) to IFG or a member of its Group and related fees, costs and expenses;
(c) the fees, costs, expenses, stamp and similar taxes and other transaction costs incurred by the Company in connection with the Acquisition; and
(d) the working capital requirements (including advisory fees) for the time being of the Company’
The term ‘IFG’ was defined in the CULS Instrument to mean Internet Fusion Group Limited (company number 08751197) or a newly incorporated parent undertaking of that entity.
The Notes bore interest at 8% per annum, payable annually on the anniversary of issue in cash, save for the first interest payment, which fell due on 12 August 2022, which was to be paid in kind by being capitalised and added to the outstanding amount of each note. Following the capitalisation, the outstanding principal amount of the Notes was £17,820,000.
The initial plan was that, upon the purchase of IFG Limited by the Company, the debt interests of the Noteholders would convert into a shareholding equity. Under the terms of the CULS Instrument, the Notes are therefore convertible into shares in the Company upon the occurrence of certain events.
Announcements to the Market
On 17 September 2021, the Company announced to the market that it had, on 16 September 2021:
‘provided Internet Fusion Group Limited (“Internet Fusion Group” or “IFG”) with a secured loan of £13.7 million (‘the IFG Loan’) to fund two acquisitions’ [ie Northcore and Shade Station].
This statement was repeated by the Company (using the term ‘IFG’, which had been defined in the announcement of 17 September 2021) in further announcements to the market on 13 December 2021, 24 December 2021 and 1 June 2022.
These statements were factually incorrect. In fact, the Company had on 16 September 2021 made a loan in the sum of £13.7 million to IFG SPP Limited, a company incorporated in Guernsey which was not a member of the IFG Group (‘IFG SPP’).
IFG SPP provided fixed and floating charges to the Company over Shade Station and Northcore. The Company also obtained a guarantee from IFG Limited for IFG SPP's obligations under the loan (‘the IFG Guarantee’). The IFG Guarantee ranks second behind a debt owed by IFG Limited to HSBC.
The loan of £13.7 million to IFG SPP (‘IFG Loan’) was, however, contrary to the express terms of the CULS Instrument.
Under Condition 3.3 of the CULS Instrument, the Company was obliged to notify holders of the Notes promptly upon becoming aware of any ‘Event of Default’ (as defined). It did not do so.
In a statement to the market on 30 September 2022, the Company revealed (for the first time) that it had loaned £13.7 million to IFG SPP. This revelation, made over a year after the IFG Loan, was tucked into a narrative overview contained in an Interim Management Report (‘IM Report’) for the Company. The loan to IFG SPP was presented in neutral terms; that is to say, it was not flagged in the IM Report as having been a breach of the CULS Instrument.
By this stage, negotiations for the Reverse Takeover had collapsed; talks had ceased in December 2021. The IM Report confirmed this. The IM Report also stated that it was ‘not possible to ascertain’ whether the full amount of the loan to IFG SPP was recoverable.
The IM Report did not spell out why it was said to be ‘not possible to ascertain’ whether the loan was recoverable from IFG SPP. In fact, on or about 29 September 2022, the Company had been informed by IFG Limited that a statutory demand had been served on IFG SPP on 16 September 2022 (Mighty (1), [18]).
IFG SPP's entry into liquidation: October 2022
On 26 October 2022, the Company announced that IFG SPP had gone into liquidation in Guernsey. By that announcement, the Company also confirmed that IFG SPP owed the Company the full outstanding principal of the IFG Loan, together with interest, costs and exit premiums.
Shade Station and Northcore: Appointment of Receivers: October 2022
On 27 October 2022, the Company issued a further announcement in which it stated that it had appointed Graham Bushby and Nicholas Edwards of RSM UK Restructuring Advisory LLP (‘RSM’) as receivers of IFG SPP Limited's shares in Shade Limited and Northcore Limited and IFG SPP Limited's book debts and other debts.
Amendment and Waiver Request Letter
The CULS Instrument allows for a ‘Noteholder Majority’, defined as more than 50% of the Noteholders, to give ‘prior written consent’ to any amendment to the CULS Instrument (clause 5.2) and for such majority consent to bind all other Noteholders. The CULS Instrument also allows a Noteholder Majority to waive an ‘Event of Default’ (Condition 3.4 of Schedule 2).
In or about September 2022, the Company decided to put these provisions to some use.
By an amendment and waiver request letter dated 29 September 2022 (‘the AW Letter’), circulated to some (but not all) of the Noteholders in October 2022, the Company sought (1) waivers from Noteholders of certain Events of Default and/or breaches under the CULS Instrument and/or the Subscription Agreement (2) consent to certain amendments to the CULS Instrument.
The AW letter was addressed ‘To: All Noteholders’ but circulated only to some. Paragraphs 1 and 2 of the AW Letter provided as follows:
‘1. Introduction
1.1 The Company wishes to amend certain terms and conditions of the Notes as set out in Schedule 2 to this letter (Amendments).
1.2 Pursuant to clause 5.2 of the CULS Instrument, the Amendments would become effective with, and upon, the prior written consent of a Noteholder Majority, the dates of which consent being the Effective Date.
1.3 Accordingly, by this letter, the Company is seeking written Noteholder consents to the Amendments.
1.4 Additionally, the Company is, for certainty, seeking waivers from Noteholders of certain matters … as set out in Schedule 3 to this letter (Waivers). Pursuant to Condition 3.4, the Waivers would become effective in respect of the CULS Instrument on the Effective Date.
1.5...
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