Ian Colin Wormleighton v Salamander Invest A/S
| Jurisdiction | England & Wales |
| Judge | Jones |
| Judgment Date | 03 September 2020 |
| Neutral Citation | [2020] EWHC 2369 (Ch) |
| Court | Chancery Division |
| Docket Number | CR-2020-000448 |
| Date | 03 September 2020 |
[2020] EWHC 2369 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
By Skype Remote hearing
IN THE MATTER OF FORTUNA FIX LIMITED (IN ADMINISTRATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
I.C.C. JUDGE Jones
CR-2020-000448
Mr Al-Attar (instructed by Macfarlanes LLP) for the Applicants
Mr Goldring Q.C. and Mr Marcus Haywood (instructed by Sullivan & Cromwell LLP) for the 1 st Respondent
Mr Jonathan Nash Q.C. and Mr Robert Amey (instructed by Withers LLP) for the 2 nd Respondent
Hearing dates: 6 and 7 August 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.
CHJ 3/9/20
I.C.C. JUDGE Jones
A) Setting The Scene
Fortuna Fix Limited (“FFL”) is unable to pay its debts as they fall due. It was resolved by the board of directors on 17 January 2020 that Administrators should be appointed and they were formally appointed on 22 January 2020. FFL's main shareholders are not only in deadlock but in acrimony. The largest minority shareholder, Salamander Invest A/S (“Salamander”) (24.9%), has made some of those connected or associated with the majority shareholder, the trustees of the Genesis Trust (70.5%), the subject of a derivative claim. It is at the permission to proceed stage. One of those defendants is the majority creditor, Genesis Technologies Limited (“GTL”) (@82%). A conspiracy to transfer all FFL's assets to GTL is alleged and vehemently refuted.
Salamander has provided non-recourse funding for the costs and expenses of the administration within the context of the Administrators conducting inquiries and investigations into the causes for the derivative claim and other potential claims against (amongst others) GTL. The Administrators have not reached the stage of being able to assess the merits of any claims but propose the continuation of the administration for that purpose to aim (in outline) to achieve a “consensual agreement” between the warring factions and the rescue of FFL as a going concern or a better realisation than would result from liquidation. GTL voted against the Administrators' proposals. They have not been approved.
At the heart of FFL's business and any future it may have is an exclusive licence agreement (“the Licence Agreement”) concerning the development of a variety of intellectual property rights for medical advances. These include the use of robotic manufacturing technology in the production of products to treat a spectrum of neurological and central nervous system disorders, such as spinal cord injury, traumatic brain injury, Parkinson's Disease and Alzheimer's Disease. GTL is the licensor and other companies and individuals connected or associated with the Genesis Trust are involved in the underlying research and development. GTL and FFL also entered into a “Transitional Services Agreement” under which FFL would pay GTL for support services concerning the medical products.
In practical terms, the contractual arrangements were devised on the basis that FFL would be the financier. Investment it raised, whether from its shareholders or otherwise, would enable the products to be brought to the medical market-place. It would profit, and therefore be an attractive investment proposition, from the returns resulting from its rights in the intellectual property under the Licence Agreement. Now it does not even have the money to pay the licence fee, let alone exploit the intellectual property under the terms of the licence. Salamander also contends that its rights have been significantly eroded by amendments to the two agreements.
The consequence of non-payment has not been termination of the Licence Agreement. Salamander contends that the terms of the Licence Agreement mean it cannot currently be terminated unless and until FFL is placed into liquidation. Whilst GTL has not accepted that and has indicated that it might be terminable on other grounds, that has not been the subject of any detailed argument or request for determination. It is currently an extant agreement and there is no dispute that a liquidation will result in termination. GTL's position in that circumstances is that the administration by preventing a liquidation results in the intellectual property rights licensed to FFL not being exploited. This, it is said, is both detrimental to GTL and contrary to the public interest. GTL is currently stymied by FFL's insolvency and by an agreement which stops the underlying research reaching those in need of the pioneering treatments.
Salamander asserts that GTL is acting and rejected the Administrators' proposals out of pure self-interest. First to stop the Administrators from investigating the derivative and other claims. Second, to achieve the liquidation which will result in termination of the Licence Agreement. Salamander supported the proposals and still considers that FFL should continue in administration to achieve a rescue as a going concern. It is not a creditor but rejects GTL's contention that this is in truth a shareholders' dispute.
GTL asserts that the reasons for its rejection of the proposals was that they had no real prospect of achieving their objectives, whether a rescue as a going concern or a better result for creditors than a liquidation. FFL has no future because any return to being a going concern must depend upon further funding and that will not be provided in the light of the groundless litigation claims of Salamander. There is no prospect of any “consensual agreement” and third parties will not provide finance in those circumstances.
There is also no reason why an administration will produce a better result for creditors than a liquidation. There is no prospect of the Licence Agreement being sold and any litigation claims can be investigated and, if appropriate, pursued equally as well by a liquidator. A liquidation will result in termination of the Licence Agreement but that is a contractual right not to be defeated by proposals with no prospect of success. Most importantly not only for GTL and the Genesis Trust but as a matter of public importance, removal of the stymie will enable the medical treatments to come to the market place to treat those suffering from debilitating and potentially life ending neurological and central nervous system problems. That sets the scene of commercial and litigation turmoil for the two applications issued by the Administrators.
B) The Applications
The first application in time is made under paragraphs 55(1) and 63 of Schedule B1 of the Insolvency Act 1986 (“the Act”) following the rejection of the Administrators' proposals to achieve the purpose of administration. The second seeks directions under paragraph 63 of Schedule B1: (i) as to whether to convene a creditor decision procedure pursuant to a statutory request by GTL pursuant to paragraphs 56 and 97 of Schedule B1 to decide whether to replace the Administrators; and, if so (ii) as to the voting entitlements in respect of that procedure.
Paragraphs 53(2) and 55(1) of Schedule B1 respectively require the Administrators, as they have done, to report to the court and apply for directions when their proposals for achieving the purpose of administration are rejected. It has been established by case law that the requirement of paragraph 55(1) is mandatory (see ( Re BTR (UK) Ltd, Lavin v Swindell [2012] EWHC 2398 (Ch), [2012] B.C.C. 864 and Re Pudsey Steel Services Ltd [2015] BPIR 1459, although see also Re Parmeko Holdings Ltd [2014] B.C.C. 159).
The court has a wide discretion upon such an application. Four specific, potential orders are identified in paragraph 55(2) of Schedule B1 (appointment to cease; adjournment; interim order; or to make a winding up order on a suspended petition). The court also has an express, unfettered discretion. It may “make any other order (including an order making consequential provision) that the court thinks appropriate”. It has been decided in case law binding upon me that this includes a power to authorise implementation of an administrator's proposals notwithstanding opposition from a majority of creditors (see Re Structures & Computers Ltd [1998] B.C.C 348 at 353B per Neuberger J., as he then was; applied in DKLL Solicitors v Revenue and Customs Commissioners [2007] BCC 908 at 914G-H per Andrew Simmonds QC).
Before that will occur, the court will need to be satisfied that the company is or is likely to become insolvent and that it is reasonably likely that one or other of the purposes of an administration prescribed by paragraph 3 of Schedule B1 will be achieved. If so, the court will still need to exercise its discretion. In doing so it will address the interests and views of the creditors upon the application in the context of the voted rejection and the potential alternatives. The court will consider whether the weight of those views is diminished by self-interest, including any conflict of interest.
The second application arises because the majority unsecured creditor (there are no secured or preferential creditors) has relied upon paragraphs 56 and 97 of Schedule B1, section 246ZE and Rule 15.18 of the Insolvency (Engkland and Wales) Rules 2016 ( “the Insolvency Rules 2016”) to request a decision procedure be requisitioned to resolve whether to replace the current administrators with insolvency practitioner appointees from Cork Gully LLP. The issues before the court are whether there is jurisdiction to direct that the qualifying decision...
To continue reading
Request your trial
-
Re Bulb Energy Ltd
...to fill the gap with the court's inherent jurisdiction. 61 I have also been referred to Re Fortuna Fix Limited (In Administration) [2020] EWHC 2369 (Ch), that was a decision of ICC Judge Jones that concerned a different provision to what I am dealing with today and therefore I say no more ......