Jafari-Fini v Phoenix Acquisitions Ltd and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CHADWICK,LORD JUSTICE LATHAM,LORD JUSTICE PILL,Lord Justice Chadwick,THE CHANCELLOR,LORD JUSTICE MOSES |
| Judgment Date | 07 August 2007 |
| Neutral Citation | [2007] EWCA Civ 902,[2006] EWCA Civ 1034,[2005] EWCA Civ 356 |
| Docket Number | Case No: A2/2007/0082,A3/2004/2369,B6/2006/0211 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 August 2007 |
[2005] EWCA Civ 356
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Royal Courts of Justice
Strand
London, WC2
(His Honour Judge Rich QC)
Lord Justice Pill
Lord Justice Chadwick
Lord Justice Latham
——
A3/2004/2369
The APPELLANT appeared in person
MR D OLIVER QC & MR J ODGERS (instructed by Richards Butler) appeared on behalf of the First Respondent
MR D QUEST (instructed by Forsters) appeared on behalf of the Second Respondent
——
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This is an appeal from an order made on 26th October 2004 by His Honour Judge Rich QC, sitting as a judge of the High Court in the Chancery Division, in proceedings brought by the appellant, Mr Mohammad Jafari-Fini, against Skillglass Limited.
The issue before the judge in October 2004 was whether to give permission to amend the claim form by which the proceedings had been commenced so as to add derivative claims on behalf of Phoenix Acquisitions Limited; and, if so, whether to permit those derivative claims to be carried on by the claimant. He dismissed those applications. He ordered the claimant to pay to Skillglass and to Phoenix Acquisitions Limited—which was separately represented before him—75 per cent of their costs of the application. He gave permission to appeal. And he gave directions for a further conduct of the action which would proceed in relation to Mr Jafari-Fini's personal claims against Skillglass.
The appellant, Mr Jafari-Fini, claims to be beneficially interested in a majority of the issued shares of Phoenix Acquisitions Limited ("PAL"). In 2003 PAL made a public offer to acquire the shares of Chesterton International Plc ("Chesterton"). In order to fund that acquisition, the appellant and PAL entered into a number of agreements with Skillglass Limited and others. The agreements are dated 16th April 2003 and, so far as material, included the following: first, a facility agreement between Skillglass and PAL; second, a debenture granted by PAL to Skillglass; third, a guarantee executed by the appellant in favour of Skillglass; and, fourth, legal charges over shares and property granted by the appellant to Skillglass.
Under the terms of the Facility Agreement, Skillglass agreed to make available to PAL a term loan facility to a maximum principal amount of £12.85 million, or thereabouts, for the purpose of purchasing shares in Chesterton and meeting fees and ancillary costs. Draw down under the agreement could take place when the proposed offer for the Chesterton shares had become unconditional. Repayment was to be made in accordance with the following schedule: (1) within 21 days of the first draw down, £1,299,900; (2) within 180 days of the first draw down, £3,700,100—making in aggregate with the first tranche £5,000,000; (3) within 365 days of the first draw down, such amount as might be required to reduce the amount outstanding under the facility to £4 million; (4) on the second anniversary of the first draw down, the balance then outstanding.
Clause 23.2 of the Facility Agreement provided for the rights which Skillglass was to have in the event of default by PAL. Put shortly, in the event of default Skillglass would be entitled to serve written notice cancelling any future right to draw under the facility, declaring the whole amount already drawn to be immediately due and repayable, and declaring any security granted by PAL—and in particular the debenture to which I have already referred—to be immediately enforceable. But those rights were subject to the proviso that they could not be exercised prior to the expiry of 220 days from the date of the offer—a period defined as "the Certain Funds Period"—unless the event of default constituted a "Major Default", which was also a defined term.
Under the debenture granted by PAL to Skillglass, PAL covenanted that it would pay on demand all monies owed by it under the Facility Agreement and secured that obligation by fixed and floating charges over all its property and undertaking. The property subject to the fixed charge in the debenture included shares in Chesterton as and when acquired by PAL under the offer. That security was supported by an obligation on PAL to deposit with Skillglass share certificates and share transfers in respect of the Chesterton shares.
The appellant's guarantee contained an undertaking by him to pay on demand by Skillglass and to discharge all monies and liabilities due and owing by PAL to Skillglass under the facility letter. That obligation was secured by legal charges in favour of Skillglass over properties owned by the appellant and over all shares from time to time held by the appellant in PAL. Again, that security was supported by an obligation on the appellant to deliver share certificates and executed transfers and to procure that Skillglass was registered as the owner of the shares in PAL.
Once those funding arrangements were in place, PAL made a public offer to acquire shares in Chesterton. That offer was made on 1st May 2003 on the basis that it open to acceptance by 22nd May. PAL was entitled—and in the event did—extend time for acceptance to 30th June 2003. But on 27th June 2003, PAL, with the consent of Skillglass, declared the offer to be unconditional, notwithstanding that it then had acceptances in respect of no more than 87 per cent in value of Chesterton shares, rather than the 90 per cent contemplated by the offer itself.
Upon the offer being declared unconditional, PAL was entitled to draw down under the facility letter in order to pay for the Chesterton shares which it had acquired. The first draw down was on 11th July 2003. That set the timetable for the first repayment of £1,299,900 to be made on 1st August 2003, and for the second repayment—a tranche of £3,700,100—to be made on 4th January 2004.
A further consequence of the offer being declared unconditional was that the appellant, Resurge Limited—the parent company of Skillglass—and Phoenix Holdings Partners LLC—a Delaware limited liability company owned by investment bankers Babcock & Brown ("PHP").—became obliged to take up shares in PAL. Thereafter the appellant was beneficial owner of some 61 per cent of PAL, subject to the legal charge in favour of Skillglass, PHP was the owner of some 14 per cent and Resurge was the owner of the remaining 25 per cent of the shares in PAL.
The effect was that the appellant controlled PAL. But clause 21 of the investment agreement, which imposed the obligations to take shares in PAL upon the offer to acquire Chesterton's shares becoming unconditional, provided that, upon default under the Facility Agreement, Skillglass should have the right to assume control of PAL in the place of the appellant.
I have mentioned that under the debenture, and under the charge' given by the appellant, Skillglass was entitled to require shares in Chesterton acquired by PAL and shares in PAL for which the appellant had subscribed to be transferred to it upon the happening of an event of default under the Facility Agreement. Following the PAL offer for Chesterton shares becoming unconditional, it was agreed that the shares charged as security should be registered in the name of Skillglass forthwith; to be held by Skillglass as nominee pending default under the facility letter. Those arrangements are recorded, first, in a nominee declaration dated 27th June 2003—under which Skillglass undertook to the appellant that it would hold the appellant's shares in PAL as nominee or bare trustee to deal with the shares only as the appellant might direct until such time as the money secured by the appellant's guarantee became payable—and, secondly, in a nominee declaration dated 10th July 2003 in which Skillglass gave similar undertakings in relation to PAL's shares in Chesterton. From June and July 2003 Skillglass was the registered holder of 61 per cent shares of PAL and PAL's 87 per cent shares in Chesterton.
PAL duly paid the first tranche of £1,299,900 on 1st August 2003. It did so from monies subscribed under the investment agreement. On 24th October 2003 it made a further advance repayment of £600,000 by way of pre-payment of the second tranche, thereby reducing to £3,100,100 the amount due on 4th January 2004.
It seems to have been the appellant's intention from the outset that the second, third and fourth tranches by which the monies advanced by Skillglass to PAL under the Facility Agreement were to be repaid would be funded from monies generated within Chesterton's business. No doubt it was intended that Chesterton would make distributions to its shareholder, PAL, under section 153(3) of the Companies Act 1985 out of distributable profit, relying on what are sometimes described as the "whitewash provisions" in Chapter 6 of Part V of that Act.
Following the acquisition of control of Chesterton, the appellant was appointed to the board and given the post of Executive Chairman. He arranged for the sale off of Chesterton assets. But it became clear that Chesterton had suffered losses and incurred liabilities which raised doubts as to its solvency; and, in particular, which made it impossible to release funds to PAL under the whitewash provisions in Part V of the Companies Act 1985. Declarations of solvency from auditors and directors—which are essential to any distribution under those provisions—would not be forthcoming. That put the source of funds required to meet the second repayment tranche of £3,100,100 due on 4th January 2004, in...
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