Laurence Pagden v Soho Square Capital LLP
| Jurisdiction | England & Wales |
| Judge | Burton |
| Judgment Date | 21 April 2022 |
| Neutral Citation | [2022] EWHC 944 (Ch) |
| Docket Number | Case No: CR-2018-007097 922/2018, 923/2018 and 924/2018 |
| Court | Chancery Division |
[2022] EWHC 944 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANTES LIST (ChD)
The Rolls Building
London EC4A 1NL
INSOLVENCY AND COMPANIES COURT JUDGE Burton
Case No: CR-2018-007097 922/2018, 923/2018 and 924/2018
Daniel Lewis (instructed by Harcus Parker Limited) for the Applicants
Matthew Weaver QC (instructed by Pinsent Masons LLP) for the First to Third Respondents
The Fourth Respondent Simon Hussey appeared in person
Hearing dates: 25 March 2022
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.
INSOLVENCY AND COMPANIES COURT JUDGE Burton
ICC Judge
This is the hearing of an application dated 18 January 2022 issued by Laurence Pagden and Simon Underwood, as the current joint liquidators (“Joint Liquidators”) of Core VCT plc (“Core”), Core VCT IV plc (“Core IV”) and Core VCT V plc (“Core V”) (together “the Companies”) pursuant to section 112 of the Insolvency Act 1986 (“IA1986”) (the “Application”).
For reasons explained below, the hearing has been described as the “Sanction Hearing”, held pursuant to paragraphs 6 and 7 of the order of the Court of Appeal in these proceedings dated 11 November 2020.
Background
The Companies were incorporated variously in 2005 and 2006 as vehicles for investments in small and medium-sized enterprises.
In July 2011, in order to comply with VCT funding rules, the Companies transferred their beneficial holdings in their most significant investments to a limited partnership, Core Capital I LP (“New Core I”). This resulted in the Companies holding a 29.56% interest in New Core I. The investments were managed by the First Respondent, Core Capital Partners LLP, now known a Soho Square Capital LLP (the “Manager”).
In March 2015, the Companies' directors recommended putting them into members voluntary liquidation (“MVL”) in order to sell the assets held by New Core I plus some additional investments held directly by the Companies. Members were informed that the Manager would retain sole responsibility for investment and realisation proposals and that the proposed liquidators would not be personally liable for the outcome of the Manager's investment and realisation decisions.
On 16 April 2015 each of the Companies resolved to enter MVL with Mark Fry and Neil Mather as joint liquidators (both licensed insolvency practitioners, then with Begbies Traynor: “the Former Liquidators”). More than 99% of each Company's members who exercised their right to vote, voted in favour of the proposals.
In November 2015, the assets held by New Core I, together with the Companies' directly-held assets were sold to Core Capital Partners II LP (the “Purchaser”) (the “Sale”) for approximately £48 million. The Companies received approximately £12.8 million for their interest in New Core I and approximately £3.8 million for their directly-held assets.
Following the Sale, between 88% and 94% of the Companies' members voted in favour of resolutions approving the Former Liquidators' final report and accounts and releasing them from liability. On 18 November 2016, the Companies were dissolved.
In June 2018, Mr Grattan, with the support of Mr Hussey (each of whom held approximately 0.3% of Core's shares) applied to court to restore the Companies to the register and for the appointment of the Joint Liquidators (the “Restoration Application”). The hearing took place before Fancourt J on 20th July 2018 without notice having first been given to the Former Liquidators. Fancourt J made the order sought.
On 11 September 2018, the Second Respondent to the Application, one of the Manager's founders and managing partners, Mr Fakhry and Mr Fry applied to remove the Joint Liquidators. On 15 March 2019, Jeremy Cousins QC, sitting as a Deputy High Court Judge, dismissed Mr Fakhry's and Mr Fry's application. Mr Fakhry appealed.
On 15 September 2020, the Court of Appeal granted the appeal in the Restoration Application and ordered that general meetings of the Companies be convened for the members to vote on whether:
i) the Companies should remain restored to the register for the purposes of investigating claims against various parties including the Former Liquidators; and
ii) the Joint Liquidators should remain in office
(the “Meetings”).
On 11 November 2020, the Court of Appeal ordered that hearings before an ICC Judge be listed expeditiously, to give directions for the convening of the Meetings and following the Meetings for there to be a further hearing (this “Sanction Hearing”) to determine whether Fancourt J's order restoring the Companies should be confirmed or set aside and to consider how the votes cast at the Meetings should be treated.
The matter first came before me in November 2021 by which time the Joint Liquidators had taken no steps to comply with the Court of Appeal's order to convene the Meetings but in the meantime had issued, but not served, claim forms against parties including the First to Third Respondents (the “Claims”) alleging breaches of statutory, fiduciary, equitable, contractual and tortious duties, misappropriation of assets and a failure to disclose interests; as well as dishonest assistance, procuring breach of contract; unlawful means conspiracy and knowing receipt. In August 2021 they had also applied ex parte and obtained an interim order from Falk J granting them permission to issue proceedings pursuant to section 212 of the IA1986 against the Former Liquidators (the “s212 Application”) with directions for the application to be relisted and following proper notice to the Former Liquidators, heard de novo on the first available date after 1 October 2021.
On 3 December 2021, I directed the Joint Liquidators to hold the Meetings on 20 December 2021 to consider two resolutions:
i) that each Company should remain restored to the Register for the purpose of investigating the conduct of the managers and the Former Liquidators (the “First Resolution”); and
ii) that the Joint Liquidators continue in office with powers to act jointly and severally (the “Second Resolution”).
The First Resolution was passed at each of the Meetings with a convincing majority. The Second Resolution was passed by the members of Core IV and Core V, but rejected by 58.5% of the members of Core.
Following the Meetings and a contested hearing, on 21 December 2021, I made an order granting leave pursuant to section 212(4) of the IA1986 for the Joint Liquidators to pursue the s.212 Application against the Former Liquidators.
The Claims, together with Particulars of Claim were served by the Companies, acting by the Joint Liquidators on 24 December 2021.
The Application now before me, was issued on 18 January 2021, supported by Mr Pagden's witness statement dated 7 February 2022.
The effect of the votes cast at the Meetings is that there is now no dispute whether the Companies should remain restored to the Register. The order of Fancourt J should therefore be confirmed.
As the votes of those who have been funding the Joint Liquidators did not have a material effect on the outcome of the Meetings, the parties agreed that the only remaining issue for the court to determine is whether the votes of those who are subject to the Claims, including the First to Third Respondents (the “Soho Respondents”) should be counted.
The effect of the court's decision will determine whether the Joint Liquidators should stay (if the Soho Respondents' votes are not counted) or be removed from office and the vacancy filled by other insolvency practitioners (if they are).
The Soho Respondents submit that the court's jurisdiction to interfere with the voting rights of a shareholder are limited: the general rule being that a shareholder is free to vote, irrespective of motive, and that their votes should therefore be counted.
The Fourth and Fifth Respondents, Mr Hussey and Mr Hollond, take the view that as they are the proposed funders of the litigation and if successful, stand to gain from it, neither their votes, nor those of the Soho Respondents should be counted. Mr Hussey's witness statement sets out his concerns regarding the Soho Respondents' conduct and also states why he considers that many of the votes cast by them were not valid, their shares having been issued after the relevant Stock Exchange cut-off date and, contrary to a Stock Exchange announcement, not having been fully paid up but supported instead by a guarantee.
Having explored with Counsel and Mr Hussey, the potential effect that these allegations might have on the issues before the court for the purposes of the Application, all parties agreed that there was no need for the court to consider them, at this stage and, absent further evidence, should not do so. If I favour the Soho Respondents' case on the legal principles, then it may prove necessary for the court to make further directions to address Mr Hussey's concerns about whether their shares are valid. If I decide that the Soho Respondents' votes should not count towards the requisite majority, with the consequent effect that the Joint Liquidators remain in office, then, for current purposes, Mr Hussey's concern becomes academic.
The Joint Liquidators stated that they took a neutral stance. This was reflected in Mr Lewis' skeleton argument that dealt relatively briefly with what he considered to be the relevant legal principles. However, he expanded upon...
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