MHMH Ltd v Carwood Barker Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE EVANS-LOMBE |
| Judgment Date | 20 December 2004 |
| Neutral Citation | [2004] EWHC 3174 (Ch) |
| Court | Chancery Division |
| Docket Number | Nos.6940, 6941 & 6942 of 2004 |
| Date | 20 December 2004 |
[2004] EWHC 3174 (Ch)
Mr. Justice Evans-Lombe
Nos.6940, 6941 & 6942 of 2004
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
MR. D. MARKS (instructed by Addleshaw Goddard) appeared on behalf of the Applicants/Claimants.
MR. S. DAVIS Q.C. (instructed by Lawrence Graham) appeared on behalf of the Respondent/Defendant.
This is an application for a provisional liquidator in what everybody concedes is unusual circumstances. The provisional liquidator is sought over the affairs of three companies, Moorgate House Group Ltd., the parent, and two subsidiaries, MHMH Ltd. and MHID Ltd. The business of MHMH was that of the provision of financial services advice to the public in association usually with an accountancy practice. The business of MHID was non-advisory but acting as an intermediary for the providers of financial products. MHMH it seems was by far the largest of the two subsidiaries in the sense that its turnover was very much greater than MHID.
Both were authorised firms by the FSA. In 2003 it seems that the companies got into difficulties as a result of which it was thought that they should put their businesses up for sale. It is accepted that at that stage and today they were substantially insolvent. They were insolvent as a result of claims that were threatened against them for mis-selling financial products. Certainly it seems, from looking at the financial information before the court, that those claims, which cannot be precisely quantified at this moment, are likely to form a substantial part of their indebtedness.
On the 20 th August of last year the companies entered into a sale and purchase agreement with Carwood Barker Holdings Ltd. The pattern of that agreement was that the purchaser would acquire the goodwill and assets of each of the companies businesses, primarily directed at MHMH which had the only substantial business, at a completion date, at which point the debtors of the company coming into existence after that date would go to the purchaser whereas they would remain with the vendor if already in existence before that date, and the same would be true, mutatis mutandis, with relation to the company's indebtedness.
The purchase price was £1.475 million payable as to £25,000 by the 31 st December of 2003, as to £250,000 on the 28 th April 2004, and thereafter by quarterly instalments of £75,000, the last instalment becoming due on the 28 th July 2008.
I should refer to the provisions of the agreement. Clause 3.11.2 and 3 provide that the vendor and investors, that is the two subsidiaries, undertake with the purchaser during any period when the deferred consideration is payable and when the purchaser has a claim against the vendor to do or not to do a number of things, and two of those things they promised that they would not do, was to take any steps, and this is clause 3.11.2, save as required by law to convene a meeting for the purpose of considering any resolution for their winding up, and 3.11.3, to take any steps, save as required by law, to commence any corporate legal or administrative proceedings with a view to its dissolution. Then at p.316 comes the clause which is the cause of the problem which now arises, and it is as follows: “If the vendor …” – and that would be any of the vendors:
“… shall pass a resolution or have a petition granted against it for the winding up of the Vendor or if a Receiver or Administrator of the Vendor is appointed or the Vendor enters into any arrangement with its creditors (together an insolvency event) the Purchaser shall be forthwith released from its obligation to make any further payments of consideration then unpaid.”
And “consideration” is defined to be the outstanding consideration for the time being.
The reason that an application is made for the appointment of provisional liquidators is that on the face of that clause a provisional liquidator would not trigger the stoppage of the flow of consideration under the vending agreement, but it would have the effect of preventing the company from sliding into insolvent administration of one kind or another there being creditors outstanding, unpaid, who are making claims on the companies and the companies do not have any money with which to pay those claims. Therefore, in the end, a creditor would apply for a form of insolvent administration of the assets, and that would prevent the flow of the consideration under the agreement and that consideration is the only substantial asset which these companies have.
There is another aspect of the matter, which is that if indeed there are substantial claims against MHMH particularly for mis-selling of financial products, MHMH and MHID being authorised by the FSA, those claimants are protected up to a fixed figure by the compensation scheme made by the FSA as a measure to promote confidence in financial markets. The rules of the scheme provide that the compensation provisions are triggered if, amongst other things, a provisional liquidator is appointed.
On the 11 th November the directors of the company, pursuant to the provisions of s.124(1) of the Insolvency Act, presented a petition to wind up the company which they were, by that section, authorised to do, and simultaneously applied for the appointment of a provisional liquidator. The return date for the petition is to be the 19 th January of next year. The matter came on on that date before Mr. Justice Lindsay, who adjourned it so that notice could be given to Carwood of the application for the appointment of a provisional liquidator. He did so because this is an unusual case and it occurred to him, as it occurred to me when the matter came before me at the first adjourned hearing of the application, that the provisions of the Insolvency Act which permit the appointment of provisional liquidators might be being misapplied or abused. I further adjourned the application to today, to come on as an application by order.
The petitioners are quite frank about the objective which they seek to achieve. They envisage that if an order is made and a provisional liquidator is appointed that that provisional liquidator will make it his business to obtain payment of the outstanding balance of the purchase moneys under the purchase and sale agreement. He may have to do so by litigation, but this will require, unless some agreement can be arrived at with the purchaser, the winding up petition to stand over for the balance of the period during which the instalments will fall due to be paid, that is for a further approximately four years to July of 2008. It is accepted that it is likely that if that date arrives and all the payments have been received and there is no further purpose in the provisional liquidation being kept in post that the company will then be wound up, but it is not accepted that that is the inevitable result of the provisional liquidation. It is said that it is important that the provisional liquidator be appointed now because that sets the ball rolling under the FSA compensation scheme. Clients who are making claims for mis-selling against either of the two trading companies will then be able to make their claims against the compensation fund, be paid such compensation as they are entitled to, and the FSA will be subrogated to their claims in any winding up or other administration which supervenes.
As I have said there is no other asset but this claim. The companies, all three of them, are simply shells. It is hard to describe them even as cash shells because they do not have much cash. They do have, however, I am told £100,000, approximately, which would be available in the short to medium term to finance the operations of the provisional liquidator if the other creditors of those companies are prepared to permit that to happen. It does not follow that the petitioning directors’ plans will in fact be followed if a provisional liquidator is appointed. It will be open to creditors to apply to the court to put a stop to this operation and obtain a winding up order on substitution to the petition, at which time any assets remaining in hands of the provisional liquidator would have to be distributed by way of dividend.
If, however, the provisional liquidator is appointed he will, it seems, have to pursue claims against the vendor. In those claims there will be two main issues: firstly, the construction of clause 316, where, as I understand it, the vendor, Carwood, submits that the clause must be construed as being triggered even in circumstances where no final order is being made for insolvent administration but simply an order for an interim insolvent administration but which is highly likely to lead ultimately to a winding up. Secondly, they will, as I understand it, submit that even if they are wrong about that construction they are entitled to rectification of the agreement so that it is in fact triggered by the appointment of a provisional liquidator, and I can follow the argument in support of that case.
There will also be an issue as to what, if anything, is due one way or the other between the companies and Carwood. It is maintained at the moment by Carwood, the vendor, that Carwood is a substantial creditor of the companies. That is denied on the other side. What the position will be when the next instalment becomes due under the agreement is another question.
I was asked by Mr. Marks, for the applicants, to extend this matter beyond the immediate question of provisional liquidators so that I should rule on the question of the construction of clause 316 of the...
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