Parmalat v Food Holdings

JurisdictionUK Non-devolved
Judge(Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Baroness Hale of Richmond and Lord Mance)
Judgment Date09 April 2008
CourtPrivy Council
Date09 April 2008
Judicial Committee of the Privy Council

(Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Baroness Hale of Richmond and Lord Mance)

PARMALAT CAPITAL FINANCE LIMITED
and
FOOD HOLDINGS LIMITED and DAIRY HOLDINGS LIMITED

G. Moss, Q.C., D. McCahill and Ms. A. Dunsby for the appellants;

M. Crystal, Q.C. and Ms. S. Corbett for the respondents.

Cases cited:

(1) Arrows Ltd., Re, [1992] BCC 121, referred to.

(2) Brinds Ltd. v. Offshore Oil N.L.UNK(1986), 2 BCC 98, 916, referred to.

(3) Falcon R J Devs. Ltd., Re, [1987] BCLC 437; (1987), 3 BCC 146, referred to.

(4) Maxwell Communs. Corp., Re, [1992] BCLC 465; [1992] BCC 372, referred to.

(5) Steel Wing Co. Ltd., In re, [1921] 1 Ch. 349; [1920] All E.R. Rep. 292; (1920), 90 L.J. Ch. 116; 65 Sol. Jo. 240; 124 L.T. 664, dicta of P.O. Lawrence J. applied.

(6) Walter & Sullivan Ltd. v. J. Murphy & Sons Ltd., [1955] 2 Q.B. 584; [1955] 1 All E.R. 843, referred to.

Legislation construed:

Companies Law (2004 Revision), s.96:

Any application to the Court for the winding up of a company shall be by petition which may be presented by the company, or by any one or more than one creditor or contributory of the company, or by all or any of the above parties, together or separately; and every order which may be made on any such petition shall operate in favour of all creditors and all the contributories of the company in the same manner as if it had been made upon the joint petition of a creditor and a contributory.

Companies-compulsory winding up-creditors-creditor under Companies Law (2004 Revision), s.96 if assigns beneficial interest in debt to third party, but retains legal title and equity of redemption-either party can petition for winding up without joining other

Companies-compulsory winding up-grounds for winding up-inability to pay debts-dismissal of petition based on disputed debt not rule of law but rule of practice to avoid abuse of winding-up procedure-court may allow creditor with disputed claim to succeed-moneys owed in favour of innocent note-holders under fraudulent put agreement not disputed debt as fraud cannot be relied upon by debtor as defence to non-payment of those defrauded

Companies-liquidators-appointment-conflict of interest-same liquidators may be appointed for related companies, despite conflicting dealings between them, if necessary to avoid delay and expense caused by appointment of different liquidators-any conflict of interest to be dealt with by court as appropriate

Food Holdings Ltd. (Food) and Dairy Holdings Ltd. (Dairy) petitioned the Grand Court for the winding up of Parmalat Capital Finance Ltd. (PCFL) (a subsidiary of the Parmalat Group), and confirmation of the joint provisional liquidators as joint official liquidators of the company.

In 1999, PCFL initiated a scheme to raise capital for the Parmalat Group, which involved the incorporation of two companies, Food and Dairy, each of which issued loan notes on the US bond market, to the value of US$150m. The proceeds were used to purchase stock in the Brazilian subsidiary of the Parmalat Group, in order to provide it with equity. The security for the note-holders was the Brazilian stock, which was charged to Norwest Bank Minnesota, as trustee for the note-holders, in the contemplation that when the notes became due, PCFL would buy that stock from Food and Dairy, who would then use that capital to repay the loan notes. A put agreement was therefore established between PCFL

and Food and Dairy, which gave them the right to demand that PCFL buy the stock, payment for which was to be made to Norwest, and entitled them to an equity of redemption. In 2003, however, the Parmalat Group collapsed and certain creditors of PCFL (the opposing parties) applied for the appointment of provisional liquidators of Food and Dairy in the Cayman Islands.

The Grand Court appointed Cayman liquidators, who petitioned for the winding up of PCFL, on the basis of the sums owed by it to Food and Dairy, under the put agreement. The Cayman liquidators were then appointed as joint provisional liquidators of PCFL by the Grand Court (Henderson, J.). Subsequently, a conflict of interest arose in the form of a transaction in which the liquidators had to strike a bargain with themselves. After losing a loan note in respect to US$30m. owed by Food to PCFL, Food issued a new note in return for an agreement by PCFL to pay it 25% of the notes value, and once it had done so the note was issued and sold to a third party for US$4.35m, of which PCFL took a quarter, which it used to pay the expenses of the liquidation.

The Grand Court (Henderson, J.) then approved the appointment of the Cayman liquidators as joint official liquidators and ordered the winding up of PCFL on their petition. The opposing parties objected to that appointment and order, arguing that Food and Dairy had no standing to petition for the winding up of PCFL as the debt had been transferred to Norwest, that there was a conflict of interest, as evidenced by the controversial note purchase agreement, and that no debt actually existed as consideration had not been given for the put agreement. The proceedings in the Grand Court are reported at 2006 CILR 171.

On appeal, the Court of Appeal (Zacca, P., Forte and Mottley, JJ.A.) upheld the Grand Court decision. Food and Dairy had standing to petition for the winding up, as they were creditors of PCFL, within the requirements of s.96 of the Companies Law (2004 Revision) (now s.96 of the Companies Law (2007 Revision), and it was sufficient that they had retained legal title to the debt, despite assigning the beneficial interest in the debt to Norwest; the interests of Food and Dairy were not extinguished, even if limited to the equity of redemption. The court had a discretion to allow creditors whose claims had...

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