Patrick Mckillen (Petitioner) v Misland (Cyprus) Investments Ltd (a company registered in Cyprus) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 21 December 2011 |
| Neutral Citation | [2011] EWHC 3466 (Ch) |
| Docket Number | No: 8690 of 2011 |
| Court | Chancery Division |
| Date | 21 December 2011 |
[2011] EWHC 3466 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Rolls Building
Royal Courts of Justice
Fetter Lane
London, EC4A 1NL
Mr. Justice David Richards
No: 8690 of 2011
Claim No: HC11C03437
In the Matter of Coroin Limited
and
In the Matter of the Companies Act 2006
Mr Robert Miles QC, Mr Richard Hill and Mr Gregory Denton-Cox (instructed by Herbert Smith LLP) for the Petitioner/Claimant
Mr Sa'ad Hossain and Mr Edmund Nourse (instructed by Weil Gotshal & Manges) for the 1 st and 4 th Respondents/3 rd and 5 th Defendants
Mr Stephen Auld QC and Mr Michael D'Arcy (instructed by Quinn Emanuel LLP) for the 2 nd Respondent
Mr Richard Snowden QC and Mr Nigel Dougherty (instructed by DLA Piper UK LLP) for the 8 th Respondent
Hearing dates: 14 and 15 December 2011
Introduction
This is the trial of preliminary issues in a petition presented under section 994 of the Companies Act 2006 and an associated action. The issues concern the application of pre-emption provisions in relation to shares in a company called Coroin Limited (the company) in circumstances where a company beneficially and legally owning shares in the company has itself been sold.
The company was formed in 2004 for the purpose of acquiring companies owning four well-known hotels in London, the Savoy, Claridge's, the Connaught and the Berkeley. They were purchased for £750m. The purchase price and associated costs were funded by loan facilities of £675m and the subscription of £110m by the initial investors for shares and loan stock of the company.
As appears from the shareholders agreement, to which I refer below, the underlying business plan envisaged an early sale of the Savoy Hotel and the Berkeley Hotel. The Savoy Hotel was sold at an early stage. The group continues to own and manage the remaining hotels. The company's loan facilities have altered since 2004 and now comprise a senior debt loan facility of £660 million.
The petitioner and claimant is Patrick McKillen, one of the initial investors in the company. He currently owns 36.23% of the equity capital of the company. He is and has since September 2005 been a director of the company.
The proceedings arise out of a plan by Sir David Barclay and Sir Frederick Barclay ("the Barclay brothers"), publicly acknowledged by them, to acquire complete control and ownership of the company and the hotels which it owns. The Barclay brothers have widespread business interests, including the Ritz Hotel in London. Mr McKillen is opposed to this takeover plan. The Barclay brothers, through companies and family trusts controlled by them ("the Barclay interests"), have taken a number of steps, summarised briefly below, to achieve their object.
For those with a historical perspective, it may be noted that this is by no means the first time that these hotels have attracted hostile takeover interest. In the 1950s, Sir Charles Clore and later Land Securities Limited under Lord Samuel attempted to gain control of the Savoy Group. A detailed account and analysis of the measure taken by Sir Hugh Wontner and his fellow directors which succeeded in thwarting these attempts is to be found in the Report of Sir Edward Milner Holland QC (14 June 1954 HMSO) who was appointed as an inspector under section 165(b) of the Companies Act 1948. For most of the 1980s Trusthouse Forte plc sought to obtain control. The decision in Re Savoy Hotel Limited [1981] Ch 351 was an early battle in that campaign.
Investment in the company
There were initially five investors, or blocks of investors, in the company, who subscribed for ordinary shares, preference shares and loan stock. They were Mr McKillen, John McColgan and Moya Doherty (JCMD), Misland (Cyprus) Investments Limited, Derek Quinlan, and a number of individuals who invested through a nominee company called Quinlan Nominees Limited.
Misland (Cyprus) Investments Limited ("Misland") was owned by A&A Investments Limited, a Bermudian company through which Peter Green and his family control their business interests. It is the sale of Misland to the Barclay interests which gives rise to the preliminary issues. Mr McKillen's petition pleads that the Green family invested in the company "through their vehicle Misland". It is not however suggested by Mr McKillen that Misland was at any time anything other than the sole beneficial owner of the shares registered in its name. The Barclay brothers and their associates for their part admit in their Defences that "Misland was a 'vehicle' for investment in the company by Peter Green and his family".
Each of the investing groups was issued with a separate class of shares (A to E ordinary shares): Mr McKillen (A shares), JCMD (B shares), Misland (C shares), Mr Quinlan (D shares) and Quinlan Nominees Limited (E shares). The different classes of ordinary shares rank pari passu in all respects and enjoy the same voting rights, save as regards directors. Each of the A, B, C and D shares confer the right to appoint one director. The E shares carry no such right. The maximum number of directors is six, of whom two may be co-opted by the board. The number of votes which each director may cast at board meetings differs as follows: A director (70 votes), B director (7 votes), C director (48 votes), D director (70 votes), while each of the co-opted directors can cast 1 vote each. Between 2004 and the end of 2010 some of the initial investors sold their interests to other shareholders or new investors in accordance with the applicable pre-emption provisions so that the equity holdings, including preference shares, as at December 2010 were: Mr McKillen (36.23%), Mr Quinlan (35.4%), Misland (24.78%) and Kyran McLaughlin (3.58%).
Shortly before the acquisition of the Savoy group of hotels by the company, the initial investors entered into a shareholders agreement dated 14 May 2004 (the shareholders agreement). The company was named as a party to the agreement. A significant number of provisions assumed that the company was a party and conferred rights or imposed obligations on it. It does not appear, however, to have executed the agreement. Mr Miles QC for Mr McKillen submitted that the company was nonetheless properly to be treated as a party. Given that (i) the company was clearly intended to be a party to the agreement, (ii) all its members were parties to the agreement on that basis, (iii) the agreement regulates relations between the company and its members and between the members among themselves and (iv) there were no other parties to the agreement, the company is, in my judgment, properly considered a party by virtue of the principle in In re Duomatic Ltd [1969] 2 Ch 365 and other authorities. I should record that counsel for the company, which was not represented in court during the main part of the argument, has raised reservations on this point, at least as regards subsequent amendments to the shareholders agreement and the composite version to which I refer below. The subsequent amending agreements are not in evidence and the composite version is stated not to be a legally binding document. In these circumstances my decision on this point is restricted to the purposes of the preliminary issues.
There were seven amendment agreements between December 2004 and October 2009, principally taking account of changes in shareholders. A composite version of the agreement, incorporating these amendments, was prepared. The front sheet states that it is not a legally binding document but for convenience counsel used it for their submissions and I will do the same in this judgment.
Background to the present proceedings
The Barclay brothers have been unable to reach agreement with Mr McKillen for the acquisition of his shares. They have decided to obtain control and ownership of the company by other means and have set out on a course to achieve that end.
The principal steps so far taken are as follows.
In January 2011, the issued share capital of Misland was sold by A&A Investments Limited to B Overseas Limited, a company forming part of the Barclay interests, for £70m, thereby giving the Barclays interests control of the C shares. The C director was immediately replaced by an employee of Ellerman Investments Limited, one of the companies comprising the Barclay interests. There have been two subsequent C directors and both have been associates of the Barclay brothers.
In February 2011, the Barclay interests acquired from Bank of Scotland (Ireland) loans made to Mr Quinlan and secured by charges over his shares, including in particular the D shares and some B shares. Those shares were transferred to and registered in the name of Ellerman Corporation Limited. It is said by the Barclay interests, but denied by Mr McKillen, that this was a permitted transfer under the pre-emption provisions, as being a transfer of security to the security holder. This is not the...
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