Prudential Assurance Company Ltd and Other v PRG Powerhouse Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Etherton |
| Judgment Date | 01 May 2007 |
| Neutral Citation | [2007] EWHC 1002 (Ch) |
| Docket Number | Case No: 1170 of 2006 and 1886 of 2006 |
| Court | Chancery Division |
| Date | 01 May 2007 |
[2007] EWHC 1002 (Ch)
Mr Justice Etherton
Case No: 1170 of 2006 and 1886 of 2006
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Gabriel Moss Q.C. and Mr Daniel Bayfield (instructed by Lovells) for the Prudential Applicants
Mr Richard Sheldon Q.C. and Ms Blair Leahy (instructed by Addleshaw Goddard) for the Luctor Applicants
Mr Paul Morgan Q.C. and Ms Marcia Shekerdemian (instructed by Charles Russell) for the Respondent
Hearing dates: 21–23 March 2007
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.
Introduction
This is the trial of preliminary issues (“the Preliminary Issues”) in two sets of proceedings in which creditors of PRG Powerhouse Limited (“Powerhouse”) have challenged the validity of a company voluntary arrangement for Powerhouse which was approved at a meeting of Powerhouse's creditors on 17 th February 2006 (“the CVA”).
The issue at the heart of the proceedings, and of the Preliminary Issues, is whether the CVA was effective to release Powerhouse's parent company, PRG Group Limited (“PRG”), from liability in respect of guarantees provided by it to landlords of premises let to Powerhouse (“the Guarantees”).
That issue is of general importance to the commercial property market.
The Proceedings
By a CPR Part 8 Claim Form dated 15 March 2006 Luctor Limited and others (“the Luctor Applicants”) claimed against Powerhouse, PRG and the CVA supervisors, Anthony Murphy, Robert Horton and Roger Tulloch (“the Supervisors”), a declaration that the CVA is ineffective and/or invalid in so far as it purports to affect the rights of the Luctor Applicants against persons other than Powerhouse, or alternatively in so far as the CVA purports to constitute an express release by the Luctor Applicants of their rights against persons other than Powerhouse (“the Luctor Proceedings”).
By an ordinary application in the Companies Court also dated 15 March 2006 the Luctor Applicants claimed an order that the creditors' approval of the CVA be revoked pursuant to s.6 of the Insolvency Act 1986 (“ IA”) because the CVA is unfairly prejudicial to the Luctor Applicants as creditors of Powerhouse, and/or there was some material irregularity at or in relation to the meeting of Powerhouse's creditors on 17 February 2006.
By a CPR Part 8 Claim Form issued on 16 March 2006 Prudential Assurance Company Limited and others (“the Prudential Applicants”) claimed against Powerhouse and the Supervisors identical relief to that claimed by the Luctor Applicants (“the Prudential Proceedings”).
The Prudential Applicants issued an ordinary application in similar terms to that issued by the Luctor Applicants.
During the course of the hearing before me I ordered that PRG be joined as a defendant to the Prudential Proceedings and as a respondent to the ordinary application issued by the Prudential Applicants.
On applications by the Luctor Applicants and the Prudential Applicants (together “the Claimants”) Blackburne J ordered on 1 March 2007 the trial of the Preliminary Issues in the Luctor Proceedings and in the Prudential Proceedings.
The Preliminary Issues
The Preliminary Issues are as follows:
“(1) (a) Whether or not on the correct interpretation of section 5(2) of the Insolvency Act 1986 (“the Act”), and on the true construction of Powerhouse's Company Voluntary Arrangement (“the CVA”) and of the guarantees or indemnities given by PRG to the Claimants in respect of Powerhouse's obligations, as tenant, to the Claimants (“the Guarantees/Indemnities”), any of the Guarantees/Indemnities has been released or ought to be treated as having been released by reason of the CVA;
(b) If the answer to (a) above is yes, which Guarantee/Indemnity is, or which Guarantees/Indemnities are, so released or so affected by reason of the CVA;
(c) If the answer to (a) above is no, are any of the Claimants otherwise precluded from enforcing any of their Guarantees/Indemnities against PRG by reason of the CVA;
(d) If the answer to (c) above is yes, which of the Guarantees/Indemnities are the Claimants precluded from enforcing against PRG by reason of the CVA.
(2) If the answer to 1)(a) or (c) above is yes, on the basis of the facts set out in the Agreed Facts document attached hereto, does the CVA unfairly prejudice the interests of the Claimants as creditors of Powerhouse within the meaning of section 6(1)(a) of the Act.”
The Statement of Agreed Facts
On 6 March 2007 Blackburne J ordered that the second of the Preliminary Issues be tried against the following Statement of Agreed Facts:
“1. PRG Powerhouse Limited (“Powerhouse”) is a subsidiary of PRG Group Limited (“PRG”), registered in New Zealand. On the date Powerhouse's company voluntary arrangement (“the CVA”) was approved, PRG was listed on the New Zealand Stock Exchange.
2. In about September 2003, Powerhouse acquired, with financial support from PRG, the assets of the Powerhouse business for £17.4 million, including 24 high street stores and 110 superstores. A number of the landlords of these stores, including Prudential and Luctor (a British Land Plc company), took parent company guarantees or indemnities from PRG in respect of Powerhouse's obligations under the leases.
3. Powerhouse got into financial difficulties and its directors informed its creditors that it needed to close 35 underperforming stores (the “Closed Premises”) and to retain 53 stores which they hoped would enable it to trade profitably.
4. The directors of Powerhouse proposed the CVA, which had the following terms, amongst others.
5. The rights and obligations of all creditors other than the Scheme Fund Creditors were to be unaffected by the CVA.
6. The Scheme Fund Creditors consisted of employees, landlords, local authorities and others who were creditors in respect of Powerhouse's Closed Premises. For these creditors, PRG agreed to provide a fund equal to the lesser of £1.5 million and the sum required to pay a dividend to Scheme Fund Creditors of 28 pence in the pound on their respective claims as valued pursuant to the CVA's Valuation Mechanism. The CVA contained provisions designed to release all the Scheme Fund Creditors' claims against Powerhouse related to Closed Premises. It also included terms designed to release any guarantees or indemnities given by PRG to the Closed Premises Landlords. PRG was willing to make the Scheme Fund available for the benefit of the Scheme Fund Creditors in consideration for the releases and compromises of the liabilities of Powerhouse and PRG.
7. All of the rents and rates payable to the Applicants (as defined in the Order of Blackburne J. dated 1 March 2007) pursuant to the leases of the Applicants' Closed Premises had been paid by Powerhouse up to the March 2006 quarter day. The Respondents maintain that: (a) all of the rents and rates payable to the other Closed Premises landlords pursuant to the leases of their Closed Premises had been paid by Powerhouse up to the March 2006 quarter day; (b) all employees of the Closed Premises were paid all arrears of wages, commission and accrued holiday pay up to 1 February 2006 (the date from which the Closed Premises ceased to trade), together with a payment equivalent to the sum they would be entitled to by way of statutory redundancy payment; and (c) all suppliers (including all Landlords in relation to the supply of accommodation) were paid for all supplies provided and invoiced for up to the date of the CVA, to the extent that such invoices had fallen due for payment by that date. The Luctor Applicants (as defined in the Order of Blackburne J. dated 1 March 2007) maintain (but the Respondents deny) that a sum of approximately £2,000 in respect of service charges and insurance payable by Powerhouse to the Sixth Luctor Applicant: (a) fell due for payment prior to the date of the CVA; and (b) remains unpaid.
8. The directors represented to the creditors that in the CVA the likely dividend to Scheme Fund Creditors was to be 28 pence in the pound; other creditors were not affected by the CVA and, it was said, would see their debts paid through the ongoing trading of Powerhouse. The directors represented to the creditors that in a liquidation of Powerhouse, the dividend to all unsecured creditors would be nil. The directors represented to the creditors that Powerhouse's future viability depended upon an arrangement of Powerhouse's affairs involving the compromise and release of liabilities inter alia of PRG on the terms set out in the CVA. The directors also represented that they considered that such an arrangement was “desirable in the interests of all creditors”.
9. Powerhouse declared that the Scheme Fund was to be held by the CVA Supervisors on trust but that if the CVA failed, the Scheme Fund would be held on trust for PRG, enabling PRG to demand the return of the funds.
10. At a meeting of all the creditors of Powerhouse, including the creditors whose rights and obligations are not affected by the terms of the CVA, the CVA obtained the requisite statutory majority.
11. Scheme Fund Creditors other than Closed Premises Landlords were, according to the representations of the directors, expected to receive 28p in the pound from the CVA as opposed to nil in a liquidation. Closed Premises Landlords were expected to receive 28p in the pound from Powerhouse in the CVA, and nothing from PRG under any guarantees or indemnities which had been provided in relation to the Closed Premises. In a liquidation, Closed Premises Landlords were...
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