Ravenhart Service (Holdings) Ltd, Re, Reiner v Gershinson
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ETHERTON |
| Judgment Date | 14 January 2004 |
| Neutral Citation | [2004] EWHC 76 (Ch) |
| Docket Number | TLC 300/2003 |
| Court | Chancery Division |
| Date | 14 January 2004 |
[2004] EWHC 76 (Ch)
Mr Justice Etherton
TLC 300/2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand
London WCA 2LL
MR R POTTS QC (instructed by SJ Berwin) appeared on behalf of the PETITIONER.
MR M COLLINGS (instructed by Howard Kennedy) appeared on behalf of the FIRST and SECOND RESPONDENTS.
Introduction.
This is an application by the Petitioner, Michael Reiner, for interlocutory relief in proceedings under section 459 of the Companies Act 1985, in which it is alleged that the affairs of Ravenhart Services (Holdings) Limited ("the Company") have been conducted in a manner unfairly prejudicial to the Petitioner.
Background.
There are 100 fully paid up issued shares in the Company: 50 are held by the Petitioner; 33 are held by the Second Respondent, Moira Gershinson ("Mrs Gershinson"); 17 are held by Darren Gershinson ("Darren").
There are family ties between the shareholders and the directors. The Petitioner's daughters are married to the sons of Mrs Gershinson and her husband, the First Respondent, Colin Gershinson ("Mr Gershinson"). Darren is the son of Mr and Mrs Gershinson and the son-in-law of the Petitioner.
The directors of the Company are the Petitioner and his wife, Annabelle Reiner ("Mrs Reiner"), Mr Gershinson and Darren.
The Company was incorporated in 1999. It owns and manages properties.
The Company was established pursuant to discussions and agreement between the Petitioner and Mr Gershinson. The circumstances in which those discussions were initiated and the content of any agreement are largely in dispute. It is common ground, however, that the business of the Company would be to invest in and manage properties, the Petitioner would lend substantial funds to the Company, and Mr Gershinson and Darren would manage the business of the Company.
The Company has several subsidiaries. All the subsidiaries relevant to the application before me ("the Subsidiaries") are directly or indirectly wholly owned by the Company. The Petitioner and his wife and Mr Gershinson and Darren are also directors of each of the Subsidiaries.
The Petitioner has lent a total of £3.4 million to one of the Subsidiaries.
The Petitioner and his wife have played no part in the management of the Company or the Subsidiaries. They have always been managed by Mr Gershinson and Darren.
The allegations.
The following allegations by the parties are relevant to the application before me.
The Petitioner claims that the Company was founded by himself and Mr Gershinson on the basis of mutual trust and confidence and pursuant to an agreement between them ("the Joint Venture Agreement") which provided, among other things, that neither the Petitioner, nor Mr Gershinson, nor Mrs Gershinson, nor Darren would be remunerated other than by way of dividend payments in accordance with their respective shareholdings in the Company.
The Petitioner alleges that Mr Gershinson has procured payment by the Subsidiaries to himself of consultancy fees of more than £1 million, and payment by one of the Subsidiaries, Ravenhart Services No 4 Limited, to Darren of director's emoluments of just under £700,000. He claims that those fees and emoluments were procured by Mr Gershinson in breach of fiduciary duty, in breach of the Joint Venture Agreement, without the sanction of the board of directors of the Company or the relevant Subsidiaries, without the knowledge or approval of the Petitioner or his wife and, in the case of the consultancy fees, without any benefit to the Company or the Subsidiaries making the payments.
The Petitioner further alleges that Mr Gershinson, in breach of fiduciary duty and without approval of the relevant board of directors, and without the knowledge or approval of the Petitioner or his wife, procured the Company and the Subsidiaries to make substantial unsecured loans to companies owned or controlled by him or his immediate family ("the LRPF Group"), in which the Petitioner has no interest.
The Petitioner further alleges that Mr Gershinson procured the Company to make unexplained transfers to companies in the LRPF Group.
The Petitioner further alleges that Mr Gershinson, in breach of fiduciary duty, without the sanction of the relevant board of directors, without the knowledge or approval of the Petitioner or his wife, and in some cases in breach of the Joint Venture Agreement, procured or permitted the assets of the Subsidiaries to be applied for charitable donations and in payment of personal expenditure of Mr Gershinson or members of his family, including for travel, entertainment, purchase of goods, motor vehicle expenses, and services.
Further, the Petitioner alleges that Mr Gershinson procured one of the Subsidiaries, London and Regional Property Fund (No 3) Limited ("LRPF3"), to purchase from Darren a short leasehold interest in a mews property, in breach of fiduciary duty, without the authority of the board of directors of LRPF3 and without the knowledge or approval of the Petitioner or his wife.
The Petition was presented on 5 th September 2003 and was served on Mr and Mrs Gershinson and the Company. None of the Subsidiaries are respondents to the Petition.
The relief claimed in the Petition is an order that one or more of the Respondents purchase the Petitioner's shares in the Company at a fair value; alternatively, an order that the Company be wound up by the court. There is also a claim for an injunction restraining the Respondents and each of them from procuring or permitting the Company or the Subsidiaries to make, and restraining the Company from making, any payments otherwise than in the ordinary course of the Company's business, or without the approval of a majority of the board of directors, or without the Petitioner's written consent (1) to or for the benefit of any of the First Respondent, the Second Respondent, Darren or Neil Gershinson, or companies in which any of them is interested, or (2) by way of charitable donation.
The Defence
So far as relevant to the application before me, Mr and Mrs Gershinson's defence, set out in their Points of Defence, is as follows.
They deny that there was ever any agreement that none of the parties would draw a salary or other remuneration or fees out of the Company or the Subsidiaries.
They allege that it was agreed that the Petitioner would receive interest on his lending at the same rate as the Company paid its bankers; and it was further agreed that Darren would benefit by way of remuneration and benefits.
They allege that the Petitioner made it clear that he and his wife did not wish to play any part in the running of the Company or the Subsidiaries.
They deny that the affairs of the Company have been conducted through the Subsidiaries.
Mr and Mrs Gershinson admit that Mr Gershinson has been paid consultancy fees, although they dispute the amount alleged. They claim that such payments amounted to approximately £160,000 per annum over the first six years after the commencement of the venture.
They also admit that Darren has received salary, pension contributions and benefits, and that those amounted to approximately £100,000 per annum in the six years following the commencement of the venture.
They claim that those amounts accurately reflected and remunerated their work, skill and opportunities created. They say that sanction of the relevant boards of directors was not required, given the way in which the Company and the Subsidiaries operated and the authority of Mr Gershinson and Darren.
They further say, in relation to such consultancy fees and directors' remuneration, that those and other matters were recorded in the accounts of the Company and the relevant Subsidiaries. The accounts were freely available, and were duly filed at the Companies Registry. Copies of the accounts were sent to the Petitioner's accountants – for example, the 1999 audited accounts were sent in October 2000. The Petitioner and his wife were additionally aware from family circumstances that payments were being made, in particular to Darren, and considerable information has been provided in response to requests from the Petitioner's accountants and lawyers.
Various loans, transfers and expenditure are admitted in the Points of Defence, as are the arrangements in respect of the mews property, but, for the reasons set out in the Points of Defence, Mr and Mrs Gershinson deny that those matters were carried out in breach of duty or were otherwise improper.
Finally, Mr and Mrs Gershinson deny that the Petitioner is entitled to the relief sought, or any relief.
The application for interim relief.
On 5 th September 2003 the Petitioner issued an application for an order for interim relief ("the Application"). The Application was issued not only against Mr and Mrs Gershinson and the Company, but also the Subsidiaries. The Subsidiaries are the Fourth to Ninth Respondents to the Application.
By the Application, the Petitioner claimed an interim injunction restraining the Company and the Subsidiaries from making, and Mr and Mrs Gershinson from permitting or procuring the Company and the Subsidiaries from making, any payments (a) otherwise than in the course of the business of the Company and the Subsidiaries; (b) without the approval of a majority of the relevant board of directors; (c) without the Petitioner's written consent (1) to or for the benefit of any of Mr Gershinson, Mrs Gershinson, Darren or Neil...
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