Re British American Racing (Holdings) Ltd
| Jurisdiction | England & Wales |
| Judge | THE HON. MR. JUSTICE EVANS-LOMBE,The Hon. Mr. Justice Evans-Lombe |
| Judgment Date | 16 December 2004 |
| Neutral Citation | [2004] EWHC 2947 (Ch) |
| Docket Number | Application No: 7112 of 2004 |
| Court | Chancery Division |
| Date | 16 December 2004 |
[2004] EWHC 2947 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr. Justice Evans-Lombe
Application No: 7112 of 2004
William Trower QC / Daniel Bayfield (instructed by Herbert Smith) for the Applicants
Leslie Kosmin QC / Catherine Roberts (instructed by Rivers & Co) for the Respondents
Hearing dates: 3 rd December 2004 – 8 th December 2004
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.
This case concerns an application for an administration order in respect of British American Racing (Holdings) Limited ("the Company"), pursuant to paragraph 12 of schedule B1 to the Insolvency Act 1986 made by the Companies' principal creditor BAT (Westminster House) Ltd ("BAT"). BAT is a company in the British American Tobacco Group which, as a result of events which I will describe, has become the 89% shareholder in the Company. The Company is the parent of British American Racing GP Limited ("the Subsidiary"). The Subsidiary carries on business as a manager of a Formula 1 motor racing team participating in the Formula1championship. One of the principal sources of income for the Subsidiary is sponsorship by those seeking to advertise their businesses and products by, amongst other things, placing advertisements on the Subsidiary's racing cars. The Subsidiary's principal sponsor is British American Tobacco PLC. As a result of recent legislation all tobacco advertising, including advertisements on racing cars must cease in April 2006.
The remaining 11% of the Company's shares on issue are held by three minority shareholders of which one, Mount Eagle Inc ("Mount Eagle") holds 7 % of those shares. Mount Eagle is controlled by two shareholders Mr John Pollock and Mr Gerald Forsythe both of whom are closely involved in the motor racing business in which they have substantial interests. Mount Eagle opposes the application. Both Mr Pollock and Mr Forsythe are directors of the Company. Between late 1998 and December 2001 Mr Pollock was the team principal of the British American Racing team by which the Subsidiary carried on business.
Early in the hearing I indicated my intention to deal first with the question of whether an Administration Order should be made, and, in the event of my conclusion that an order should be made, then to receive further submissions on the form of the order which should follow. In the result I decided that an Administration Order should be made and appointed joint Administrators. I reserved the giving of reasons for arriving at this conclusion. These are those reasons.
The Company has no business of its own and its only substantial asset is its holding of the whole of the issued share capital of the Subsidiary.
The Company was established pursuant to a joint venture agreement ("the JVA") made on the 15 th October 1997 between BAT, Reynard Formula 1 Ltd (another of the Company's minority shareholders), Mount Eagle, the Company and various other investors. Initially BAT held 50% of the Company's issued shares the remainder being held by other investors of whom the largest, Mount Eagle, held 35%. The purpose of the Company's promotion was to promote a formula 1 racing team intended to provide an outlet for advertising to commercial interests, primarily British American Tobacco who would be entitled, upon payment of fees to advertise on the Subsidiary's racing cars.
The Subsidiary has always made losses. Those losses amounted to US$261m as at the 31 st December 2002 as shown by its last set of audited accounts to that date and US$314m as at the 31 st December 2003 as shown by its draft approved but un-audited accounts to that date. Those losses have continued through the current year. However the racing results of the Subsidiary in the 2004 season have markedly improved and it is currently regarded as having one of the leading teams. The Subsidiary's losses have been financed by advances made by BAT to the Company primarily through the issue by the Company of convertible and un-convertible loan stock the proceeds of which have been lent on by the Company to the Subsidiary.
The business of the Subsidiary is governed by the JVA and six supplemental agreements made under it. At clause 5 of the JVA the nature of the business to be pursued is defined and at 5.1.3 it is provided that:-
"5.1.3 Each of the Shareholders undertakes to each of the other Shareholders to use all reasonable endeavours to promote the business of the Company and of Subco [the Subsidiary] in connection with the business."
Clause 5.3 of the JVA contains undertakings by each of the joint venturerers with regard to the conduct of the business in particular at clause 5.3.1.(B) an undertaking:-
"(B) To procure so far as it is able to do so that any director appointed by it shall so act and vote in relation to the affairs of the Company and Subco … to ensure that the Business and all the affairs of the Company and Subco are carried on in a proper manner and bona fide in the best interests of the Company and Subco."
Clause 8 of the JVA deals with funding for the Company as follows:-
"8.1 Additional funding – shareholders
Subject to sub clause 8.2 it is agreed that, to the extent that further funding for operating expenses or capital expenditure is necessary for the Company or Subco in order to develop or carry on the Business in accordance with the terms and intention of this Agreement such funding shall first be provided by the Shareholders in proportion to the Shares held by such Shareholders and in accordance with the funding schedule set out at schedule 4 to this Agreement first by way of calls of the amounts outstanding in respect of the shares and thereafter as all the Shareholders shall agree whether by way of guarantees, un-secured loans or otherwise."
Clause 8.2 of the JVA provides for additional funding from third party sources.
Clause 17.4 contains "entire agreement provisions" including at 17.4.2 that:-
"Each party confirms that except as provided in this agreement no party has relied on any representation or warranty or undertaking which is not contained in this agreement…."
The provisions of the first supplemental agreement dated 27 th November 1997 are not relevant to this judgment. By the second supplemental agreement BAT agreed to subscribe for US$45m convertible un-secured loan stock 2004 issued by the Company and repayable on the 30 th September 2004. It contained at clause 5 a "claw back option" which enabled minority shareholders at their option to be able to require the Company to issue to them shares for which they would subscribe so that their holdings would not be diluted in the event that BAT converted any part of that loan stock.
We are not concerned with the third supplemental agreement of 6 th October 1999. By the fourth supplemental agreement of 19 th June 2000 it was provided that the Company would issue further loan stock maturing in 2005 in six tranches of US$9m as to the first five and as to the final tranche US$8m. BAT continued to finance the losses of the Company by subscribing for the Company's loan stock 2005.
The issue in this case primarily concerns the provisions of the fifth supplemental agreement dated 21 st March 2001. By clause 4 of this agreement the Company's loan stock 2004 for which BAT had subscribed was converted as to US$31m into un-convertible loan stock 2010 leaving the balance of US$14m outstanding to mature on 30 th September 2004. Clause 4.2 provides that the whole of the US$53m of the Company's loan stock 2005 was also to be converted into un-convertible loan stock 2010.
By clause 4.4 the minority shareholders including Mount Eagle waived their rights under the "claw back option agreement" and under clause 5 Mount Eagle obtained in substitution "Mount Eagle Incentivisation Options". By that clause Mount Eagle was granted an option to subscribe for a number of Company's shares at a price fixed by reference to the provisions of that clause. By clause 5.3:-
"5.3 The Mount Eagle Share Option shall only be exercisable:
Upon the issue of shares to BAT or any permitted assigns pursuant to the conversion of the 2004 loan stock referred to in clause 4.1.1 above…" [being the US$14m of the Company's loan stock 2004 left un-converted into loan stock 2010 by the provisions of clause 4]
Clause 8 of the agreement contained provisions for "additional funding" as follows:-
"8.1 In the event that the directors of the company determine that the company or any of its subsidiaries requires any additional funding whether for capital or revenue expenditure in order to develop or carry on the business in accordance with terms and intention of the Joint Venture Agreement, to the extent that such additional funding is not available from third party lenders or sponsors or otherwise made available in accordance with clause 7.1 of this deed or clause 8.2 of the Joint Venture Agreement, the Shareholders (or any of them) may elect to provide (but, for the avoidance of doubt, shall have no obligation to provide) all or some of such additional funding…
8.2 Any shareholder electing to provide additional funding in accordance with clause 8.1 above shall be entitled to provide such funding (at its election) either:
Through the subscription, allotment and issue of Shares at par of the same class and carrying the same rights as those held by the Shareholder concerned…; or
Through the subscription of loan stock ("Additional Loan Stock") on terms equivalent to those set...
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