Re Frankice (Golders Green) Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE NORRIS |
| Judgment Date | 06 May 2010 |
| Neutral Citation | [2010] EWHC 1229 (Ch) |
| Docket Number | Case No: 21651 of 2009 21655 of 2009 |
| Court | Chancery Division |
| Date | 06 May 2010 |
[2010] EWHC 1229 (Ch)
Before: Mr Justice Norris
Case No: 21651 of 2009
21652 of 2009 and
21655 of 2009
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Ms Raquel Agnello Qc And Mr Phillip Hinks (Instructed By Messrs Lawrence Graham) Appeared On Behalf Of The Applicant
Mr George Bompas Qc And Mr Alistair Tomson (Instructed By Messrs Eversheds) Appeared On Behalf Of The Respondent
The question raised for decision is one that I find difficult. It is whether certain steps now being taken by The Gambling Commission in relation to the business of three companies fall within the scope of the moratorium imposed by paragraph 43(6) of schedule B1 to the Insolvency Act 1986. It is regrettable that the issue actually falls for decision given what I regard as the exemplary dialogue that has hitherto been conducted between The Gambling Commission on the one hand and the administrators of the three companies on the other, but it is plain that matters have got to a stage at which The Gambling Commission regards any entrenchment upon its regulatory powers as something that is not up for negotiation.
The context in which the application is made is that there was yesterday due to be held a crucial hearing by The Gambling Commission but, because argument had not concluded at the close of the day, I requested, and The Gambling Commission unhesitatingly granted, an adjournment of that hearing so that it now stands over until 20 May. Nonetheless, the question must be decided immediately in view of its importance in these administrations.
On 7 December 2009, the Agora Group entered administration as the result of the appointment of administrators by a qualifying charge holder. The group which entered administration has a deficiency of the order of £84 million, a substantial part of which consists of accumulated Crown debts for PAYE, NIC and Amusement Machine Licence duty. The Agora Group consists of three operating companies, Frankice (Golders Green) Limited, Leisure World (UK) Limited and Caesar's World Limited. In addition, there is a property holding company. The business of the three operating companies is that of the conduct of amusement arcades at some 100 sites. The conduct of that business requires certain licences under the Gambling Act 2005. The companies themselves need an operator's licence. They must employ persons who have personal management licences (“PML”): and the business must be conducted at premises which themselves are licensed. The Gambling Commission is responsible for the operational licences and for the PMLs. Local authorities are responsible for premises licences, but it is part of The Gambling Commission's function to secure that the operational business is conducted properly by reference to the available premises licences.
Section 33 of the Gambling Act provides that a person commits an offence if he provides facilities for gambling unless certain conditions are satisfied. But that prohibition does not apply if the person holds an operating licence authorising the activity and the activity is carried on in accordance with the terms and conditions of the licence.
The three operating businesses in administration are trading administrations. The object of each administration is to secure a better return for the creditors than would be achieved if the companies were immediately to enter into liquidation, making some 600 employees redundant and closing the 100 trading premises.
The proposals of the administrators to achieve this objective were set out in proposals dated 27 January 2010. The proposals state that the administrators hope to achieve the objective through a sale of the company's assets at a higher value than would be achieved had they not traded the businesses and had sold on a break-up basis. Accordingly, the continuation of trading until sale is a fundamental part of the strategy to achieve the objective.
The appointment of the administrators constituted a change of management structure for the purposes of the Gambling Act and accordingly there commenced a dialogue between the administrators and The Gambling Commission as to the conduct of the trading businesses. In the course of this, it rapidly came to light that the directors whose places were taken by the administrators had not been conducting the businesses in strict conformity with the licence conditions. In particular, the number of gambling facilities that each company was permitted to provide was not in conformity with the business actually conducted. The administrators undertook a considerable overhaul of the management of the companies to the extent that the administrator's evidence is that the collective business of the group now conforms to all of the necessary gambling legislation and to the conditions contained in the operating licences.
The conduct of the business by the administrators relies on the retention of certain individuals who have PMLs granted by the Commission. This, too, has been the subject of examination and amendment by the administrators in conversation with The Gambling Commission. The overall picture presented by the evidence is that, whatever may have occurred in the past, the administrators are, in essence, conducting a compliant business.
The administrators were aware on their appointment that The Gambling Commission had concerns about the previous conduct of the business and were anxious to secure that the they rectified the relevant defaults. The Gambling Commission had in fact, on 2 November 2009, already begun an investigation into suspected breaches of the licence conditions and of the requirements of the Act by the directors and the holders of PMLs in the three operating companies. As well as trading the businesses, the administrators have taken considerable efforts to provide The Gambling Commission with material to enable The Gambling Commission to further those investigations. No criticism has been level by The Gambling Commission at the administrator's response to requests for information.
As well as trading the businesses and assisting in the investigations of The Gambling Commission, the administrators also undertook a marketing of the businesses of the companies. They did so with the assistance of professional agents. This resulted in over 100 expressions of interest and approximately 30 offers for the business and assets of the trading companies. The joint administrators and their professional agents spent much time evaluating these offers and considering which ought to be accepted. Certain high offers were rejected on the grounds that it was suspected that they were made by parties connected to the former management. The administrators were alive to the risk that, if they selected such a purchaser, that purchaser would have to obtain an operating licence of its own from The Gambling Commission, and that process would be difficult if The Gambling Commission took the view that the new purchaser was connected with the deficient previous managers.
On 25 February 2010, the administrators entered into a contract with a purchaser called Minmar. Under the terms of the contract, it is intended that the businesses should be transferred to Minmar as a going concern with effect from completion, Minmar undertaking that, after completion, the business will be carried on by it as a going concern and that the assets acquired will be used in carrying on the business of the companies or a business of the same kind. In this way, the interests of employees are protected. The completion date for the contract is set for 11 May 2010. Until completion, certain interim arrangements are in place. First, the purchaser has the obligation to pay for the current trading losses of the businesses by payments of a stated amount, approximately £250,000 per month, which payments conclude on 11 May 2010. Second, the purchaser has the right to put in place consultants to advise the administrators as to the conduct of the business pending completion. Third, the purchaser undertakes forthwith to make an application to The Gambling Commission for an operating licence in order that, at completion, it should be able to continue the business.
Those arrangements have been effective and the company has continued to trade. There is, however, the prospect that completion will not take place on 11 May. That is because, in breach of its contractual obligation, Minmar did not forthwith apply to The Gambling Commission for the grant of an operator's licence. It only made that application on 30 April and the process leading to the grant of an operator's licence takes between six and eight weeks. In the circumstances, the administrators might be entitled to call upon Minmar to complete the purchase, notwithstanding the absence of an operator's licence (and at the risk of not preserving the employees’ jobs, leading to further claims in the administration); or alternatively, the administrators might be able to serve a notice to complete.
What is in fact occurring is that negotiations are taking place between the administrators and Minmar for an extension to the completion date, for an extension of the interim funding arrangements and for an extension of the consultancy arrangements. But these negotiations are not concluded and the outlook is not certain. It may, however, be anticipated that an extension of some sort is likely to be granted, since Minmar is unlikely to wish to write off its very considerable...
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