Re SSSL Realisations (2002) Ltd ((in Liquidation)) and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lloyd |
| Judgment Date | 27 July 2004 |
| Neutral Citation | [2004] EWHC 1760 (Ch) |
| Docket Number | Case No: 575 of 2004 |
| Court | Chancery Division |
| Date | 27 July 2004 |
[2004] EWHC 1760 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Honourable Mr Justice Lloyd
Case No: 575 of 2004
In the Matter of Sssl Realisations (2002) Limited (formerly Save Service Stations Limited) (in Liquidation)
And in the Matter of Save Group Plc (in Liquidation)
And in the Matter of the Insolvency Act 1986
Simon Mortimore Q.C. and Richard Fisher (instructed by DLA) for the liquidators of SSSL Realisations (2002) Ltd
John Randall Q.C. and Sandra Bristoll (instructed by Lawrence Graham) for the liquidators of Save Group plc
Richard Snowden Q.C. and Andrew Lenon (instructed by Halliwell Landau) for AIG Europe (UK) Ltd
Hearing dates: 9–11 June 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.
Mr Justice Lloyd:
This case raises issues of construction and law arising from the collapse and liquidation of the Save group. Three parties are interested. Save Group plc was the parent of the group. It is in compulsory liquidation. I will refer to it as Group. It had a number of subsidiaries, of which the most relevant for present purposes was called Save Service Stations Ltd. It is in creditors' voluntary liquidation, and has changed its name to SSSL Realisations (2002) Ltd. I will call it Stations. The third interested party is AIG Europe (UK) Ltd, which is a creditor of both Group and Stations, as well as of other subsidiaries of the Save group. I will refer to it as AIG. The same persons are liquidators of other subsidiaries as are of Stations. All the other relevant subsidiaries have agreed to be bound by the result of this case without being made parties.
The Save group traded primarily as retailers of petrol, and had some 400 or so petrol stations. The trading pattern was that Group bought petrol and related products from suppliers, and sold it on to Stations who sold it to retail customers. Group was also in charge of bank borrowing for the whole Save group, and lent on to subsidiaries such funds as were necessary for their trading purposes. There were, therefore, substantial inter-company debts, above all on the part of Stations to Group for money borrowed and lent on to Stations, and for petrol products bought by Group and sold on to Stations. Stations owned the premises from which retail trading took place, and most other fixed assets used in the retail business.
The supply of petrol to Group gave rise to liabilities to Her Majesty's Customs & Excise for duty. It is possible to defer liability to pay the duty by providing a bond to the Customs & Excise to secure payment. AIG and members of the group of which it forms part are willing to enter into such bonds. As a condition of that transaction they require indemnities from the companies on whose behalf they provide the bonds. AIG (or another member of its group – it matters not which and I will treat AIG as if it were the only relevant party) entered into such a bond on behalf of the Save group. AIG also entered into a deed of indemnity on 30 September 1997 with 6 members of the Save group, including Group itself, the parent, and Stations. The issues I have to decide relate to the effect of that deed, which I will call the Deed.
Administration orders were made in relation to Group and each of its subsidiaries on 28 February 2001. Stations and the other subsidiaries went into creditors' voluntary liquidation on 8 May 2002. Group was wound up compulsorily on 9 May 2002. The administrators had sold the business and assets of the entire Save group for some £54.5 million. By far the largest proportion of that represented the property and other fixed assets owned by Stations, and almost £53.5 million of the price was attributed to Stations. When Stations' liquidators were appointed they received about £50.5 million from the administrators. They have paid a first dividend of 18p to those creditors whose debts are undisputed, and they hold some £39 million for distribution, including some in a trust account for preferential creditors. Group's main asset is the inter-company debt owed to it by Stations, of the order of £127 million. Stations also owes other subsidiaries about £38 million. AIG was owed almost £10 million. Under the Deed it is a creditor for the same amount in respect of each of Stations, Group and several other subsidiaries. Stations has other creditors, including banks for some £60 million, and trade creditors for some £6 million. The banks are creditors of each relevant member of the group for the same amount. Fuel suppliers have claims against Group for £27 million, and there are some other trade creditors of Group, of about £100,000.
AIG contends that, by virtue of the Deed, Station's debt to Group (and to any other relevant subsidiary) is subordinated to that owed to AIG, so that nothing can be paid on account of those inter-company debts unless and until AIG has been paid in full. This would have the effect that the inter-company debt is also subordinated to that of all other ordinary creditors, including the banks and trade creditors. The latter, therefore, would obtain a larger dividend in the liquidation of Stations because they do not suffer competition from the inter-company debt. There is not enough to pay AIG and the other non-subordinated debt in full, so the inter-company debt will remain unpaid. In turn that will mean that there is very little available for distribution in the liquidation of Group to its creditors, such as the fuel suppliers.
Broadly, if AIG is right, Group and the other subsidiaries will get nothing out of Stations, and the competition for the assets in that liquidation will be between AIG, the banks and Stations' trade creditors, all of whom will therefore do much better because of the exclusion of the inter-company debts of £165 million. There will be no dividend in the liquidation of Group, so the Fuel suppliers and Group's trade creditors will get nothing, and although AIG and the banks will also get nothing out of the liquidation of Group, they will have done much better through Stations.
In those circumstances the liquidators of Group wish to avoid the Deed having that effect, and they therefore contend that, properly understood, it does not, and moreover that if it does as a matter of construction it is not effective in law, or its effect can be avoided in one of a number of ways. Those are the issues that I have to decide.
There are two applications before the court, one by the liquidators of Stations and the other by the liquidators of Group. In substance almost all of the argument lay between AIG and Group. The parties were able to agree on what the issues were, and set them out in a document which was the subject of an order by Peter Smith J directing those issues to be determined. The respective contentions were set out in full skeleton arguments, which, helpfully, were directed to be served sequentially. As often happens the process of arguing the case led to some refinements of the formulation of the issues. Essentially I will follow the eleven issues as originally agreed. In support of their arguments on the various points Counsel deployed a large array of authorities, but they made their submissions in an admirably succinct and focussed way, so that all the issues could be argued fully in the course of the three days allowed for the hearing.
Before these proceedings were issued, there were lengthy dealings between the parties in the hope of resolving the issues by agreement. These were unsuccessful. The liquidators of Stations issued their application on 30 January 2004 in order to have the issues resolved without further delay, in a way that would be binding on all the relevant parties, so as to be able then to proceed with the administration of the winding-up. If it is established that the inter-company debts cannot in practice be proved for, it will be unnecessary to investigate the correct amount of the debt. AIG threatened to apply for an injunction to restrain Group's liquidators from putting in a proof in the liquidation of Stations. Stations' liquidators were anxious to avoid delay to their winding-up, which might have resulted from such an application.
Group's liquidators issued their application on 13 February 2004, partly in order to ensure that the issues were resolved in a way binding on those interested in both liquidations. Both they and the liquidators of Stations have asked the court to give them the appropriate directions as to the course they should follow.
AIG contends that, if it is right about the effect of the Deed, it is entitled, if necessary, to an injunction to restrain a breach by Group of its negative obligations under the deed, and that damages would not be an adequate remedy. It has not issued an application for such an injunction, but the matter has, by consent, been ordered to proceed as if such an application had been issued.
The Deed of Indemnity
I must first set out the relevant provisions of the Deed. It begins with a recital as follows:
"the Surety [AIG] has agreed to issue or execute Bonds [in favour of the Commissioners of Customs and Excise] …. on behalf of the Indemnitors for good and valuable consideration and the...
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