Alexander Herron Robertson For An Order Under Section 459 Of The Companies Act 1985 In Respect Of Rm Supplies (inverkeithing) Limited
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2009] CSOH 23 |
| Date | 17 February 2009 |
| Docket Number | P1578/06 |
| Published date | 17 February 2009 |
| Court | Court of Session |
| Year | 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH | |
| P1578/06 | OPINION OF LORD GLENNIE in the Petition of ALEXANDER HERRON ROBERTSON Petitioner; for An order under section 459 of the Companies Act 1985 in respect of
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Petitioner: Dean of Faculty ,& Ms Wolffe; Simpson & Marwick
Respondent: Johnston QC, & McIlvride; Brodies LLP
17 February 2009
Introduction/ Overview
[1] This petition is brought under s.459 of the Companies Act 1985 (the predecessor of s.994 of the Companies Act 2006). The subject matter of the petition is a dispute between shareholders in RM Supplies (Inverkeithing) Limited ("the CompanyCompany"), a companyCompany engaged in the scrap metal business. The resolution of the dispute has taken an unusual course, for two reasons: first, because of a change of position on the part of the petitioner (in terms of the relief that he sought) before the hearing on evidence; and, secondly, because, while the case was at avizandum, after the hearing on evidence and submissions, the business of the CompanyCompany, the value of its assets and the extent of its liabilities were all drastically affected by what has become known as the "credit crunch" and the related global financial turmoil. That has occasioned the hearing of further evidence and submissions. As a result of that the issues on quantum, i.e. the value to be attributed to the parties' respective shareholdings and the price at which one side should be given the opportunity to buy out the other, have considerably narrowed.
[2] The petitioner is Alexander Robertson. The second and third respondents (the only respondents who have taken part in these proceedings) are George Muir and Thomas Muir junior. They are brothers. I shall refer to the latter simply as Thomas Muir, his father being Thomas Muir senior; and I shall from time to time refer to the respondents together as "the Muir brothers". The petitioner is the holder of 1500 shares in the CompanyCompany. His shareholding comprises one half of the issued share capital in the CompanyCompany. The respondents between them own the other shares, holding 750 shares (or 25%) each. I shall refer to their shareholding as "the Muir shareholding".
[3] The shareholding is divided in this way because the CompanyCompany was formed by William Robertson and Thomas Muir senior, respectively the fathers of the petitioner and the father of the Muir brothers. I shall at times refer to them together as "the fathers". They each held 50% of the shares in the companyCompany and passed those shares onto their sons. The petitioner, being the only son of William Robertson, acquired a 50% shareholding; whilst the Muir brothers each acquired 25% of the shares.
[4] The petitioner and the Muir brothers are all directors of the companyCompany. There are two other directors, namely Mrs Robertson, the petitioner's mother, and Mrs Muir, the mother of the Muir brothers. The companyCompany secretary is, and has been for some considerable period, James Thomson. Mr Thomson is a solicitor.
[5] In this petition, the petitioner complains that the affairs of the companyCompany have been and are being conducted in a manner which is unfairly prejudicial to his interests as a member of the companyCompany. In the early stages of the petition, in addition to certain incidental and ancillary relief, the petitioner sought an order that the respondents should be required to buy his shareholding at a price to be fixed by the court. For their part, the respondents denied that there had been any unfairly prejudicial conduct of the companyCompany's affairs by them; but they accepted that, if it were shown that there had been any such unfairly prejudicial conduct as was alleged, they should buy the petitioner out at a price to be fixed by the court. Later, they made certain limited admissions of unfairly prejudicial conduct so as to focus the dispute on value. The issue at that stage, therefore, was essentially an issue about the price which the respondents should be required to pay for the petitioner's shareholding. On this issue the parties were far apart. Both sides lodged expert reports from chartered accountants. The expert for the petitioner was Mr Ian Webster of Johnston Carmichael, while that for the respondents was Mr Greig Rowand of Henderson Loggie. Mr Webster's valuation was higher than Mr Rowand's by a factor of more than two.
[6] As the date fixed for hearing approached, the petitioner sought leave to amend the prayer of the petition so as to enable him to argue that he should be permitted to buy the respondents' shareholding. This amendment was opposed, but it was not suggested that the respondents would suffer any prejudice from it, apart from having to deal with a case with which they would have preferred not to deal. I allowed the amendment. In light of this, since the relief sought was now in dispute, the petitioner insisted on all his allegations of unfairly prejudicial conduct and the respondents deleted their limited admissions. The matter proceeded on the basis that both liability and quantum would be contested. It was made clear by the petitioner that the purchase of the respondents' shareholding was now his preferred option. Nonetheless, the parties maintained the same positions as regards the value of the CompanyCompany and of the relevant shareholdings, with the result that the petitioner, who wanted to buy the respondents' shares, was contending for a value which was far higher than that which was put upon them by the respondents. At the time the case came to a hearing on evidence, Mr Webster assessed the fervour of the companyCompany to be about £25.2 million. Mr Rowand's valuation was only £10.3 million. Although at an earlier stage Mr Rowand had valued the CompanyCompany on an assets basis, by the time the proof began both he and Mr Webster were approaching the question of valuation on an earnings basis, albeit using different methodology, Mr Rowand applying a multiple of Future Maintainable Profits ("FMP") and Price Earnings ("P/E") ratio while Mr Webster preferred to use the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) approach. There were also a significant number of other differences between them.
[7] In May and June 2008 I heard 11 days of evidence, including very detailed examination and cross-examination of the expert witnesses. Submissions were made over two days at the end of June. At this stage both the petitioner and the respondents confirmed that they would be able to purchase the shareholding of the other(s) at the price fixed by the court, even if that price was at the higher end of the scale based upon Mr Webster's valuation of the CompanyCompany. In September 2008 I asked my clerk to contact the solicitors for each party to ask whether, in light of the financial upheaval that had by then hit the headlines, they wished to make further submissions on value. I heard the parties on this at a By Order hearing on 10 October 2008. The petitioner lodged in process a further letter from Mr Webster revising his valuation downwards in light of two particular matters, namely a significant fall in the value of some shares (in Forth Ports plc) held by the companyCompany and an increase in the losses suffered by the CompanyCompany on certain forward foreign exchange contracts which it had entered into with the Royal Bank of Scotland. There was some discussion about whether the respondents wished to have the opportunity to put in a further report substantially reducing Mr Rowand's valuation in light of a large number of factors. Ultimately it was agreed that the respondents should have two weeks in which to put in a letter from Mr Rowand dealing only with the two points addressed in Mr Webster's letter. It was not envisaged that there were any more widespread difficulties. In particular it was not envisaged that either party would have any additional difficulties in raising the finance needed to purchase the other shareholding(s) if I decided in their favour.
[8] Just before the expiry of that two-week period, the solicitors for the respondents wrote to the court asking for a further hearing as a matter of urgency before I finalised my Opinion. There had, they said, been a material change of circumstances. They elaborated on this to say that "the respondents are now completely clear that they are not in a financial position whereby they can afford to purchase at [the petitioner's] valuation". They said that they would now be prepared to sell their shares to the petitioner at the valuation attributed to the companyCompany by Mr Webster, though they remained willing to buy on the basis of Mr Rowand's valuation.
[9] In light of this, there was a further short hearing on 30 October 2008, at which it became clear that there had been a significant downturn in the ferrous and non-ferrous markets. It seemed possible that the parties would reach some agreement for disposal of the whole action without the need for any Opinion, and I continued the hearing for further discussions. In the event, those discussions came to nothing.
[10] There was a further By Order hearing on 14 November 2008. I had, at an earlier hearing, made it clear that I had reached a decision on the question of unfair prejudice and on the question of which side should be given the opportunity to purchase the shareholding of the other; and I had offered to make it known to the parties if they thought that this would assist them in coming to a resolution of the dispute. At the hearing of 14 November 2008 I was asked by both parties, on the assumption that I was prepared to find that there had been unfairly prejudicial conduct, to indicate which way my decision would go. I therefore told the parties my decision, which was that the petitioner should be allowed to purchase the respondents' shares. It was agreed that parties would consult their...
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...even though a petitioner had not been removed from the board of directors, see by way of example Re RM Supplies (Inverkeithing) Limited [2009] CSOH 23), we agree with Mr Joffe that it is necessary to have regard to the specific acts and equitable considerations in question in assessing whet......