Rock (Nominees) Ltd v RCO (Holdings) Plc (in Members Voluntary Liquidation)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Peter Smith,MR JUSTICE PETER SMITH |
| Judgment Date | 09 April 2003 |
| Neutral Citation | [2003] EWHC 936 (Ch) |
| Docket Number | Case No: 3249 of 2002 |
| Court | Chancery Division |
| Date | 09 April 2003 |
[2003] EWHC 936 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Peter Smith
Case No: 3249 of 2002
Mr R Potts QC and Mr A Thornton (instructed by Allen & Overy) for the Petitioner
Mr A Steinfeld QC and Miss E Weaver (instructed by Travers Smith Braithwaite) for the Second to Fourth Respondents
Mr A Gledhill (instructed by CMS Cameron McKenna) for the First Respondent
Hearing dates: 7, 8, 9, 10 and 14 April 2003
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.
INTRODUCTION
This is the trial of a Petition under Section 459 of the Companies Act 1985 brought by Rock Nominees Ltd. ("Rock") in relation to the affairs of the First Respondent RCO Holdings Plc ("RCO"), which is in voluntary liquidation. Neither the liquidators nor RCO were represented at the hearing.
The petitioner is the holder of 266,300 shares of £0.10 nominal value in RCO, which itself has a nominal capital of fifteen million ordinary £0.10 shares, of which ten million, seven hundred and nineteen thousand were issued and fully paid up. Rock therefore held 2.48% of RCO's issued share capital.
Rock held those shares and still holds them as a nominee for two companies. First it holds two hundred and one thousand, three hundred shares for Gambier Holdings Inc. ("Gambier") (a British Virgin Islands company). Second it holds sixty-five thousand shares for Kiwi Ltd. ("Kiwi") a Belize company.
These acquisitions took place in 1998/1999.
There is an association, to use a neutral word at the moment, between these companies and Lord Ashcroft and a further company Rapid Reef Ltd. ("Rapid Reef"), which with BB Holdings Ltd. ("BB Holdings") are wholly owned subsidiaries of Carlisle Holdings Ltd., ("Carlisle") a Belize company in which Lord Ashcroft has an interest. I will address that interest and the association further in this Judgment. Rapid Reef acquired its one hundred and one thousand shares in RCO on 28 th June 2000, a date with some significance, as will appear in this Judgment.
Despite the apparent connection between Kiwi and Gambier on the one hand, and Rapid Reef on the other, Rapid Reef is not a party to this Petition.
BACKGROUND
The Petition arises initially out of the acquisition by the Second Respondent; ISS Brentwood Plc ("Brentwood") acquired 96.4% of the shares in RCO as a result of a take over offer. Subsequent to that the shares in RCO's wholly owned subsidiary RCO Group Ltd. ("Group") were sold to ISS (UK) Ltd. ("UK") under an agreement dated 24 th November 2000, for a sale price of £30,117,784.00 (thirty million, one hundred and seventeen thousand seven hundred and eighty-four pounds).
Group's business was the provision of facilities management and business support services, particularly cleaning, catering and security porterage. It carried on business through RCO Support Services Ltd. and RCO Contract Services Ltd., which were wholly owned subsidiaries of Group, which itself, as I have said, was a wholly owned subsidiary of RCO.
The shareholders in UK are ISS Global and ISS A/S. ISS A/S is based in Copenhagen. ISS is a subsidiary of it and Brentwood is a subsidiary of that company.
A Mr Ahmed, a Mr Openshaw and a Mr Cox are directors of ISS UK and were also appointed directors of RCO and were the directors in place at the time of the sale agreement dated 24 th November 2000, referred to above ("the Sale Agreement").
Following the sale of the shares to UK, as a result of the Sale Agreement, the result of which left RCO with cash of £1,209,923.20 (one million, two hundred and nine thousand, nine hundred and twenty-three pounds, twenty pence) and £28,907,860.80 (twenty-eight million, nine hundred and seven thousand, eight hundred and sixty pounds, eighty pence) outstanding as a debt due on demand from UK. RCO went into members voluntary liquidation on 28 th September 2001. A Mr Finbarr O'Connell and a Mr Jeremy Simon Sprat of KMPG Corporate Recovery were appointed joint liquidators. KPMG were at all material times the auditors of Brentwood and UK. As appears further in this Judgment they also gave advice in respect of the Agreement.
Mr Cox and Mr Ahmed swore a statutory declaration of solvency on 4 th September 2001. According to that there is cash shown at the bank of £1,258,506.00 (one million, two hundred and fifty-eight thousand, five hundred and six pounds) and a loan of £32,446,838.00 (thirty two million, four hundred and forty-six thousand, eight hundred and thirty-eight pounds) with a net estimated realisation of surplus after paying debts of £30,609,921.00 (thirty million, six hundred and nine thousand, nine hundred and twenty-one pounds). The difference between those two respective figures and the figures in the Sale Agreement reflect interest that was chargeable at an initial agreed rate of 8% on the deposit and the balance of the purchase price. As a result therefore the price for shares as at March 2001 was £2.80, although the realisation (in interest terms) will be more.
The liquidation has not been finalised although there appears to be no reason why the liquidation could not have been finalised some considerable time ago. As a result of the liquidation the return to shareholders will be a total of £3.13 representing a capital distribution of £0.28 and the proceeds consequent on liquidation to be £2.85. By 27 th September 2002 the likely dividend had increased from £2.85 to £2.90 as set out in the joint liquidators' receipts and payments account for the period from 28 th September 2001 to 27 th September 2002.
FACTUAL CHRONOLOGY UP TO OCTOBER 2000
In this Judgment I shall split the factual chronology between events up to October 2000 and events thereafter. The first part deals mainly with the process of acquisition of the 96.4% of the shares in RCO by Brentwood.
It starts with the acquisition by Rock in 1998/1999. The then board of RCO noted those acquisitions via Belize Bank, a bank associated with Lord Ashcroft, and they were sufficiently concerned to prepare a strategic defence called "Operation Rex", which was initially proposed to fend off Lord Ashcroft and then any other organisations which might make a hostile bid. That was prepared on 26 th January 1999.
ISS is a company that regularly targets potential acquisitions. RCO was one of those potential targets. It enjoyed a good reputation in the industry and in particular its chairman, Alan Raven. In 1999 ISS UK undertook some preparatory work with a view to making a bid. However the interest leaked out and the resulting publicity caused the share price to rise. ISS UK decided not to proceed.
In early 2000 ISS decided to develop the potential acquisition. Jens Olesen senior vice president in charge of mergers and acquisitions support in Copenhagen contacted Mr Ahmed who was at that time the finance director of ISS UK to provide him with some information concerning a report Mr Olesen was preparing for the ISS A/S board on RCO. That led to the report dated 16 th February 2000 described as "Project Premium UK" ("the February Report"). As appeared in the evidence, there were some controversial aspects as to the calculations put forward in this report. What it identified however, was a substantial financial advantage that could accrue to ISS in respect of "synergies" by virtue of its acquisition of RCO.
I should say something about synergies. They are the perceived savings that can be achieved by an amalgamation of two businesses. Such savings in this case primarily fell into two categories. First, there were substantial overhead office savings achievable by the sale of the head office. Second, there were substantial potential staff savings that could be reduced at a senior level and third, the amalgamation of the business would potentially produce benefits of cross-selling.
Those synergies were clearly valuable. They were of course personal to ISS. The value of the synergies would not necessarily reflect in the quoted market share of RCO from time to time. Mr Raven the former managing director of RCO, in giving evidence to me, said that they had had four approaches before ISS's offer and whilst relatively high figures had been offered initially of up to £2.70 per share, ultimately, after the various prospective acquirers' due diligence, the offers were substantially reduced, the best one being £2.02. At this time (February 2000) RCO's shares were trading at 190.5 pence fairly close to its lowest level over the last twelve months. According to the February Report that was an attractive level to issue an offer "before the assumed technical recovery of the share price takes place". It was described as a situation where "the window is open now".
As I have said the valuation of those synergies in the February Report is a matter of controversy. If one looks at page 13, which is the Premium financial summary, it appears that the figures for the synergies valuation for the years 2000, 2001 and 2002 and recurring are respectively (assuming the rate of 12.12 DKK to the Pound) £1.5million, £3 million and £3 million. The same impression is given at page 23 of the report, where it describes synergy realisations in the year 2000 and following at the same level. Despite that apparent clear statement both Mr Olesen and Mr Ahmed said that the February Report showed in it's detail (based on giving effect to the...
To continue reading
Request your trial
-
Fyffes Plc (plaintiff) v DCC Plc, S&L Investments Ltd, James Flavin and Lotus Green Ltd
...by Brooks L.J. in the Wisniewski case was considered: Pedley v. Avon Insurance [2003] E.W.H.C. 2007; Rock Nominees v. RCO Holdings [2003] 2 B.C.L.C. 493; and Lewis v. Eliades (No. 4) [2005] E.W.H.C. 488. Having considered the judgments in those cases, I am of the view that decisions made in......
-
Fyffes Plc v DCC Plc
...4 All E.R. 609. Ritter v. Godfrey [1920] 2 K.B. 47; [1918-19] All E.R. 714. Rock Nominees v. RCO (Holdings) [2003] EWHC 396 (Ch), [2003] 2 B.C.L.C. 493. Russell v. Wakefield Waterworks Co. (1875) L.R. 20 Eq. 474. Ryan v. Triguboff [1976] 1 N.S.W.L.R. 588. Salomon v. Salomon & Co. [1897] A.C......
-
John Cusack (Petitioner) v James Holdsworth and Another
...has to show that the conduct complained of is both unfair and prejudicial: Re Saul D Harrison & Sons Plc [1995] 1 BCLC 14. Rock Nominees v RCO Holdings [2004] 1 BCLC 439 provides a good example of where the conduct was found to be unfair but not prejudicial. A company acquired assets where ......
-
Constable v Executive Connections Ltd and Others
... ... (then called Executive Connections Holdings Limited), the remaining shares being taken by the ... basis of the Court of Appeal decision in Rock Nominees Ltd v RCO Holdings Ltd [2004] EWCA Civ ... shares in the Company, the member or members who have not accepted the Approved Offer shall be ... ...