Ronald Young v Nero Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Michael Green |
| Judgment Date | 29 September 2021 |
| Neutral Citation | [2021] EWHC 2600 (Ch) |
| Docket Number | Case No: CR-2020-004188 |
| Court | Chancery Division |
[2021] EWHC 2600 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF NERO HOLDINGS LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC2A 1NL
THE HONOURABLE Mr Justice Michael Green
Case No: CR-2020-004188
Robin Dicker QC and Adam Al-Attar (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Applicant
Tom Smith QC and Henry Phillips (instructed by Linklaters LLP) for the First Respondent
Richard Fisher QC and Georgina Peters (instructed by Travers Smith LLP) for the Second and Third Respondents
Hearing dates: 21, 22, 23, 26, 28, 29 July 2021
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.
THE HONOURABLE Mr Justice Michael Green
| CONTENTS | Paragraphs | |
| A | INTRODUCTION | 1 – 9 |
| B | BROAD OUTLINE OF THE ISSUES TO BE DECIDED | 10 – 15 |
| C | GENERAL COMMENTS ON THE WITNESSES | 16 – 50 |
| D | DETAILED FACTS | |
| (a) The Company | 51 – 55 | |
| (b) Background to the CVA | 56 – 67 | |
| (c) The terms of the CVA Proposal | 68 – 73 | |
| (d) The nominees' appointment and role | 74 – 84 | |
| (e) EG's prior approaches | 85 – 92 | |
| (f) The EG Offer | 93 – 111 | |
| (g) The response to the EG Offer | 112 – 138 | |
| (h) The Challenge Application | 139 | |
| (i) The arrangements between Mr Young and EG | 140 | |
| E | LEGAL FRAMEWORK | |
| (a) CVA Challenges | 141 – 147 | |
| (b) Decision-making during a CVA process | 148 – 157 | |
| (c) Relevant directors' duties | 158 – 162 | |
| F | MATERIAL IRREGULARITY | 163 – 164 |
| (a) Failure to adjourn/postpone the CVA process | 165 – 226 | |
| (b) Failure to seek further information | 227 – 235 | |
| (c) Failures in relation to the Announcement | 236 – 273 | |
| (d) Validity and effect of the Modification | 274 – 309 | |
| (e) Failure in relation to the nominees' report | 310 – 319 | |
| G | UNFAIR PREJUDICE | 320 – 328 |
| H | LEGITIMATE INTEREST/COLLATERAL PURPOSE | Error! Reference source not found. 329 – 338 |
| I | DISPOSITION | Error! Reference source not found. 339 – 341 |
A. INTRODUCTION
This is the trial of a challenge under s.6 of the Insolvency Act 1986 (the Act) to the company voluntary arrangement ( CVA) proposed by the directors of the First Respondent, Nero Holdings Limited (the Company) and approved by a creditors' electronic decision procedure that was deemed to take effect at 23:59 on 30 November 2020 (the Challenge Application). The Company is the principal UK operating company in the Caffe Nero Group, the well-known international coffee shop retailer.
The Applicant, Mr Ronald Young ( Mr Young) is a landlord of premises let to the Company. Under the CVA, he would be paid 30p/£ in respect of the rent arrears owed to him up to 30 November 2020. He voted, reluctantly, in favour of the CVA on or around 27 November 2020 before the major development described below that has been the focus of his challenge to the CVA.
On the evening of Sunday 29 November 2020, at around 21:00, EG Group Limited ( EG) owned by the brothers Mohsin and Zuber Issa, who have in recent months acquired the Asda supermarket group and the Leon restaurant chain, through its lawyers, Kirkland & Ellis International LLP ( K&E) made an offer for the shares in Nero Group Limited ( NGL) including an offer to pay all the Company's landlords' rent arrears in full (the EG Offer). EG said that it wanted the CVA to go through but with those enhanced terms to the landlords included and it asked for the CVA vote to be postponed while its Offer could be properly explored and negotiated. It indicated that it would be able to sign definitive documentation within 10 business days and that all third party debt would be settled in cash at closing.
However the EG Offer was rejected and the CVA vote was not postponed. The directors of the Company now say that it was the nominees' decision not to postpone the vote, although this was clearly also the directors' decision at the time. The directors of the Company and/or the ultimate shareholders of NGL did not seek to make any contact with EG or K&E in relation to the EG Offer at any time prior to the close of the CVA vote, save to confirm the shareholders' rejection of the EG Offer which was sent at about 23.30 on 30 November 2020.
The Second and Third Respondents, Mr William Wright and Mr David Costley-Wood, both then partners of KPMG LLP, were the nominees of the proposed CVA, becoming the supervisors of the CVA when it was approved. Mr Wright gave evidence and confirmed that he and Mr Costley-Wood took the decision not to postpone the CVA vote as it was their decision to make. He too did not seek to discuss with EG or any of their advisors in relation to the terms or deliverability of the EG Offer.
Having made the decision not to postpone, there are two further events on 30 November 2020 that are the subject of complaint in the Challenge Application:
(1) An announcement to creditors was posted on the CVA portal hosted by KPMG at around 14:30 (the Announcement); it informed creditors that the EG Offer had been made but that for various reasons the vote would not be postponed; Mr Young says that the Announcement was misleading and it failed to disclose material information about the EG Offer;
(2) A modification to the CVA Proposal was put forward by the directors on the advice of the nominees that was said to preserve the benefits of the EG Offer should the CVA be passed and a deal later concluded with EG (the Modification); the Modification was only notified to creditors at around 22.20 when the vast majority of creditors had already voted and the CVA had effectively been approved; Mr Young says that the timing of the Modification rendered the voting on the CVA irregular and invalid.
The Challenge Application therefore turns on the events of 29 and 30 November 2020 and the various decisions that were made by the directors of the Company and the nominees on those days.
I say at the outset that it seems to me that the issues that have arisen in this case have been as a result of the inflexibility of the electronic voting procedure that is prescribed for in the Insolvency Rules 2016 (the Rules) and which is now the normal method used in relation to CVA creditor voting, even before the Covid-19 pandemic struck. The Rules specifically do not allow creditors to change their vote after they have voted and the Rules do not really cater for a situation such as in this case when a major development occurs so late in the process. I do not criticise at all the nominees for choosing the electronic voting procedure – indeed they were bound to use it by the Rules unless there was a good reason not to – but having so used that procedure, it is by no means easy to see what should have happened under the Rules to deal with the EG Offer. If there had been an actual creditors' meeting, whether in-person or virtual, the relevant decisions could have effectively been made by the creditors at the meeting. They could have decided to adjourn the vote, for example, to allow time to explore the EG Offer. But the Rules in relation to an electronic voting procedure do not provide for an adjournment or postponement and it is in any event unclear what would be postponed. The parties were, in the end, agreed that the only option would have been an application to the court. I will have to consider whether that was a feasible option on 30 November 2020 and whether that step should have been taken.
I should add that it is clear that EG and K&E had assumed on 29 November 2020, shortly before they sent the EG Offer, that there would be a physical creditors' meeting the next day. The request to postpone the vote makes much more sense if that was going to happen. In any event, the EG Offer was designed to place the directors of the Company in a difficult position, as Mr Mohsin Issa admitted in his oral evidence, but whether the position under the Rules in respect of an electronic voting procedure was fully appreciated is another matter. I will explore these issues in detail below.
B. BROAD OUTLINE OF THE ISSUES TO BE DECIDED
By s.6(1) of the Act, there are only two grounds upon which a challenge to a CVA can be brought: (a) that it “ unfairly prejudices a creditor, member or contributory of the company”; and/or (b) that “ there has been some material irregularity at or in relation to the meeting of the company, or in relation to the relevant qualifying decision procedure.” Mr Young relies on both grounds, although the principal focus has been on (b), that there were material irregularities.
The alleged material irregularities relied on by Mr Young can be summarised as follows:
(1) The failure to adjourn or postpone the creditors' voting procedure;
(2) The failure to engage with or seek further information from EG or its advisors in relation to the EG Offer;
(3) The misleading content of the Announcement, in particular that it did not fully explain and set out the terms of the EG Offer;
(4) The terms of the Modification and the effect of the creditors' votes already cast by the time the Modification was proposed;
(5) The failure to update the nominees' report.
Underpinning all of Mr Young's complaints in...
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