Saltri III Ltd v MD Mezzanine SA SICAR and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Eder |
| Judgment Date | 07 November 2012 |
| Neutral Citation | [2012] EWHC 3025 (Comm) |
| Docket Number | Case No: 2011 FOLIO 121 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 07 November 2012 |
[2012] EWHC 3025 (Comm)
Mr Justice Eder
Case No: 2011 FOLIO 121
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Robin Knowles CBE QC and Mr Tom Smith (instructed by SJ Berwin LLP on behalf of the Claimant and 3 rd and 4 th Parties)
Mr Robert Miles QC, Ms Hilary Stonefrost and Mr James Knott (instructed by Baker & McKenzie LLP on behalf of the Second Defendant)
Mr Joe Smouha QC, Mr Salim Moollan, Mr Edmund King and Mr Tom Ford (instructed by Stewarts Law LLP on behalf of the 1 st, 3 rd and 5 th Defendants)
Hearing dates: 9–13, 16–20, 23–24 and 26–27 July 2012
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.
A—OVERVIEW
These proceedings relate to an enforcement and restructuring of a group of companies known as the Stabilus Group that occurred in early April 2010. At their heart is a battle between a group of Senior Lenders and a group of Mezzanine Lenders and, in the middle, a Security Trustee.
The Stabilus Group carries on business as a leading manufacturer of gas springs and hydraulic vibration dampers which are used in the automobile industry and other industries. In 2008 the Stabilus Group was acquired by a private equity fund (Paine & Partners LLC, "Paine") for a net consideration of approximately €519 million. As part of this acquisition, companies in the Stabilus Group assumed substantial indebtedness to various lenders under Senior and Mezzanine Facilities Agreements (the "SFA" and the "MFA" respectively and together the "Facility Agreements") both dated 10 February 2008 and governed by English law. The indebtedness under these agreements was secured by guarantees and other security (such as share pledges and security over receivables) provided by companies in the Stabilus Group. The rights of the various lenders to the Stabilus Group were regulated (at least in part) by the terms of an intercreditor agreement dated 20 March 2008 and also governed by English law ("ICA"). In particular, the ICA provided, in effect, that the claims of the Mezzanine Lenders were completely postponed and subordinated to the claims of the Senior Lenders. Under these agreements, the 2 nd defendant ("JPMEL") was designated the "Security Trustee", the "Senior Facility Agent" and (at least initially) also the "Mezzanine Facility Agent". (Unless otherwise stated, capitalised terms used in this Judgment are as defined in these agreements.)
By April 2010, the Stabilus Group owed approximately €409 million to its Senior Lenders (including the claimant ("Saltri") which was part of what has been referred to as the Triton III investment funds or "Triton") and approximately €83 million to its Mezzanine Lenders (in effect the 1 st/3 rd and 5 th defendants (together the "Mezzanine Defendants")). By way of explanation, the 1 st/3 rd defendant, MD Mezzanine SA SICAR ("MDM"), is a party to these proceedings in its capacities as Mezzanine Facility Agent and as a lender under the MFA. MDM is an investment fund which is managed by AXA Private Equity. The 5 th defendant, ECAS S.à r.l. ("ECAS"), is also a lender under the MFA and is jointly represented in these proceedings with MDM. ECAS is an investment fund which is managed by European Capital.
It is common ground that from 2008 the Stabilus Group experienced severe financial difficulties, although the extent of those difficulties and the potential for recovery are matters in issue in these proceedings. As appears in more detail below, it is the Mezzanine Defendants' case that an important part of the story is the decision taken in about June 2009 to instruct N M Rothschild ("Rothschild") in relation to a possible sale of the Stabilus Group, the steps taken by Rothschild in that regard as well as the advice which they gave in the second half of 2009 and in the early part of 2010 which, say the Mezzanine Defendants, was wrongly ignored by JPMEL. In the event, on 8 April 2010 and acting on the instructions of 100% of the Senior Lenders, JPMEL in its capacity as Senior Facility Agent issued an Enforcement Notice to itself in its capacity as Security Trustee to accept an offer to transfer the business of the Stabilus Group to the 3 rd and 4 th parties "Acquilux" and "KG" (both of which were also part of the Triton III investment funds) subject to certain liabilities to the Senior Lenders (the "Restructure"). (For convenience, I shall refer to Saltri, Acquilux and KG as the "Triton Parties"). JPMEL's case is that it was both entitled and bound to follow such instructions and that it duly carried out the restructuring in accordance with the terms of the Enforcement Notice by entering into an agreement (the "Restructuring Agreement") which is described more fully below but which, in essence, resulted in the Mezzanine Lenders being left without any significant assets and, it is said, the Senior Lenders taking what has been referred to as a 36% "haircut".
In summary, the Mezzanine Defendants say that although they and the other Mezzanine Lenders were indeed left without any significant assets, there was in truth no write off or "haircut" by the Senior Lenders; that what happened was that the Stabilus Group was deleveraged by 36% to comply with German law, by means of an accounting mechanism whereby debt was converted into hybrid (quasi-equity/debt) instruments (referred to as Profit Participating Loans or "PPLs"); that one type of interest was exchanged for another; that the restructuring was the result of a bargaining exercise as between the Senior Lenders following which various groups of Senior Lenders obtained larger or smaller parts of the cake; that an important feature of these negotiations was that certain Senior Lenders (including Triton and others) held a blocking minority of the Senior Debt and were able to impose a deal in which Triton came out with the larger share of the cake, with others (viz. Anchorage and Goldman Sachs) also taking significant benefits and the remaining Senior Lenders obtaining lesser but still significant benefits; and that this resulted in the carving up of all the value of the Stabilus Group as between the Senior Lenders.
Against that background, the Mezzanine Defendants challenged the validity of the Restructure. The present proceedings were then initiated by Saltri in particular seeking declaratory relief that the Restructure was and is valid. The Mezzanine Defendants dispute this on various grounds: in particular they say that the Restructure was effected without authority or for an improper purpose and therefore "void". Alternatively, the Mezzanine Defendants advance claims for equitable compensation/damages for breaches of duty against the Security Trustee i.e. JPMEL but not, it should be noted, against the Senior Lenders themselves. That is the essence of the present dispute. I should make plain that Mr Smouha QC on behalf of the Mezzanine Defendants expressly disavowed any suggestion of bad faith on the part of JPMEL or any other party.
By virtue of a previous order of this Court, all issues of quantum are to be dealt with, if necessary, at a later stage. Accordingly, this Judgment is concerned with liability only.
The evidence
There were served witness statements from the following individuals who gave oral evidence:
a On behalf of the Triton Parties:
i Mr Andi Klein. He joined Triton Beteiligungsberatung GmbH in January 2009 as a senior investment professional. His role involves monitoring and researching the market to make recommendations for future investments that are primarily based in Germany, Austria and Switzerland. He began focussing his research on the Stabilus Group as a potential target for investment in May/June 2009 and was responsible for submitting a Debt Investment Proposal dated 30 th June 2009 to Triton's investment committee. Thereafter, he played a major role on behalf of the Triton Parties in acquiring Triton debt on the secondary market and in the eventual Restructure of the Stabilus Group in April 2010.
ii Mr Bobby Rajan. He is a senior director at the Alvarez & Marsal Group ("A&M"). In that capacity, he assists and advises corporates, larger creditor syndicates, original equipment manufacturers ("OEMs"), customer groups and boards throughout North America, Europe, Latin America and Australia. As appears below, he was appointed as a restructuring officer of the Stabilus Group in April 2009. In mid-May 2009, he became the chief restructuring officer ("CRO") and interim chief financial officer ("CFO") and was appointed to four management boards (i.e. Geschaftsfuhrer) of companies within the Stabilus Group. He continued as CFO until August 2009 when Mr Mark Wilhelms was appointed as permanent CFO, following which he (i.e. Mr Rajan) continued in his role as CRO and board member until April 2010.
iii Mr Mark Wilhelms. He joined the Stabilus Group and became its CFO on 3 August 2009, a role which he still occupies. As CFO, he manages the financial aspects of the Stabilus Group including the management of financial risks, devising the financial strategy and monitoring and analysing the financial results of the Stabilus Group.
b On behalf of JPMEL:
i Mr Peter Jaffe. He is a chartered accountant and a managing director of JPMEL. He has worked at JP...
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