SISU Capital Fund Ltd v Tucker
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE WARREN |
| Judgment Date | 09 September 2005 |
| Neutral Citation | [2005] EWHC 2170 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 002816 OF 2005 |
| Date | 09 September 2005 |
[2005] EWHC 2170 (Ch)
the Honourable Mr Justice Warren
Case No: 002816 OF 2005
Case No: 007084 of 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr S Davies QC, Mr P Gillyon, Mr D Wolfson, & Mr E Davies(instructed by Bingham McCutchen LLP) for the Applicants
Mr M Crystal QC, Mr R Dicker QC, Mr M Arnold & Mr D Allison (instructed by Allen & Overy) for Mr Wallace & Mr Tucker (the Respondents)
Mr M Briggs QC Mr J Machell & Mr D Drake (instructed by Fladgate Fielder) for Mr Spratt & Mr O'Connell (the Respondents)
Hearing dates: Hearing dates: 8 th,9 th,10 th, 11 th, 12 th,15 th, 16 th, 17 th, 18 th & 19 th August 2005
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.
Introductory Observations
A. This application has come on in the Long Vacation as a matter of urgency. I have needed to digest a mass of written material, including case summaries and written opening and closing cases running to several hundred pages, as well as witness statements (excluding exhibits running to some 30 ring-binders) of over 1000 pages. It is impossible for me, in the time available to write this judgment, to review the evidence in the detail which I would ordinarily wish to do in arriving at, and expressing, my conclusions. The fact that I do not do so does not mean that I have ignored it – although it would be a pretence at perfection to say that I had not overlooked anything. I should say that, in order to speed production, I have taken large parts of the narrative virtually verbatim variously from an agreed statements of facts and from the witness statements of Mr Wallace and Mr Roome where I am able to accept what they say as correct.
B. Accordingly, except in relation to a very few events, I state my conclusions of fact without setting out the detail of the competing stories. Statements of fact are to be taken, except where otherwise expressly qualified, as my findings. My findings necessarily entail acceptance or rejection of one or other of the inconsistent evidence from different witnesses.
C. Similarly, it has been impossible to deal with a substantial number of submissions made. I have read, and re-read, opening and closing written submissions from all parties. The fact that I have not expressly dealt with a point, and I am afraid there are very many of them which I have not dealt with, does not, again, mean that I have ignored it although it would, again, be a pretence at perfection to say that I had not overlooked any. I hope, however, that I have covered all the major submissions.
D. I shall start with a very brief review of the nature of the application and of the background and the major events so that the reader coming afresh to the case can see in broad terms what it is about. I shall then address the areas of law which have been debated before me, then set out in detail the facts and my findings, before expressing my conclusions.
Introduction
1. I have before me applications by the Applicants who seek the following relief:
a. Pursuant to section 6 IA 1986, the revocation or suspension on such terms as the court thinks fit of the approval given by creditors’ meetings held on 31 March 2005 of the CVAs in respect of EGO BV and EH3 on the grounds that those CVAs are unfairly prejudicial to the interests of the Applicants and that there were material irregularities at or in relation to the meetings approving the CVAs.
b. Pursuant to paragraphs 74 and/or 88 of Schedule B1 to IA 1986, the removal of Mr Wallace and Mr O'Connell as the joint administrators of EGO BV and, under paragraphs 90 and 91 of Schedule B1 to IA 1986, the appointment of new administrators of EGO BV.
c. Pursuant to sections 108 and 171 of IA 1986, the removal of Mr Tucker and Mr Spratt as the joint liquidators of EH3 and, under section 108 of IA 1986, the appointment of new liquidators of EH3.
2. EGO BV and EH3 are part of a large group of companies, the ultimate parent of which is TXU Corp, a Texan corporation. For the purposes of the present case, I am concerned with the TXUEL Europe group, the structure of which appears from the following diagram:
3. It will be seen that there is a line passing through TXUEG. The expressions (which I adopt) for above the line and below the line are ATL and BTL. TXUEG itself is included as a BTL company. Broadly speaking, the BTL companies are the operating companies (carrying out the electricity and other power generation, retailing, trading, marketing, delivery and other energy related activities conducted by the group) whereas the ATL companies are holding companies (whose principal activity was the provision of finance to the operating companies). The BTL companies have, in the evidence, sometimes been referred to as the Operating Companies and the ATL companies have sometimes been referred to as the Holding Companies. On occasions I use those expressions too.
4. The Respondents are, and have at all material times been, partners in the well-known firm KPMG. Mr Wallace and Mr Tucker are joint administrators of TXUEL, TEG and TXUAC. They are joint administrators of TXUEG together with Mr Bloom and Mr Bailey of the equally well-known firm E&Y. Mr Bloom and Mr Bailey are also joint administrators of TXU UK together with Mr Chris Hughes of THM. The appointments of these individuals other than Mr Hughes took place on 19 November 2002; Mr Hughes was appointed on 11 March 2004. Mr Tucker is also, together with Mr Spratt, a joint liquidator of EH3 both having been appointed at a creditors’ meeting on 8 January 2003. Mr Wallace is also, together with Mr O'Connell, a joint administrator of EGO BV both having been appointed on 20 November 2003. I will turn in due course in more detail to the making of those appointments.
5. The financial structure of the group is complex. At this stage, I simply note the principal creditors of the group in November 2002.
External creditors
6. First, the main external group facilities/creditors were as follows:
a. The bank lenders:
i. a £900 million Revolving Credit Facility for TXUEL arranged by Barclays, JPMorgan plc, Salomon Brothers International Limited and RBS dated 19 November 2001 (the “ RCF Facility” giving rise to the “ RCF Debt” owed to “the RCF Banks”);
ii. a £126 million Credit Facility for TXUEG arranged by RBS and Bayerische Landesbank Girozentrale, London Branch dated 20 June 2001;
iii. a US$174.4 million Credit Facility for Eastern Group Finance Limited arranged by Bayerische Hypo-und Vereinsbank Aktiengesellschaft, London Branch, and Bayerische Landesbank Girozentrale, London Branch dated 13 March 2002. This facility was guaranteed by TXUEL; and
iv. a US$220 million Letter of Credit and Reimbursement Agreement between Eastern Group Finance Limited (as accounts party), TXUEG (as guarantor) and Bayerische Landesbank Girozentrale, New York Branch as issuing bank, Bayerische Landesbank Girozentrale, London Branch and KBC Bank NV, London Branch as arrangers and KBC Bank NV as agent dated 16 June 2002 (together with (c), the “ Lilo Banks “).
the lenders together being called the “ Lending Bank Syndicates”.
b. Bondholders (“EFC Bondholders”) of approximately £1.3 billion of bonds (“EFC Bonds”) issued by EFC (about £1.377 billion outstanding at 19 November 2002). The EFC Bonds were guaranteed by TXUEL. Further, the proceeds of the EFC Bonds were lent to TXUEL. Accordingly, the EFC Bonds give rise to several rights – the EFC Bondholders having direct claims against EFC (primary liability) and TXUEL (guarantee liability) with EFC itself having a debt owing by TXUEL equal to the proceeds of the bonds on-lent to TXUEL.
c. Bondholders (“EGO BV Bondholders”) of US$500 million of bonds (“EGO BV Bonds”) issued by EGO BV (about £330 million outstanding at 19 November 2002). The EGO BV bonds too were guaranteed by TXUEL. They were also guaranteed by EH3. TXUEL also gave an indemnity to EH3 in respect of EH3's own guarantee. The Applicants held between them about 17.4% of the EGO Bonds, the majority being held by holders of RCF Debts and EFC Bonds.
7. I should say something more about these different creditors. It is central to the Applicants’ case that they stand in a unique position, their only interest being as EGO BV Bondholders excluding what Mr Roome describes as a nominal holding by Unum of EFC Bonds. In contrast, they say, other creditors all have significant interests as creditors of other companies and that it is in their interests to see as much value as possible finding its way to TXUEL rather than to EGO BV. They say that the way in which various issues have been determined in the various CVAs has shifted value from EGO BV and is unfairly prejudicial to them. I make two observations at this stage. First, the assertion is not correct in relation to AEGON, whose economic interests in respect of certain of its funds were aligned with those of the Applicants. Secondly, it is not correct to assume that it is in the economic interests of all other financial creditors to see value shifted to TXUEL. It is true that EGO BV's estate may be increased if TXUEL receives less; but...
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