Sugarhut Brentwood Ltd and Others v Norcross (Micheal) (2008)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE KITCHIN |
| Judgment Date | 12 September 2008 |
| Neutral Citation | [2008] EWHC 2634 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: GLC143/08/144/08/ |
| Date | 12 September 2008 |
[2008] EWHC 2634 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Honourable Mr Justice Kitchin
Case No: GLC143/08/144/08/
145/08/146/08/147/08
In The Matter of the Insolvency Act 1986
Miss Lexa Hilliard (Instructed by Matthew Arnold & Baldwin) appeared on behalf of the Applicants
Miss Sheila Foley (Instructed by Salens) appeared on behalf of the Respondent
Approved Judgment
Hearing date: 12 September 2008
1. I have before me applications to strike out petitions presented on 6 August 2008 to wind-up each of the five applicant companies. In this judgment I will refer to the applicants collectively as “the Companies” and individually as “Brentwood,” “Fulham,” “Newplex,” “Newlea” and “Willow.”
2. The applications came on before Peter Smith J on 26 August 2008, who made an order by consent that they should be heard on the first available date in the week commencing 1 September 2008. He also made a validation order in relation to each company pursuant to s.127 of the Insolvency Act 1986 (“the Act”), conditional upon them serving and filing evidence in support of such orders by 27 August 2008. Mr Christos Georgallides has made a third witness statement dated 27 August 2008 which complies with that direction.
3. The applications duly came on before Henderson J on 1 September 2008, by which time the parties were apparently very close to reaching an agreement. Accordingly, they were adjourned to the first open date after 8 September 2008, in anticipation they would be compromised. Regrettably that has not proved to be the case.
4. The petitions were presented by Mr Michael Norcross who, through his wholly owned company, Newfund Investments Limited (“Newfund”), is a 49% shareholder of Sugar Hut Group Limited (“SHGL”), the parent company of the Companies. Until his recent resignation on 16 May 2008, Mr Norcross was also a director of the Companies.
5. The grounds on which Mr Norcross claims to be entitled to winding-up orders against the Companies are the same in each case, namely (a) the company is indebted to Barclays Bank Plc (“Barclays”) in the sum of approximately £1.2m on a joint and several basis in respect of facilities provided to that company or other group companies; (b) by a written agreement dated 23 November 2007, Mr Norcross has guaranteed the liability of the company to Barclays up to a particular sum; (c) the company is unable to discharge and has no reasonable prospect of being able to discharge its liabilities to Barclays; (d) Mr Norcross is a contingent creditor of the company by virtue of his guarantee; (e) in the circumstances it is just and equitable that the company should be wound up.
6. The guarantees vary from company to company. In the case of Fulham it is limited to £50,000, Newplex to £50,000, Newlea to £500,000, Willow to £300,000 and Brentwood to £250,000.
7. The Companies contend that the petitions are bound to fail and are an abuse of the process of the court and should be struck out now. The applications originally also sought injunctions restraining advertisement, but that part is no longer effective because, by letter dated 21 August 2008, the solicitors for Mr Norcross wrote confirming that he was prepared to undertake not to advertise the petitions pending their ultimate determination.
8. The guarantees are in standard form and provide, so far as relevant:
“1. Guarantee.
1.1 We [Barclays] have agreed, or may agree in the future, to provide or continue to provide banking facilities to the Customer [the relevant Company]. In return, you [Mr Norcross] unconditionally guarantee that all Customer Liabilities will be paid or satisfied. You will immediately have to pay the amount guaranteed when we demand payment. We do not need to demand payment from the Customer first. We may make one or more demands for payment.
1.2 You will also be responsible for all costs and expenses we properly incur in enforcing or trying to enforce this Guarantee.
1.3 You may not take off any amount for tax or a similar charge unless you have to do so by law. If this is necessary, you must pay us the extra amount needed to make sure that we receive the full amount we demand.
….
2. Limit on your liability.
2.1 This Guarantee is a guarantee of the full amount of all Customer Liabilities. However, the total amount you have to pay under this Guarantee will not be more than:
(a) the Specified Amount; plus
(b) interest on the Specified Amount (or, if less, the amount of the Customer Liabilities) after we demand payment from you, or after the end of any notice you give under condition 4, until you have paid in full; plus
(c) any amounts you must pay under condition 1. 2 or 1.3.
….
3. Continuing nature of this Guarantee.
3.1 You will continue to be bound by this Guarantee regardless of any changes in the amount or nature of the Customer Liabilities,your death or mental illness, or any other matter. However, you can stop this Guarantee under condition 4.
3.2 Until the Customer Liabilities are paid in full, any payment you make under this Guarantee will not entitle you to:
(a) share in any security we hold or any money we receive;
(b) enforce any right or pursue any claim against the Customer or any Surety; or
(c) make any claim in the insolvency of the Customer or a Surety which would compete with our claim.
In the meantime we may hold any money we receive under this Guarantee on ‘suspense account’, to protect the full amount of our claims against the Customer or under any other guarantee or security for the Customer Liabilities. However, when we work out the interest on the Customer Liabilities which you have to pay, we will treat them as reduced by the amount we hold on suspense account.
4. Your right to stop this Guarantee.
4.1 You may stop this Guarantee from continuing, and fix the amount you are liable to pay under it, by giving us three months’ notice in writing. If you give this notice, the total amount you are liable to pay will be all Customer Liabilities existing at the end of the Notice Period. These Customer Liabilities will include:
(a) commitments of the Customer that may become actual liabilities in the future;
(b) Customer Liabilities incurred during the Notice Period; and
(c) any interest, fees and other charges which the Customer owes us at the end of the Notice Period but which are not actually charged to the Customer's account until later.
However, the total amount you will have to pay will be no more than that mentioned in condition 2….”
9. Before addressing the substantive arguments on these applications I must first explain a little more of the background. The structure of the Sugar Hut group of companies and the circumstances in which it came to be refinanced in 2007 are not controversial and the following summary is taken largely from the second witness statement of Mr Norcross dated 25 August 2008.
10. SHGL is a non-trading holding company. It has four wholly owned subsidiaries, namely Ramos Leisure Limited (“Ramos”); Willow; Newlea and Chris George Intellectual Properties Limited (“CGIP”). CGIP is a special purpose vehicle which owns the Sugar Hut trade marks and all other intellectual property rights of the group. Ramos, Willow and Newlea are the intermediate holding companies of Fulham, Brentwood and Newplex respectively. The primary function of the three intermediate holding companies is to hold leasehold interests for premises in which the nightclub and bar businesses are operated by their respective trading subsidiaries. All eight companies are known as “the Sugar Hut Group”.
11. Mr Norcross is the ultimate beneficiary of 490 ordinary issued shares in SHGL with a par value of £1 each. These shares were acquired by Newfund for £800,000 pursuant to a shareholders’ agreement dated 31 October 2007 between (1) Newfund (2) Quefront Holdings Limited (“Quefront”) and (3) SHGL (“the Shareholders’ Agreement”), the provisions of which came into effect on 1 November 2007. The remaining 51% of the issued share capital is held by Quefront, a company owned by Mr Georgallides.
12. Prior to the Shareholders’ Agreement and the investment by Newfund, the Sugar Hut Group consisted of SHGL, Ramos, Willow and CGIP. As a condition of the Shareholders’ Agreement it was agreed that four new subsidiary companies would be formed, namely Newplex, Newlea, Fulham and Brentwood and that Mr Norcross would become a director of each of the eight group companies.
13. As part of the restructuring of the Sugar Hut Group and at the same time as New Fund's acquisition of shares in SHGL, on 1 November 2007, the group increased its loan and overdraft facilities with Barclays. In total £350,000 of additional loan and overdraft facilities were made available to certain companies within the group, resulting in its loan and overdraft facilities to Barclays totalling some £983,000 and £150,000 respectively.
14. As a condition of Barclays increasing its facilities, the Sugar Hut Group companies were required to provide corporate cross-guarantees. On 6 November 2007, a debenture and guarantee was entered into by each of the trading companies, Fulham, Newplex and Brentwood and their respective intermediate and ultimate holding companies. Accordingly, three separate debenture and guarantee documents were executed in favour of Barclays and registered at Companies House against the relevant groups of guarantors and chargors, namely SHGL, Ramos and Fulham;...
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