Zinc Hotels (Investment) Ltd v Alastair Beveridge
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henry Carr |
| Judgment Date | 20 July 2018 |
| Neutral Citation | [2018] EWHC 1936 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2018-000182 |
| Date | 20 July 2018 |
[2018] EWHC 1936 (Ch)
Mr Justice Henry Carr
Case No: CR-2018-000182
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY & COMPANIES LIST (ChD)
IN THE MATTER OF: ZINC HOTELS (HOLDINGS) LIMITED; ZINC HOTELS FREEHOLDS LIMITED; ZINC HOTELS LIMITED; ZINC CROYDON 1 LIMITED; ZINC CROYDON 2 LIMITED; ZINC EAST MIDLANDS AIRPORT 1 LIMITED; ZINC EAST MIDLANDS AIRPORT 2 LIMITED; ZINC LEEDS CITY 1 LIMITED; ZINC LEEDS CITY 2 LIMITED; ZINC LONDON KENSINGTON 1 LIMITED; ZINC LONDON KENSINGTON 2 LIMITED; ZINC WATFORD 1 LIMITED; ZINC WATFORD 2 LIMITED; ZINC PUCKRUP HALL 1 LIMITED; ZINC PUCKRUP HALL 2 LIMITED; ZINC PUCKRUP HALL 3 LIMITED; ZINC PUCKRUP HALL 4 LIMITED; ZINC NORTHAMPTON 1 LIMITED; ZINC NORTHAMPTON 2 LIMITED; ZINC COBHAM 1 LIMITED; ZINC COBHAM 2 LIMITED; ZINC NOTTINGHAM 1 LIMITED; ZINC NOTTINGHAM 2 LIMITED; ZINC YORK 1 LIMITED; ZINC YORK 2 LIMITED (ALL IN ADMINISTRATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Stephen Davies QC and Rowena Page (instructed by Clarion Solicitors Limited) for the Applicants
Tom Smith QC and Hannah Thornley (instructed by Freshfields Bruckhaus Deringer LLP) for the Respondents 1–4
David Alexander QC and Alex Barden (instructed by Sidley Austin LLP) for the Respondents 5–6
Marcia Shekerdemian QC and Joseph Curl (instructed by Proskauer Rose (UK) LLP) for the Respondents 7–8
Guy Morpuss QC and Christopher Charlton (instructed by Macfarlanes LLP) for the Respondents 9–12
Hearing dates: 10 th, 11 th and 12 th July 2018
APPROVED JUDGMENT
Introduction
The Applicants, (“the Shareholders”), are the ultimate shareholders of 25 companies in the Zinc Group of companies (“the Zinc Companies”). On 9 January 2018, AlixPartners LLP, (“AlixPartners”), were appointed by the secured creditors of the companies as joint administrators of the Zinc Companies (“the Administrators”).
By an application dated 12 April 2018, (“the Main Application”), the Shareholders have sought relief in relation to the administrations, including an order for the removal of the Administrators under paragraph 88 of Schedule B1 of the Insolvency Act 1986 (“the 1986 Act”), and other relief under paragraphs 74 and 75 of Schedule B1 of the 1986 Act.
In particular, the Shareholders claim that unfair harm has been caused, or will be caused, by the Administrators. They seek their replacement. They also allege that the Administrators lack independence due to their previous engagement by, and allegedly close relationship with, the secured creditors.
All allegations made against the Administrators are strongly denied. The Administrators contend that they have performed, and are continuing to perform, their duties properly. They claim that they are seeking to realise the assets of the Zinc Companies in accordance with the statutory objectives of administration. They have considered the Shareholders' allegations, which they reject. The Administrators claim that they face competing demands as to how they should proceed: on the one hand from the Shareholders, and on the other hand from the lenders, who are owed hundreds of millions of pounds of unpaid debt. It is alleged by the Administrators that the Shareholders are seeking to disrupt and delay the sales process in order to pressurise the lenders to reduce the amount of the debt, which they are not willing to do. The Administrators consider that their duties require them to proceed to realise the Zinc Companies' assets.
At a directions hearing for the Main Application, held on 23 May 2018, the Shareholders indicated that they intended to apply for interim orders under paragraph 74(3)(d), and paragraph 74(4)(b) of Schedule B1. In particular, by their interim application, the Shareholders seek two orders.
(1) First, an order appointing “additional concurrent joint administrators”. According to the order sought, the function of the additional administrators will be “to represent the interests of contributories/shareholders for the purpose of achieving the statutory purpose of the administrations”; and
(2) Secondly, an order restraining the Administrators from distributing the proceeds of any assets realised in the administrations pending the resolution of certain legal claims.
This judgment concerns the interim application. The interim application was expedited, and its resolution is urgent. I reserved judgment for a short period and I am now delivering an oral judgment.
The Background Facts
The Zinc Companies hold the freehold and long leasehold titles to 10 hotels which trade under the Hilton brand (“the Hotels”). These comprise the Kensington Hilton and nine other Hilton hotels in different parts of the country, (“the Regional Nine”).
The beneficial interest in the long leaseholds is held by Zinc Hotels Limited, (“ZHL”), and the Hotels are leased under occupational leases to companies in the Hilton group.
The First Applicant is the sole shareholder of Zinc Hotels (Holdings) Limited, (“ZHHL”), which is the sole shareholder of ZHL. The Second Applicant is the sole shareholder of the First Applicant. The Applicants are controlled by Mr Vincent Tchenguiz and Mr Dror Pasher.
Prior to 2002, the Hotels were owned by the Hilton Group. In August 2002, they were subject to a sale and leaseback transaction. The current financing arrangements were put in place pursuant to a restructuring which took place in 2014 and which included:
(1) A £249,948,351 term loan facility dated 11 November 2014 between ZHL as borrower and the lenders, (“the 2014 Facility”), which was repayable on 10 July 2017;
(2) A debenture dated 11 November 2014 granted by ZHL and other companies in the Zinc group as guarantors in favour of GLAS Trust Corporation Limited as security trustee, (“the Security Agent”). This comprises legal mortgages and fixed and floating charges over the property of the chargors, including the Hotels; and
(3) Interest rate and inflation rate swaps which were entered into between ZHL and one of the lenders, Bayerische Landesbank, (“BLB”), (“the Swaps”).
BLB remains a secured creditor and there are two other secured creditors who appeared before me on this application known as “Fortress” and “Hayfin” (being the Fifth and Sixth Respondents and the Ninth to Twelfth Respondents respectively). They acquired their interest in 2015 from certain of the original lenders. It is not in dispute that, during 2017, various events of default occurred under the 2014 Facility, including a failure to repay the outstanding principal and accrued interest on the repayment date of 10 July 2017. This very substantial debt has been due and has remained unpaid for over a year.
On 9 January 2018, certain partners of AlixPartners were appointed as administrators of ZHL and 24 other companies in the Zinc Group. The appointments were made by the Security Agent as the holder of qualifying floating charges pursuant to paragraph 14 of Schedule B1 to the 1986 Act. By the date of the appointments, the 2014 Facility had been in default for about six months. Originally, Alastair Beveridge, Ryan Grant and Catherine Williamson were appointed. Daniel Imison, who has served witness statements on this application, replaced Ryan Grant in March 2018 pursuant to a block transfer order, when Mr Grant left AlixPartners.
Prior to the appointment of the Administrators, AlixPartners had been engaged by the lenders to undertake a contingency planning exercise, including preparing to accept an appointment as administrators of companies in the Zinc Group, if that proved to be necessary. This forms an important aspect to the Shareholders' complaint of a conflict of interest on the part of the Administrators.
Prior to the administration, in 2016 and 2017, a sales and marketing process was undertaken in respect of the Hotels. At that time, the process was under the control of the Zinc Companies. During the 2016 marketing process, a verbal offer of £267 million was made by Cola Holdings Limited (“Cola”) for the Kensington Hilton, and during the 2017 process, non-binding heads of terms dated 6 December 2017 were entered into with Cola in respect of an offer of £261.5 million for the Kensington Hilton. The relatively modest difference between the two Cola offers was because the 2016 offer was on a share sale basis, whereas the 2017 offer was on an asset sale basis and as a result, stamp duty land tax would be payable by Cola.
The 2017 sales process was undertaken by Savills (UK) Limited (“Savills”) and Jones Lang LaSalle Limited (“JLL”), who are of course well-known sales agents. The sales agents were appointed by the Zinc Companies. The heads of terms with Cola were entered into when the Zinc Companies were under the control of Mr Tchenguiz and Mr Pasher. In my view, this shows that, at the time, they considered the Cola offer was one which it was appropriate to accept.
During 2016 and 2017, Savills had expressed some views on the possible sales proceeds which might be achieved. Firstly, in a pitch in May 2016 and secondly, in a pricing overview document in 2017. The Shareholders rely on the estimates given at that time of the value of the Hotels as between £550 million and £600 million. If this sum was realised, this would produce a surplus to the Shareholders of between £50 million and...
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