ON APPEAL FROM THE HIGH COURT OF JUSTICE
HHJ DAVID COOKE QC
No. 10836 of 2008
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE PATTEN
LADY JUSTICE BLACK
| DAVID ANTHONY RUBIN
|- and -
|MICHAEL JOHN COOTE
Tiran Nersessian (instructed by Edwin Coe LLP) for the Respondent
Hearing date : 6th and 7th December 2010
Crown Copyright ©
Lord Justice Patten :
(1) in September 1999 Mr Henton caused Branchempire to pay £700,000 to Lookmaster. The money was not repaid but instead Branchempire was issued with 700,000 B (non-voting) shares of £1 each in Lookmaster which are said to be worthless;
(2) in December 1999 Mr Henton caused Branchempire to transfer the shares in Tripex Limited (the owner of Flat 4, 12 West Eaton Place, SW1) to the Henton Retirement Trust and on the sale of the flat the Trust received £470,000;
(3) the profit of £171,318.51 on a development by Branchempire at 11 Groom Place, London SW1 which was sold in April 2002 was paid to Lookmaster;
(4) on 16th May 2002 Mr Henton caused Branchempire to pay him the sum of £30,000 for no consideration;
(5) on 30th May 2002 there was a similar payment of £34,100 to Mr Henton;
(6) on 11th July 2002 Branchempire financed the purchase by Lookmaster of a property known as The Hindles in Melton Mowbray for the sum of £341,000. It was later re-sold in July 2005 for £1.65 million and all the profit was retained by Lookmaster;
(7) on 24th September 2002 Mr Henton caused Branchempire to pay the sum of £110,385 to the Henton Retirement Trust and a further £50,000 to Lookmaster;
(8) on 11th December 2002 Branchempire sold a property at 12 William Mews, London SW1 to Lookmaster at an undervalue for £830,000 which was re-sold in September 2006 for a profit of £571,600. As part of the original transaction the property was leased back to Branchempire and three years' rent in advance (a total of £171,600) was deducted from the proceeds of sale;
(9) on 11th December 2002 two leasehold flats at 47 and 49 Roland Gardens, London SW7 were sold to Lookmaster at an undervalue for the sum of £325,000. The value of the flats was £1.2 million; and
(10) on 16th December 2002 Mr Henton caused Branchempire to pay him the sums of £23,000 and £45,000, again for no consideration.
"In deciding whether or not to sanction a proposed compromise the court must consider whether the interests of those, whether creditors or contributories, who have a real interest in the assets of a company in liquidation are likely to be best served (i) by permitting the company to enter into that compromise with all the terms that it contains; or (ii) by not permitting the company to enter into that compromise. It is not for the court to speculate whether the terms of the proposed compromise were the best that could have been obtained; or whether the proposed compromise would have been better if it did not contain all the terms that it does contain. Unless it is satisfied that, if the company is not permitted to enter into the compromise on the terms which the liquidator has negotiated, there will then be better terms or some other compromise on offer, the decision is between the proposed compromise and no compromise at all.
In reaching that decision, the court may have to weigh the different interests of creditors and contributories and, perhaps, the different interests of preferential and non-preferential creditors. It will not give weight to the wishes of those who will be unaffected whichever way the decision goes; for example, the interests of contributories who have no realistic prospect of receiving a distribution in any foreseeable circumstances, or the wishes of preferential or secure creditors who will be paid in full in any event. Subject to that, the court will give weight to the wishes of creditors and contributories whose interests it has to consider, for the reason that creditors and contributories, if uninfluenced by extraneous considerations, are likely to be good judges of where their own best interests lie. For the same reason the court will give weight to the views of the liquidator, who may, and normally will, be in the best position to take an informed and objective view. But, as I have said, at the end of the day it is for the court to decide whether or not to sanction the compromise.
"17. Insofar as it is said that the court should not speculate on what alternative terms might have been negotiated, in my judgment, Lord Justice Chadwick's remarks do not mean that the court must have no regard to what the alternative may be if the compromise is not approved. If the compromise is not approved the court, of course, has to have regard to what will then happen. In some cases, the alternative may be that there is another offer which can be evaluated and assessed as being in the best commercial interests of the company. This was the case in Edennote where there were two rival bidders for the claims in question. In other cases, where there is no such rival bidder, the choice then available to the liquidator is either to abandon or pursue the claim. If he pursues the claim, the court must have regard to where that may lead and, indeed, cannot ignore the prospect that it may be settled by subsequent negotiations; just as much as it may be ultimately determined by a judgment in litigation if no settlement is achieved.
18. In looking at that alternative, the court must have some regard to the apparent merits of the claim and to the risk and cost of pursuing it, whether by litigation or negotiation or both and the resources available to do so. It must also have regard (and this is not in dispute between the parties today) to the assets available to meet the claim if it is successful in whole or in part.
19. In forming a view of the merits of the claim or considering the merits of the claim, the court does not, however, conduct a mini-trial of the issues. It is not in a position to do so. It has available only the material which is produced to it at this stage and that is an additional reason why the court will place weight on the assessment of the liquidator – particularly if he has been advised in forming that view and his evaluation of it is not obviously flawed or negated or inadequate by reason of some factor which is in evidence on the sanction application. It is clear that the liquidator's views are not binding on the court. It is not a matter of appeal in any sense from the liquidator. It is a decision for the court itself."
"56. I have to consider whether it is in the best commercial interest of the company and its creditors to accept that view and compromise the claims, or to go on. The benefit which Mr Coote hopes to accrue from going on would, of course, be a better outcome either by way of negotiation or result at trial. But neither of those outcomes, in my view, is inevitable or even clear. Mr Kynoch has produced some figures showing that, if the offer were increased to £1.3m that would be sufficient to pay Mr Coote even now in full. There is, in my judgment, no basis for assuming that a further offer would be forthcoming so as to produce a figure of £1.3m. If it is the case that the total value of Mr Henton's net assets, including Lookmaster, is £1.3m it is, to say the least, far from obvious that he would be prepared to hand over the entirety of his assets to satisfy these claims and walk away with nothing. Any such offer, therefore, requires that Mr Henton has other assets and is prepared to pay more than he has presently has in order to protect them. It seems to me that, on the evidence available, that is, at best, an uncertain proposition."
Lady Justice Black :
Lord Justice Ward :