England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		7 Rolls Building, Royal Courts of Justice Strand, London WC2A 2LL
		8 March 2012

Thursday, 8 March 2012

Approved Supplemental Judgment

JUDGE PURLE QC:

1. A number of points have been raised for clarification; plus there is a further application for permission to appeal. I will deal with the application for permission to appeal first.
2. Mr Griffiths seeks permission to appeal on the basis that interest on costs should not be at the judgment rate of 8 percent. Mr Hanke resists that application and justifies the 8 percent further, as he did during the course of argument, by saying that the conventional figure of 1 percent over base applicable to commercial borrowers is inappropriate in the case of Miss Kohli as a retail borrower, and that 8 percent is much more likely to be closer to what is appropriate in her case. It seems to me that this is ultimately an exercise of discretion and that there is no basis for an appeal. Permission to appeal is accordingly refused.
3. I am also asked by Mr Hanke to confirm the figure of £200,000 as a payment on account. Mr Griffiths, for the purposes of today, does not seek to persuade me that £200,000 is an inappropriate figure, though he would wish me to deduct from it £20,000, being a very rough and ready estimate of what the costs are that are likely to be recoverable from Miss Kohli under existing orders. I consider, however, that the figure of £200,000 is sufficiently safe to cover that £20,000 as well, and accordingly the order for payment on account is in the sum of £200,000.
4. I am asked to clarify one point in my judgment. I adjusted the Kismat valuation down to nil. This was because in her valuation Ms Hindson had added back management charges. I have not, however, deducted management charges from the Sunrise valuation, i.e. management charges payable by its subsidiaries, including Kismat.
5. Mr Hanke accepted during argument that, assuming the management charges were not, as Mr Griffiths was seeking to argue, deductible, they should, in order to avoid double counting, be taken out of the Kismat valuation, which reduced the Kismat valuation to nil. That did not, however, explain why I did not deduct the management charges.
6. Ms Hindson in her report said:

"Management charges are generally intended to reflect the cost of the provision of management time to the subsidiary companies by the directors of SRL. I have been instructed that the amounts charged for directors' remuneration do not include an additional increment to reflect their services to SRL's subsidiary companies. On this basis I consider that no further adjustment is required in this regard."

She had already adjusted in her valuation income earned by way of management charges for the purpose of calculating Sunrise Radio's expected future average annual maintainable earnings. No further adjustment was needed to deal with a profit element.

7. As Ms Hindson points out, generally management charges reflect the cost of the provision of management time. Mr Griffiths speculated, probably correctly, that Ms Hindson was not talking simply about the directors. That must be so, because the directors in some of the years that she was considering did not receive any remuneration. She was probably including Dr Lit, and other management as well. But a significance of Sunrise shedding many of its subsidiaries is that the cost of the provision of management time will no longer be a cost that Sunrise need incur, which means that its management team can either be slimmed down, thus reducing its costs, or can devote their time to increasing, even beyond the level of maintainable earnings that I have found, the profitability of Sunrise.
8. There is simply no evidence that the cost which is provided for as management time will now have to be incurred on the hypothetical valuation that I was undertaking. Taking out the management charges, therefore, which is logical, should also be met by taking out the corresponding cost, so that if management charges come out, the costs go down, and the maintainable income is unaffected. Accordingly, it is not necessary, on the evidence I heard, to deduct the management charges, because the cost savings would correspond to the deduction. That again is a fact-finding exercise based on relatively slender evidence. It was, however, the evidence that came from Sunrise's side. If they wished to maintain that there would still be the same level of costs if the management time was deducted, it was for them to put forward evidence to that effect.
(Further discussion followed)
9. JUDGE PURLE QC: The parties are agreed that the arithmetical consequences of my rulings are that the share value is now (ignoring pence) £562,105. As I have said previously, valuation is not an exact science. It seems unlikely to me that in any course of negotiation the parties would stumble upon a figure of such preciseness. I shall round the figure down to £560,000.
10. The details of the valuation are shown in the attached schedule, prepared since this judgment was delivered .
SCHEDULE

A. Sunrise Radio Limited	2006	2007	2008	2009
	£	£	£	£
Year ended 31 December	1,583,048	702,022	246,328	-
Profit (loss) on ordinary activities before tax
Add back (deduct)
Exceptional and non-recurring items:
Bank loan interest	131,002	193,725	240,568	-
Profit on disposal of leasehold property				-58,297
Subsidiary debt written off		107,484
Loss on disposal of shares in subsidiaries		100
Loss on disposal of investment			500
Adjusted profit (loss) before tax	1,655,753	1,003,331	487,396	0
Weighting	1	1	1	1
Weighted adjusted profit before tax				786,620.00
Less corporation tax at 28%				220,253.60
Maintainable earnings				566,366.40
Value with PE 8.4				4,757,477.76
B. Club Concorde Limited
Year ended 31 December	2006	2007	2008	2009
	£	£	£	£
Profit (loss) on ordinary activities before tax	371,520	611,041	599,624	531,115
Add back (deduct)
Exceptional and non-recurring items
Consultancy fees	51,338	120,000	120,000	120,000
[allowance made of £60,000/year]
Adjusted profit (loss) before tax	422,858	731,041	719,624	651,115
Weighting	0	1	2	3
Weighted adjusted profit before tax				687,272
Less Corporation tax at 28%				192,436
Maintainable earnings				494,836
Value with PE 5.7				2,820,566
C. TOTALS
Sunrise Radio Limited				£4,757,477.76
Club Concorde Limited				£2,820,565.66
Kismat Radio Limited				£0.00
Sunrise TV Limited				£635,000.00
AIB Facility				-£9,539,000.00
AIB Facility redemption				-£250,000.00
Hayes Gate House mortgage				£5,440,000.00
Value of Sunrise				£3,864,043.42
Value of Ms Kohli's 14.78% shareholding				£571,105.62
Less the unpaid shares				-£9,000.00
TOTAL				£562,105.62
Rounded down to				£560,000.00