Case No: No 703 of 2011
Neutral Citation Number: [2012] EWHC 4 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/01/2012

Before :

MR JUSTICE WARREN
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Between :

	IN THE MATTER OF MALTBY INVESTMENTS LTD
(In Administration)

MALTBY HOLDINGS LIMITED	

Applicant	
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	(1)	PETER NORMAN SPRATT
(2)	ANTHONY  VICTOR LOMAS	Respondents	

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David Wolfson QC and Andreas Gledhill  (instructed by Clyde & Co LLP) for the Applicant
Mark Phillips QC and Adam Al-Attar (instructed by Hogan Lovells International LLP) for the Respondents

Hearing date: 23 November 2011
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Judgment
Mr Justice Warren: 
Introduction
1.	This is an application for disclosure and inspection of certain documents by Maltby Holdings Ltd (“MHL”) against the respondents, Mr Spratt and Mr Lomas (“the JAs”), as joint administrators of Maltby Investments Ltd (“MIL”).   The application is made under the inherent jurisdiction of the Companies Court and by way of pre-action disclosure under CPR 31.16.
2.	MHL was the parent company of MIL.  MIL was the parent company of Maltby Acquisitions Ltd (“MAL”) which in turn was and is the parent company of EMI Group Ltd (“EMI Group”).  EMI Group is the holding company of the EMI group of companies which comprises over 300 companies internationally.  The group is, according to the SIP Statement (as to which see paragraph 21 below) the fourth largest music company in the world. It employs 2000 people and has operations in about 26 countries.  It comprised two main operating divisions, Music Publishing and Recorded Music.
3.	MHL is now owned and controlled by the General Partners of two entities, Terra Firma Capital Partners II Fund and Terra Firma Capital Partners III LP (together “TF”).  TF, through various vehicles including MHL, MIL and MAL, acquired EMI Group in 2007 for about £4bn.  The acquisition was financed in part by a £2.75bn multi-currency debt package provided by Citibank NA London Branch, Citibank International plc and Citigroup Global Markets Ltd (separately or together “Citi”).  MAL was a finance entity which did not trade.
4.	The JAs were appointed as joint administrators of MIL on 1 February 2011.  The appointment was made by the directors of MIL, Roger Faxon and Ruth Prior (“the Directors”), pursuant to paragraph 22 Schedule B1 Insolvency Act 1986.  Mr Faxon was CEO of EMI Group and Ms Prior was its CFO.
5.	Immediately following their appointment, the JAs sold the assets of MIL to Citi.  The assets were in substance its shareholding in MAL which carried with it indirect ownership of EMI Group and all amounts due from MAL to MIL of about £2.8bn (although given MAL’s obligations to Citi under the financing arrangements of the acquisition of EMI Group, this obligation was worth nothing on the JAs’ figures).  The consideration for the sale included a nominal sum of £200 and the release by Citi of approximately £3.13bn of the debt – in total about £3.3bn – owed by MIL.  That debt had been guaranteed by and secured against the assets of MAL, EMI Group and all of its material subsidiaries.  
6.	The result of the sale was to crystallise a loss by TF of the entirety of its investment of about £1.85bn.  MHL has expressed serious concerns about the circumstances surrounding the sale by the JAs.  
7.	The application now before me is made in the administration of MIL for disclosure and inspection of:
i)	certain valuation reports (together “the Valuations”) prepared prior to the sale:
a)	by Hawkpoint Partners Ltd (“Hawkpoint”) as at 1 February 2011 (“the Hawkpoint Valuation”);
b)	by American Appraisal (UK) Ltd (“AA”) as at 31 December 2010 (“the AA Valuation”).
c)	By PricewaterhouseCoopers (“PwC”) as at 1 February 2011 (“the PwC Valuation”);
ii)	copies of written instructions given to Hawkpoint, AA and PwC;
iii)	any drafts of the Valuations, or of any instructions;
iv)	all written communications (electronic or hard copy) relating to the Valuations to or from the JAs, Hawkpoint, AA, PwC, Citi, MIL or its directors;
v)	all notes of meetings (whether in person or on the phone) relating to the Valuations with the JAs, Hawkpoint, AA, PwC, Citi, MIL or its directors.
8.	In addition, MHL now seeks copies of the contract  by which the Jas sold  the assets of MIL to Citi.  
9.	The application is made pursuant to the inherent jurisdiction of the Companies Court, alternatively pursuant to Part 31.16 of the Civil Procedure Rules which applies to insolvency proceedings by virtue of rules 7.51A and 7.60(1)(b) of the Insolvency Rules 1986.  MHL does not rely on the principle of ex p James (1874) 9 Ch App 609.  Mr Wolfson, who appears for MHL, says that this is not an ex p James case and that reliance has never been placed on it.
Further background
10.	There is litigation in New York in which TF has alleged fraudulent misrepresentation by Citi in relation to the acquisition of EMI Group by TF.   A jury found Citi not liable on 4 November 2010.   I am told that an appeal from this verdict is to be heard commencing sometime in January 2012.  I mention this only to show that there is enormous hostility between TF and Citi with two battle-zones in place: first, the New York courts where TF seek to recover their investment and, potentially at least, in London where they may seek to say that the JAs were not validly appointed and that there has been a sale at undervalue.
11.	The relevant facility agreement for the purpose of the present application is the Senior Facilities Agreement dated 13 August 2007 (subsequently amended in a way which is not material) (“the SFA”).  It was made between MIL (then Maltby Ltd) and various Citi entities.  It is not necessary to go into much detail about the provisions of the SFA.  A useful summary is found in the first witness statement of Arjan Breure in support of the application where he said this:
“In very broad terms, [MIL] covenanted to comply with certain leverage ratios, failing which, an event of default (“EOD”) would occur, entitling Citibank to call in its loans.  No EOD would occur, however, if [MHL] or its shareholders made an “Equity Injection” in an amount sufficient to cure the covenant breach, and within certain stipulated time limits: see clause 27.2 of the SFA, read with the proviso to the definition of “Maintenance EBITDA” in clause 27.1 (“Financial definitions”).”
12.	Events of Default were dealt with in clause 29.  Insolvency as an Event of Default is dealt with in clause 29.6 which specifies this as one such event:
“(a)  Any obligor or any Material Subsidiary is unable or admits inability to pay its debts as they fall due or is deemed to or declared to be unable to pay its debts under applicable law….”
13.	By 1 February 2011, the amount due to Citi stood at about £3.3bn.  The only significant asset of MIL of any value was in effect its indirect interest in EMI Group through MAL.  It is said in the  SIP 16 Statement (referred to in paragraph 21 below), and I do not understand this to be disputed, that the music industry as a whole suffered a significant downturn, due in large part to a decline in physical music sales which has not been fully offset by an increase in digital music sales.  MIL’s audited accounts for the year end 31 March 2010 (approved in August 2010) reported a loss for the year of £782m and net liabilities of £1.315bn.  
14.	Mr Breure’s brief summary as set out above referred to required leverage ratios.  More specifically, this required the ratio of “Total Net Debt” to “Maintenance EBITDA” to be maintained at specific levels, tightening as time went by.  By 31 December 2010 the required ratio was 3.61:1 and by 31 March 2011 it was 2.52:1.  These, and earlier, ratios had led to a need for equity injections in 2008, 2009 and 2010.  
15.	The directors of MIL had noted the problems.  In their report for the year end 31 March 2010, signed on 11 August 2010, they said in relation to these ratios: “The covenant steps down significantly each March year end making it progressively harder to achieve the required ratio”.  Whilst considering it would be in the interests of the group’s lender (ie Citi) that the group’s business be maintained as a going concern, they recognised that existing forecasts indicated further significant shortfalls in respect of the covenant test periods to the end of March in each year until the facilities expire in 2014 and 2015.  Indeed, they considered that the amounts required for the year end 31 March 2011 could substantially exceed the amounts which had been required for the year end 31 March 2010.  In the light of these and other difficulties, they expressed uncertainty about the ability of the group and MIL itself to continue as a going concern.  
16.	 Mr Phillips, who appears for the JAs, draws my attention to what Mr Hands, TF’s chairman, had to say to his investors in November 2010 in his 2010 Q3 Letter.  After referring to the adverse verdict in the New York litigation, he identified improvement in earnings which had been achieved since TF’s investment, going on to say this:
“Furthermore, the business is continuing to perform well this year even with its competitors performing very poorly as the physical music market continues to contract.  This is something that everyone in the Terra Firma team should be proud of and, ironically, something that has substantially reduced any losses that Citi might make on their loans.”
I pause to note that there is clear acceptance by Mr Hands that Citi was, at least then, in a position of loss with respect to its lending to the EMI group; and if that is so, it means that TF’s investment was then in a position of nil value.  Going on, Mr Hands said this:
“In the press recently there has been much misinformed commentary stating that Terra Firma could have done a deal with another private equity firm, a trade buyer or Citi to avoid the case.  The reality is if there had ever been a deal that would have resulted in economic benefit to you, our investors, we would have taken the offer. 
However, as we made clear to Citi in August, we continue to believe that EMI is not worth much more than 5x EBITDA.  Consequently, while we have approval from 85% of our investors to put more money into EMI in order to achieve a full restructuring, we would not do this unless it was done at an appropriate valuation.   We are not willing to put money into EMI unless we believe it will achieve a positive result for our investors.”
17.	On 24 November 2010, Citi wrote to MIL following the verdict in the New York litigation stating its desire to meet to discuss MIL’s indebtedness and its impact on the future of the business.  At that stage, the indebtedness was £3.4bn.  Citi asserted that the enterprise value of MIL was considerably lower than that so that “on any view, [MIL] is balance sheet insolvent and has no prospect of repaying the indebtedness”.  It followed that the holders of equity had no economic interest in MIL.  Equity cures (ie injection of further equity by TF) were irrelevant particularly in the light of the outcome of the litigation. As Citi put it: “Substantial equity cures would be involved and we do not believe that they can reasonably be expected to be forthcoming”, a statement entirely consistent with what Mr Hands had told his investors.    Citi also made clear that it was not interested in any solution which involved TF: “Citibank wants to immediately explore alternatives to address the company’s insolvent condition, which will continue to degrade its long term value; however, we are not prepared to consider alternatives involving Terra Firma”.  The letter ended by stating: “We do not propose to involve Terra Firma in the discussion given that as equity holders they no longer have any economic interest in the company”.
18.	That letter was sent at some stage by MIL to TF which responded in a letter dated 3 December 2010.  They rejected Citi’s analysis.  First, it was said that MIL was currently able to pay its debts as they fell due.  None of the facilities was currently in default and it was not possible to demonstrate at that time (December 2010) that they could not be repaid at maturity (on dates from 2014 to 2017).  It followed that it was not accepted that TF had no economic interest in MIL.  Accordingly, the Directors continued to owe duties to the shareholders and could not engage with Citi alone in discussing proposals which were not shared with all of MIL’s stakeholders.  Finally, TF said that they did not understand why equity cures had become irrelevant, saying this:
“Our investors, through Maltby Capital Limited, injected £13.5 million as recently as 24 September 2010 and it is for us and them to discuss the availability of further amounts in the light of all the relevant circumstances at the time.”
19.	It is not for me to decide on this application whether there is anything in that last point.  It is not easy to square with what Mr Hands had told his investors 10 days earlier, but that is for another day.
20.	PwC was then retained by Citi “to engage in contingency planning in anticipation of an administration and sale of [MIL]’s shares in MAL and other primary assets”.   PwC and the proposed joint administrators retained Hogan Lovells International LLP (“Hogan Lovells”) and leading counsel.  Mr Phillips says that they then conducted contingency planning with impartiality.  Citi instructed its own legal team, Clifford Chance LLP and leading counsel, and MIL was separately advised by Freshfields Bruckhaus Deringer LLP and leading counsel.
21.	The contingency planning led to a “pre-pack” sale by the JAs to Citi almost immediately after their appointment.  Before I come to that, and the statement made in compliance with Statement of Insolvency Practice 16 (“the SIP 16 Statement”), I should relate the steps which took place on 1 February 2011 leading to the appointment:
i)	At 8.09 am, Citi wrote to MIL and MAL referring to the SFA and to clause 29.6(a) in particular.   The letter also referred to section 123(2) Insolvency Act 1986.  Citi considered, on the basis of the information which it had, that both MIL and MAL were or were deemed to be unable to pay their debts.  Accordingly an Event of Default had occurred in relation to each company. Confirmation was sought that MIL and MAL agreed with these conclusions.  
ii)	At 8.15 am,  each of MIL and MAL replied to Citi confirming that they were or were deemed to be unable to pay their debts and that as a result an event of default had occurred.  
iii)	At 8.17 am, Citi issued a default notice to MIL and MAL which was signed as received by the directors of each company.  
iv)	At 8.18 am, Citi issued a notice accelerating the debt owed by MAL, cancelling the Additional Acquisition Facility Commitments defined in the SFA and accelerating repayment of £500m.  
v)	At 8.19 am, MAL acknowledged that it was unable to make repayment of the demand.
vi)	At 8.20 am, Citi issued a demand notice to MIL calling in MIL’s guarantee of the debt owing by MAL as a result of iv) and v) above.  
vii)	Also at 8.20, MIL acknowledged that it was unable to meet that demand.  
viii)	At 9.35 am, the Directors held a meeting.  The Minutes record (among other matters) the following:
“The directors considered the Company’s financial position and resolved that they were satisfied that the Company was or was likely to become unable to pay its debts within the meaning given to that expression by Section 123 of the Act, on the basis that (i) the Company is unable to pay its debts as they fall due, and also that (ii) the value of the Company’s assets are less than the amount of its liabilities, taking into account its contingent and prospective liabilities…….
It was noted that there were only two creditors of the Company, the secured creditor, Citibank NA London Branch (Citibank) and an unsecured intercompany creditor, Maltby Holdings Limited (MHL).  Given that Citibank’s debt exceeded the value of the assets of the Company by at least £1 billion based on the  directors’ own analysis and on the valuation provided to the Company by Hawkpoint Partners Limited, it was noted that the only creditor with any economic interest in the Company (and any realistic possibility of repayment in an insolvency process or otherwise) was Citibank.”
22.	It is to be noted that the Directors relied on the Hawkpoint Valuation which they had commissioned.  There is nothing to suggest that they had in their possession, let alone that they relied on, the AA Valuation or the PwC Valuation.  
23.	The SIP 16 Statement contained a summary of the reasons which the JAs had for thinking that a pre-pack was the best way forward and, in that context, for considering that the objective set out in paragraph 3(1)(b) Schedule B1 was the one that would be achieved.  The reasons given were these:
i)	A prolonged administration period whilst the Group’s business was marketed was expected to result in damage to the business and a potentially significant deterioration in the ultimate value.  Section 4 of the SIP 16 Statement went into that in more detail but I do not need to cover that here.
ii)	Citi, as the only secured creditor, considered a sale to it to be the best way to stabilise the group and to preserve its value in the absence of other acceptable options.  This was the basis on which Citi would be willing to release its security.
iii)	Valuations indicated that the enterprise value of the EMI Group was between £1.6bn and £2.3bn, very significantly less than the total debt of £3.3bn owed to Citi, rendering it highly unlikely that marketing within administration would successfully lead to a third party sale.
iv)	The terms of the pre-pack were such that the transaction resulted in a net release of secured liabilities in MIL of £3.1bn, which was far in excess of MIL’s assets.
24.	In the context of that last reason, it is to be noted that there have now been onward sales of parts of the business of the EMI group to third party acquirers as already mentioned at paragraph 8 above.  The total proceeds, so far at least, come nowhere near a figure which, had it been received at the time of the sale to Citi, would have produced any payment to shareholders of MIL or to MHL as a creditor of MIL.
25.	The SIP 16 Statement also recorded that there had been intermittent discussions between Citi and TF over a couple of years but that had not resulted in a consensual restructuring of the EMI group.  It also recorded that the Directors considered that open marketing of the business without a clear resolution of the group’s financial issues would have been very destructive of the underlying business thereby prejudicing rather than assisting MIL’s creditors.
26.	The SIP 16 Statement also referred to the Valuations about which I now say a little more:
i)	The Hawkpoint Valuation had been obtained on the instructions of MIL using two different methods: Market Approach and Income Approach.  It assumed a sale on a going concern basis without any discount factor in respect of a sale by an administrator.  The top end of the estimated enterprise value was at least £1bn less than the amount of the Citi debt of £3.3bn.  It is to be inferred that the JAs had this Valuation before their appointment.
ii)	The AA Valuation had been obtained by Citi.  PwC were provided with a copy.  
iii)	The PwC Valuation was obtained by the JAs themselves.  According to the SIP 16 Statement, this was done in order to provide them with an indication of the potential value of the group.  It was prepared on the same basis as the Hawkpoint Valuation but also considered an LBO approach.
27.	According to the SIP 16 Statement, all of the Valuations supported the conclusion that the enterprise value of the business (and thus of EMI Group) was substantially less than the amount owed to Citi.  
28.	The SIP 16 Statement set out in section 6 the alternative courses of action, considered by the JAs and the possible financial outcomes of alternative courses of action, including why it was not appropriate to trade the business and offer it for sale as a going concern during the administration.  I do not propose to go into any detail about those matters. 
29.	As to consultation with creditors, the SIP 16 Statement stated that the JAs were informed that MIL had only two creditors, Citi and MHL.  The JAs stated their understanding that discussions had taken place between TF and Citi in 2009 and 2010 but that they failed to arrive at a consensual solution for the group.  I do not understand there to be any dispute about that.
30.	The SIP 16 Statement stated that MHL was an unsecured creditor of MIL in the sum of £1.05bn, subordinated to any amounts owed to Citi.  There were not expected to be any funds available to unsecured creditors apart from the Prescribed Part.  
31.	Following the appointment of the JAs and the sale to Citi, TF wrote to the Directors (ie the directors of MIL) on 11 February 2011 querying the circumstances of the appointment.  In their reply, a number of points were made, including the following:
“We concluded that the insolvency event of default had been triggered by reason of MIL’s balance sheet insolvency, reflecting the enormous gulf between the value of the Company’s assets and the extent of its liabilities…….
……
As appears clearly from the SIP 16 report, an independent valuation was commissioned by MIL from Hawkpoint Partners Limited (“Hawkpoint”).  The conclusion to the Hawkpoint report, namely, that EMI Group was worth over £1 billion less than the Citi debt, is recorded in the SIP 16 report – a valuation in line with the presentation given by Roger Faxon to Terra Firma investors in Paris and Chicago during the autumn of 2010.  We do not consider it appropriate to provide a copy of that valuation document.”
32.	Mr Breure, in his first witness statement, stated that he believed that the Directors were incorrect in their assessment that there was an “enormous gulf”  between the enterprise value of EMI Group and the amount of Citi’s debt.  He made two points which are really matters of submission to which I will return, namely (i) that there are different ways in which a going concern valuation could be carried out and that without sight of the Hawkpoint Valuation, TF could have no reassurance in being told simply that the valuation was performed on an ongoing basis without a distressed vendor discount and (ii) that the Directors may not have asked themselves the right question which was whether MIL had reached the “point of no return” as it has been put by Lord Neuberger in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3 plc [2011] 1 WLR 2524 (“Eurosail”).  
33.	He then went on to give some evidence about the value of one of the EMI group’s main competitors, Warner Music Group (“Warner”).  Mr Breure explained why, in his view, Warner’s value (as indicated by its share price, its shares being traded) was an important pointer to the value of the shares in EMI Group (and the value of the EMI group as a whole), the shares in which were not traded.  And so, Mr Wolfson submits, the value of Warner is directly relevant to:
i)	the correctness of Citi’s contention from late November 2010 that assets of EMI Group were worth less than its liabilities; and consequently
ii)	MIL’s amenability, or otherwise, to the institution of formal insolvency proceedings (whether by Citi or by MIL itself).
34.	I need to address the detail of that evidence.  It was to the following effect:
i)	One technique used to value a non-traded company or at least to cross-check its values against some other valuation is to take a comparable traded company, express the relationship between its EBITDA for the preceding year and its enterprise value (“EV”) as a multiple and apply that multiple back to the EBITDA of the first company.
ii)	Mr Breure then took Bloomberg data giving Warner’s 12 months’ EBITDA to 31 December 2010 at $326m.  From the same source, its EV at 1 February 2011 can be calculated at $2.769bn giving an EV/EBITDA multiple of 8.5.
iii)	In the 12 months to 1 February 2011, EMI’s EBITDA was about £310m.  Applying the Warner EV/EBITDA multiple of 8.5 suggesting a value of £2.6bn (not out of line, Mr Breure observes, with the £2.3bn top end of the Hawkpoint Valuation, although in excess of it).
iv)	But according to Mr Breure, that is not the end of the story.  If it were, it would be the end of the relevance such as it may be of this evidence.  About 3 months after the appointment of the JAs, on 6 May 2011, Warner was sold to Access Industries for a price of $8.25 per share.  According to Mr Breure, that price implied an EV for Warner of some £3.3bn and an EV/EBITDA multiple of 10.1 (using the 1 February 2011 EBITDA) or 10.3 (using the 6 May EBITDA figure of $321m).
v)	Applying those multiples to EMI’s 1 February 2011 EBITDA figure would suggest a value for EMI of £3.13bn or £3.19bn.
vi)	I note that even the higher of those two figures does not bring the value of MIL above the amount of the Citi debt.  Then Mr Breure opines that even “that figure is likely significantly to understate EMI’s value, however, for at least two reasons” which he set out, in paragraphs 27.6.1 to 3 of his witness statement.  Briefly:
a)	Prior to TF’s acquisition of EMI in 2007, data from Bloomberg and Compustat as to the relative EV/EBITDA multiples of Warner and EMI show that EMI’s was consistently higher.
b)	Mr Breure, without any supporting figures at all, calculates a median EV/EBITDA for other companies which he says are comparable (Disney, Dream Works and Chrysalis) to be 12.2 as at 1 February 2011.
c)	A buyer pays a premium to market capitalisation to achieve control, put in a recent study to which he refers at 48%.  Applying that to the three comparable companies results in a median EV/EBITDA multiple of 17.8 as at 1 February 2011.
35.	On the basis of the evidence which he had given, Mr Breure felt able to conclude that TF “considers it clear that [it] continued to have an economic interest in [MIL], which interest was simply ignored by the directors and the Administrators”.  Happily, it is not for me on this application to assess the relevance or validity of any of that evidence concerning Warner or other allegedly comparable companies.  One might think that the reasons given in vi) a) and b) above are speculative: and one might think the idea of a 48% premium over a multiple of 12.2 for the acquisition of EMI Group to be fanciful.  
36.	In any case, Mr Breure’s evidence does not, of course, take account of sales of the parts of the group’s business which have now been achieved, since they took place after the date of his witness statement.  As I have mentioned, these sales were of the Recorded Music division to Vivendi and its subsidiary Universal Music Group for £1.2bn and of the Music Publishing division to Sony Corporation of America for $2.2bn.  The sale of what is in effect the significant parts of the group’s business for a consideration considerably less than the total of Citi’s previous debt is not consistent with a valuation anywhere near that suggested by Mr Breure’s 10.1 multiple, let alone his figure of 17.8.  Indeed, the multiple in relation to the Music Publishing division represents a multiple in the region of 7.
37.	It is convenient here to deal with one argument which has been raised on TF’s behalf to show that it has a good claim against Citi.  It relates to the “non-embarrassment” provision contained in the sale agreement between the JAs and Citi.  This provided that if Citi subsequently disposed of all or part of EMI Group to a third party, any resulting proceeds exceeding £3.13bn would be shared with MIL as follows:
i)	100% for the first year (to 2012)
ii)	50% for the second year (to 2013)
iii)	20% for the following 3 years (to 2016).
38.	The figure of £3.13bn represents the total debt of £3.3bn owing to Citi less £170m mezzanine debt remaining with MIL.
39.	Mr Wolfson submits that the “non-embarrassment” provision was not, in fact, a protection for creditors or shareholders in MIL at all.  There is, it is said, no incentive for Citi ever to achieve a sale for more than the amount of the debts previously owing to it.  The provision is said by Mr Wolfson in his skeleton argument to be mere window dressing since there was no point in including it unless a figure of over £3.3bn for onward sales might be achieved; but if TF had a contingent interest in the sale of MIL’s assets, 
“it was entitled to have that sale conducted properly by insolvency office holders owing duties to MIL’s creditors.  The practical effect of the pre-pack has been to enable Citi to foreclose and thereafter determine the timing and manner of the sale exclusively be reference to its own interests, leaving the estate stranded with only a contingent contractual claim to overage.  That was wrong in principle.”
40.	That assumes, of course, that the JAs were in the pocket of Citi, a suggestion which finds no support in the evidence.  But even if it were true, Citi would want to recover the totality of its previous debt.  But nowhere near that amount has yet been obtained.  I do not at present see that there is anything in this point.  As I see it, if a pre-pack was an appropriate way to proceed (something I cannot possibly begin to address on this application, commenting only that if it was inappropriate, the SIP 16 Statement was worth less than the paper it was written on) the overage provision was not mere window dressing.  If there had been a turn-round of EMI Group and its underlying businesses resulting in more than £3.13bn being realised by the Citi, MIL would receive a share – but so would Citi and it is not immediately obvious that Citi would decline to obtain maximum realisations (at least after year 1) for its own benefit simply to deprive TF of a share.
TF’s suggested claims
41.	Mr Wolfson suggests a number of potential claims to which the JAs and MHL would be parties.  He puts them this way in his skeleton argument:
i)	The whole process of the administration and the sale without reference to TF and the sale to Citi without any marketing was based on the conclusion that as at 1 February 2011, MIL was insolvent and its assets were worth less than the debt to Citi.  TF believes that there are compelling reasons to doubt that.
ii)	It appears that the conclusion as to insolvency was founded on a misconception as to the correct application of the test for insolvency; in effect, the test now established in Eurosail was not applied.
iii)	That misunderstanding is said to have been negligently arrived at; to the extent that the sale to Citi has thereby occasioned loss to MHL, it will have claims under paragraph 74 or 75 Schedule B1 (challenge to administrator’s conduct and misfeasance respectively).  
42.	I think that these claims can be summarised in the way in which Mr Phillips describes them:
i)	A claim that the JAs were not validly appointed on 1 February 2011 (“the Appointment Claim”), and
ii)	A claim against the JAs and their firm, PwC, in relation to the sale at only £3.1bn (“the Sale at Undervalue Claim”).  The claim here would be either that a sale should not have taken place at all or that the sale was at an undervalue.
43.	TF’s first suggested claim, the Appointment Claim, is that the appointment of the JAs was invalid.  There are two limbs to this claim.  The first limb relates to the inability or otherwise of MIL to pay its debts for the purposes of clause 29.6(a) of the SFA.  The second limb relates to the conditions for the appointment of an administrator under paragraph 22 Schedule B1 Insolvency Act 1986.  I will deal with them both briefly.
44.	An event of default arises under clause 29.6(a) which is set out at paragraph 12 above.   The letters which I have referred to in paragraph 21 show that the event of default was based on MIL being unable to pay its debts (whatever that meant in the context of the relevant letters).  There was no reference to an inability to pay debts as they fell due although that is one basis on which the Directors resolved to place MIL into administration.  The reference in the correspondence to section 123(2) suggests, therefore, that reliance was being placed by Citi on the deeming provision of that sub-section, namely that “it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities”.  
45.	Two points can be made about that and Mr Wolfson made them:  
i)	First, since the court has not adjudicated on anything, it cannot be said that any deeming under section 123(2) has taken place.  The result is that no event of default has occurred.  It is neither here nor there that MIL has admitted that it is unable to pay its debts because it has not admitted its liability to pay its debts as they fall due.
ii)	Secondly, the test for inability to pay debts is now as described in Eurosail and there is nothing to suggest that the Directors considered whether MIL had passed the “point of no return”.  
46.	The first of those points is, it seems to me, arguable although there are counter-arguments.  For instance, if Mr Wolfson is correct, it is not easy to see when the deeming provision would be of practical relevance as the court – so far as England is concerned -  would only be asked to adjudicate on the issue so as to give rise to a deeming in the context of a winding-up petition or an administration application.  I suppose a declaration could be sought, but it would be extraordinary to require Citi and MIL to obtain a declaration in order to show that the court was satisfied as to insolvency when Citi and MIL were themselves satisfied.
47.	The second point arises only if the first point is incorrect, in which case whether MIL was “unable to pay its debts” would have to be judged applying the Eurosail test.  That is a matter of fact which would need to be adjudicated on by the Court in case of dispute.  As to that test, paragraph 51 below should be noted.
48.	If either of these points is correct, then there was no event of default and no power for Citi to accelerate payment of the debts under the SFA.
49.	The second limb of TF’s claim is that the conditions for the appointment of an administrator were not satisfied once it has been established that Citi was not entitled to accelerate MIL’s indebtedness.  Although paragraph 22 does not expressly say as much, it is implicit from paragraph 27(2), 29(2) and 30(b) Schedule B1 that an appointment of an administrator can be made under paragraph 22 only if the company “is or is likely to become unable to pay its debts”.  For this purpose paragraph 111 provides that “unable to pay its debts” has the meaning given by section 123.  These provisions are not as clearly drafted as they might be.  But it must be that directors who genuinely believe with good reason that their company is unable to pay its debts as they fall due would be able to appoint an administrator and could not be met with a challenge (for instance by a disgruntled creditor) that the appointment was invalid because the court had not been satisfied that the company was (or would be likely to become) unable to pay its debts as they fell due.  The actual appointment of the JAs was made on the basis set out at paragraph 21 viii) above, that is to say in reliance both on section 123(1)(e) (unable to pay debts as they fall due) and section 123(2) (liabilities exceeding assets).  It is again a matter of fact whether MIL was able to pay its debts as they fell due or whether, applying the Eurosail test, its liabilities exceeded its assets.  It is not to the point that the Directors had acknowledged the inability of MIL to pay its debts unless that acknowledgment was effective to make clear that there had been an Event of Default under the SFA.  And it may not be to the point that, when resolving to make the appointment, the Directors considered that MIL was unable to pay its debts as they fell due, for that conclusion may have been based on the validity of the acceleration of the indebtedness under the SFA.
50.	I have gone into the Appointment Claim in rather more detail than is probably necessary to reach this conclusion, namely that TF’s argument that MIL was not unable to pay its debts is not so obviously a bad argument that I should ignore it, in spite of Mr Phillips’ submissions to the contrary.  What the consequences would be if it were established is another matter.  Even if the Directors, acting in good faith, had applied a wrong approach, it does not necessarily follow that the appointment of the JAs was invalid.  There is no allegation that the Directors acted in bad faith, rather than negligently.  I see considerable force in Mr Phillips’ submission that the correct procedure would be for the JAs to apply to the court for their appointment to cease to have effect pursuant to paragraphs 79(1) and (2)(b): those provisions oblige an administrator to make an application if he thinks the company should not have entered administration, which would include circumstances under which he has become satisfied that the company was not in fact unable to pay its debts at the time of his appointment.  However, if the JAs fail to do so (and they have not, entirely unsurprisingly, done so yet) I see no reason why MHL should not be entitled to make an application under paragraph 74 (2) Schedule B1 on the basis that the JAs , by failing to make such an application, are not performing their functions properly.  
51.	I need to say something about Eurosail.  The first point to note is that the decision is under appeal to the Supreme Court.  The second point to note is that there is plenty of scope for argument about precisely what it did and did not decide and how, if at all, it changed the previous law.  Mr Phillips devoted a passage of his skeleton argument to it.  In the light of my approach to the application and my decision on it, it will become apparent that I do not need to address the decision.  
52.	TF’s second potential claim, the Sale at Undervalue Claim, is that the JAs sold the business to Citi at an undervalue.  On the evidence before me, there is not even a prima facie claim unless one goes along with Mr Breure’s evidence concerning Warner and other companies and the relevance to the valuation of EMI Group.  In any case, it is highly speculative that a multiplier could be established which would go anywhere near producing a valuation exceeding £3.1bn at 1 February 2011.  It is difficult to see, therefore, how TF can show that it had or has any economic interest in MIL or the EMI group of companies and their businesses.  
The Application
53.	CPR 31.16: I take CPR 31.16 before the inherent jurisdiction, although Mr Wolfson addressed them in the other order. An order for pre-trial disclosure under CPR 31.16 can only be made in the circumstances set out in CPR 31.16(3).  A document falls within the scope of the rule only if it would have to be disclosed pursuant to CPR 31.6 (standard disclosure) if proceedings had actually started.  In addition, disclosure of the document must be desirable (see CPR 31.16(3)(d)) in order to (i) dispose fairly of the anticipated proceedings (ii) assist the dispute to be resolved without proceedings or (iii) save costs.
54.	Whatever other complaints TF may have about the way in which the JAs came to be appointed and about how EMI Group came to be sold to Citi without any opportunity for discussion with TF, the only issues which could justify pre-action disclosure of the Valuations and other documents of which disclosure is sought are issues which relate to value or valuation.  To seek a sight of those documents in order to impugn the behaviour of Citi or the JAs would be no more than the proverbial fishing expedition.  Value is relevant, of course, to two matters.  First, it is relevant to whether MIL was unable to pay its debts (within the meaning of the SFA or for the purposes of Schedule B1) and secondly, it is relevant to whether the sale to Citi was at an undervalue.  What is important in each case is the actual value of EMI Group.  
55.	It does not appear to me that TF need any of the Valuations in order to be able to formulate their claims insofar as those claims turn on the value of EMI Group.  The results of the Valuations are, so far as material, known to TF, in particular, they know that none of the Valuations resulted in a figure anywhere near the amount of Citi’s secured indebtedness.  That they do not know the precise methodology of the Valuations is obvious, not having seen them; indeed, as I have mentioned, one of Mr Breure’s concerns about the Hawkpoint Valuation is precisely that TF do not know the approaches adopted in it.  But that does not, it seems to me, matter in terms of formulating a claim.  TF have had all the relevant financial information about TF which they need in order to instruct their own valuers to effect a valuation of EMI Group as of 1 February 2011.  At least, that is what I understand the position to be and there has certainly been no application whether by way of disclosure or anything else within the process of the administration seeking such material.  They have the resources to obtain such a valuation and to progress litigation without there being any fear that cost will keep them from the seat of justice.
56.	Why then is it said that the Valuations should be disclosed at this pre-trial stage?  Focusing particularly on CPR 31.16(3)(d), it is necessary to ask whether disclosure is desirable to (i) dispose fairly of the anticipated proceedings (ii) assist the dispute to be resolved without proceedings or (iii) save costs.  My jurisdiction to make an order is, as is well established, discretionary.
57.	As to disposing fairly of the anticipated proceedings, the court should only make an order where there is a real prospect in principle of the order being fair to the parties if litigation is commenced: see Black v Sumitomo Corp [2002] 1WLR 1562 at 1586B-C per  Rix LJ.  Further, although I do not need to attach any weight to this on the facts of the present case, “the circumstances must be outside “the usual run” to allow the hurdle to be surmounted”: see Hutchinson 3G UK Ltd v O2(UK) Ltd [2008] EWHC 55 (Comm) at [55] per  David Steel J.  
58.	I do not consider that disclosure of the Valuations before proceedings have started will assist in achieving a fair disposal of the anticipated proceedings.  The issue will be the value of EMI Group not how three valuers arrived at valuations which TF has to say were not just wrong but hugely wrong (otherwise TF have no economic interest in EMI Group) and it is perhaps worth repeating that, in that context, Mr Breure has said that TF consider it to be clear that they continued to have an economic interest.  Indeed, far from disclosure being required at this stage, it might be said that a fair disposal of that issue requires TF to formulate and state their case about why their approach is right without the benefit of being able to shape that case in a way which focuses on why the Valuations are all wrong.  I agree with Mr Phillips when he says, as he does in his skeleton argument, that “to allow MHL to instruct a valuer to engage in an argumentative, forensic review by making a one-sided order for pre-action disclosure of the Valuations would not assist the Court, and it would neither facilitate settlement without litigation nor allow for a fair disposal of any proceedings commenced”.
59.	As to assisting the dispute to be resolved without proceedings, I do not see how disclosure of the Valuations will assist in that. Disclosure of the Valuations might, I suppose, go some way to allaying TF’s concerns as expressed by Mr Breure, although I must express some scepticism about that, especially bearing in mind the allegations of fraudulent misrepresentation which have been made and which, in spite of being rejected by the jury in New York, are maintained by way of appeal.  It seems to me to be quite possible that TF, far from seeking this material in order to assist the dispute to be resolved without proceedings, will use whatever they can find as ammunition in their war against Citi.  
60.	As to saving costs, I can see no costs saving at all were the Valuations to be disclosed.  The disclosure of these Valuations is unlikely, in my assessment, to persuade TF to abandon the prospect of commencing proceedings; and if they do commence proceedings, it is difficult to see how the production of these documents prior to the start of proceedings would have saved any costs at all.
61.	I do not consider, therefore, that the present case is one where what has been referred to as the jurisdictional hurdle (see Black v Sumitomo Corp for instance) has been passed.  But if that is wrong, the discretion which the court has should not, in my judgment, be exercised.  So far as valuation is concerned, I regard TF’s case as somewhat speculative and, if I may say so, to the extent that it turns on establishing a multiple large enough to bring the value above the Citi indebtedness, more than somewhat speculative.  I say no more about Mr Breure’s suggested multiple of 17.8 in that context.
62.	It might be asked why these few documents should not be disclosed, since the cost of doing so must be slight, and why the JAs, as officers of the court, should wish to keep them out of TF’s hands.  The answer to that is that the JAs do wish to withhold them and, insofar as reliance is placed on CPR 31.16, the court only has power to order pre-action disclosure where disclosure is desirable for one of the purposes which I have addressed.
63.	Accordingly, I refuse the application for disclosure of the Valuations or any of them under CPR 31.16 because such disclosure would not fall within CPR 31.16(3)(d).  I do not decide whether such disclosure would fall within CPR 31.16(3)(c) as falling within standard disclosure if proceedings had already commenced, although I incline to the view that they would do.
64.	What I have said about the Valuations applies, a fortiori, to the other documents of which disclosure is sought listed in paragraph 7 ii) to v) above.  In contrast with the Valuations themselves, I doubt that any of these can be said to fall within the scope of standard disclosure.
65.	Inherent jurisdiction: the application is also presented on the basis of the inherent jurisdiction of the Companies Court to order disclosure, although, as mentioned, reliance is not placed on the principle of ex p James reflecting the obligations of the JAs as officers of the court.
66.	Instead, reliance is placed on powers analogous to those exercised in relation to trusts as explained in  Schmidt v Rosewood Trust Ltd  [2003] 2 AC 709 (PC).   There was a line of authority which had suggested that beneficiaries of a fixed interest trust were entitled to trust documents as a matter of right on the footing that they had a proprietary interest in them.  Questions arose whether that was a correct approach and whether discretionary beneficiaries had a similar right.  The Privy Council decided that, although a beneficiary’s right to seek disclosure of trust documents in the case of some trusts could be described as a proprietary right, it was best approached as one aspect of the court’s inherent and fundamental jurisdiction to supervise and if appropriate to intervene in the administration of trusts: see at [55].
67.	This jurisdiction has been applied by analogy in the context of insolvent estates.  In Re Movitex Ltd [1992] 1 WLR 303 is an example.  A jurisdiction over office holders is confirmed by Re Mirror Group (Holdings) Ltd [1992] BCC 972 at 976 G-H and by my own decision in Sisu Capital Fund Ltd v Tucker (unreported 25 July 2005) at [43].  In Movitex it was necessary, in exercise of the discretion, to allow the applicants to inspect the books of the company, including privileged documents, because this was the only way in which the office holders might be brought to account if they had been guilty of misfeasance.  The applicants, who were the only persons who would benefit from a successful misfeasance action, were in effect bringing claims on behalf of the company and could not know how strong those claims might be, or whether there was a claim at all, without obtaining disclosure. The case shows the existence of the jurisdiction, but it is miles away from the facts of the present case where, for reasons already given, I do not consider that pre-action disclosure of the documents sought is needed or even desirable in the context of possible proceedings which TF might wish to bring against the JAs.  
68.	Mr Wolfson submits that TF’s rights have been seriously and improperly prejudiced.  Disclosure is needed in order to enable TF to obtain redress.  He refers in this context to what Hoffmann J said in In re Palmer Marine Surveys Ltd [1986] 1 WLR 573.   That was a case where the court made a compulsory winding-up order in relation to a company which was in voluntary winding-up.  There were three creditors with debts totalling £353,700 in favour of the compulsory order and seven creditors with debts totalling £47,000 against.  Of the £47,000 against, £21,000 was represented by two companies controlled by Mr Davies who was the sole director of the company.  He had produced a statement of affairs which, unless wildly inaccurate, showed that no unsecured creditor had the slightest prospect of receiving a dividend in the liquidation.    There were factors which were a justifiable cause for concern to the petitioning creditor and which can be summarised as follows: 
i)	The notice summoning a meeting of creditors to approve the liquidator's appointment in the voluntary liquidation directed proxies to be sent to the address of the liquidator and not, as required by the Companies Winding-up Rules 1949, to the company's registered office, which in the case of the petitioning creditor was nearby. 
ii)	The petitioning creditor's proxy failed to arrive in time and a representative who arrived for the meeting was excluded by Mr Davies together with a number of other creditors who had failed to lodge proxies in time. 
iii)	At the meeting another creditor, with a claim for £209,000, proposed that a different liquidator should be appointed but was outvoted by proxies held by Mr Davies, representing 10 small creditors with debts totalling £7,489 and three creditor companies associated with the company and controlled by him, and the liquidator's appointment was confirmed. 
iv)	The petitioning creditor, who was owed an undisputed debt of £141,000, presented a petition for the compulsory winding up of the company with the support of two other independent creditors including the one outvoted at the meeting. 
v)	Evidence adduced in support of the petition indicated that six months before the company's voluntary liquidation one of its associated companies had started to carry on a business similar to the company's, from the company's premises and using its equipment and employees. 
vi)	The petition was opposed by two of the creditor companies associated with the company, whose claims totalled £209,000, and, pursuant to leave granted at the hearing, by five creditors claiming to be owed a total of £26,859.
69.	It is not surprising that the Judge exercised his discretion in the way in which he did.  But it is to be noted that he did not only rely on the amount of debts voting one way or the other.  At p578G-H, he said this:
“Besides counting debts, I think I am also entitled to have regard to the general principles of fairness and commercial morality which underlie the details of the insolvency law as applied to companies. A judicial exercise of discretion should not leave substantial independent creditors with a strong and legitimate sense of grievance.  In my judgment, the continuation of the voluntary winding up would leave the petitioning creditor with a justifiable feeling of unfair treatment in two respects. First, whatever may have been the technical position under the Companies (Winding-up) Rules 1949, the petitioning creditor was entitled to be aggrieved at its exclusion from the creditors' meeting on 29 January 1985.  It is no answer that the result of the vote would have been the same even if all the excluded creditors had been admitted. As a creditor which stood to lose a very large sum of money, McKees were in fairness entitled at least to be heard and to ask questions. Secondly, in a case in which there is evidence to suggest that assets have been transferred for inadequate value to an associated company, the independent trade creditors should ordinarily be entitled to have the company's affairs investigated by a liquidator who is not merely independent but who can be seen to be independent……”
70.	The facts of that case are nowhere near the present case and Hoffmann J’s words that a judicial exercise of discretion should not leave substantial independent creditors with a legitimate sense of grievance must be read in their context.  In that case, there was a clear breach of the statutory requirement.  By that breach, the creditor had been deprived of the opportunity of being heard at a meeting at which he should have had that right.  There was also the evidence which the Judge referred to about a transfer at inadequate value.  Unless the Judge had exercised his discretion in the way which he did, the petitioning creditor would have been significantly prejudiced.   There would have been no effective proceedings which he could have taken to ensure that his rights as a creditor were properly reflected.  
71.	In the present case, there is nothing like that.  The statutory procedures were, so far as I can see, carried out properly.  If (and it is a big if) the appointment of the JAs was invalid for any of the reasons suggested by Mr Wolfson, then TF has whatever remedy the law provides.  Pre-action disclosure of the documents sought pursuant to the inherent jurisdiction is no more necessary, or I think even desirable, than would be an exercise of the powers conferred by CPR 31.16 in order to enable TF to assert whatever remedy it has to give effect to its rights.  
72.	Similarly, if (and it is again a big if) the sale to Citi should not have taken place or was at an undervalue, TF will have real cause for complaint assuming that, had the sale not taken place at all or at an undervalue, it would be able to establish some financial prejudice.  If it is asserted that a sale should not have taken place at all, TF can make a claim to establish that and seek whatever remedy the law provides.  TF does not need any of the documents of which disclosure is sought to make that claim.  On the other hand, if it is asserted that the sale was at an undervalue, TF only has a claim if the sale should have been at an amount which produced sufficient to discharge the whole of the Citi indebtedness and thus enable a payment to be made to the TF interests.  For the same reasons as I have given in relation to the exercise of the discretion under CPR 31.16, I do not consider that the inherent jurisdiction should be exercised so as to order disclosure on the basis that they are needed in order to enable TF to assert its rights.  
73.	Absent the need for the documents sought in order to assert such rights as TF may have, there is not, in my judgment, any other sufficient reason on the facts of the present case to exercise the inherent jurisdiction to order their disclosure.  The case is entirely different from In re Palmer Marine Surveys Ltd where the petitioning creditor had been deprived of his right to attend the creditors’ meeting and where there had been earlier suspicious conduct by Mr Davies or his companies, matters which could be addressed by making the compulsory winding-up order sought.  In contrast, in the present case, disclosure of the documents sought is, in my judgment, entirely unnecessary at this stage in order to enable TF to challenge the appointment of the JAs or the sale of MIL’s assets to Citi.
74.	I do not overlook Mr Wolfson’s observation that the courts must be able to police pre-packs after the event.  I do not disagree; but such policing has to be carried out in accordance with the procedures laid down in the insolvency legislation together with such assistance as the inherent jurisdiction provides.  In the present case, I do not consider that disclosure of the Valuations and other documents sought is necessary or even desirable to enable TF to bring its concerns before the court to ensure that its rights and interests are given that protection which the law affords.
75.	Accordingly, I refuse the application for disclosure of the Valuations and the other documents of which disclosure is sought under the inherent jurisdiction of the Companies Court.  
The contract of sale by the JRs to Citi 
76.	Although not sought in the application, MHL now seek in addition a copy of the contract by which the JAs sold the assets of MIL to Citi.  I do not consider that MHL is entitled to an order for disclosure of this document prior to the commencement of proceedings either, whether pursuant to CPR 31.16 or           the inherent jurisdiction.
77.	So far as CPR 31.16 is concerned, MHL does not need to see the actual contract before it is able to formulate a claim and bring proceedings any more than it needs to see the Valuations.  Pre-action disclosure is not needed in order to dispose fairly of the anticipated proceedings and it is not needed to assist any dispute to be resolved without proceedings; provision of the contract will not, as I see it, save any costs.  Accordingly, none of the conditions for the operation of CPR 31.16  is fulfilled.
78.	So far as the inherent jurisdiction is concerned, what I have already said in relation to the Valuations applies, mutatis mutandis, to the contract.  In relation to any suggestion that MHL needs to see the contract in order to know that the “non-embarrassment” provision will be given effect to, I respond that there is not the slightest reason to doubt that the JAs will ensure that any sums due pursuant to it are recovered.  There is not in  any case, the slightest suggestion that Citi has effected sales at undervalue; indeed, it would be entirely contrary to its commercial interests to have done other than to obtain the best price which    it could  
Disposition
79.	MHL’s application is dismissed.