[2008]JRC161
royal court
(Samedi Division)
23rd September 2008
Before : |
M.C. St. J. Birt, Esq., Deputy Bailiff, and Jurats Le Breton and Newcombe. |
And |
In the matter of the representation of Belgravia Financial Services Group Limited, Belgravia Asset Management Limited and Belgravia Administration Limited |
Representors |
IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991.
Advocate G. S. Robinson for the Representors.
Advocate B. H. Lacey for the Jersey Financial Services Commission.
judgment
the deputy bailiff:
1. This is an application by Belgravia Financial Services Group Limited ("BFSG"), Belgravia Asset Management Limited ("BAM") and Belgravia Administration Limited ("BAL") for an order under Article 155 of the Companies (Jersey) Law 1991 ("the Law") that they and certain wholly owned subsidiaries be placed in liquidation on the grounds that it is just and equitable to do so. The Court announced its decision at the conclusion of the hearing on 15th September and now gives its reasons.
Background
2. The background is as follows. BFSG is a holding company incorporated in Jersey. It is wholly beneficially owned by DPSH Holdings Limited, a Cayman island company which is in turn wholly owned by Barclays Private Bank and Trust Limited ("Barclays") in its capacity as trustee of the Hickman Family Trust, a trust governed by Jersey law.
3. BFSG owns the entire issue of share capital in the two other representors, namely BAM and BAL, both of which are also Jersey companies.
4. BAM is regulated by the Jersey Financial Services Commission ("JFSC") and is the Manager of three investment funds ("the Property Funds") which are collective investment funds under the Collective Investment Funds (Jersey) Law 1988. BAM is also the general partner of a further investment fund known as Belgravia Gold and Resources Fund LLP ("the Gold Fund"). BAL is the administrative arm of the group employing staff and contracting with suppliers.
5. BFSG also has a 50% interest in two other companies which manage collective investment funds. The first is Belgravia IFN Asset Management (Jersey) Limited ("BIFN"). That company manages Belgravia IFN China Property Funds PCC ("the China Fund"). The second is Belgravia Atherstone Asset Management (Jersey) Limited ("BAAML"), which manages Belgravia Atherstone Funds PCC ("the India Fund").
6. BFSG has a 100% interest in three other companies namely, The China Investment Company Limited, Belgravia Financial Management Limited and AAA Holdings Limited. BAM has a 100% interest in Belgravia Trust Limited. All of these are Jersey companies and we shall refer to them as the 'wholly owned subsidiaries'.
7. Under the terms of the trust, the settlor reserved to himself the rights, duties and powers to deal with matters of investment, including those in respect of BFSG and its group companies. The settlor died unexpectedly on 2nd May, 2008, and this led Barclays, as trustee, to become more involved.
8. Not long afterwards the JFSC informed Barclays of certain concerns which it had in relation to the Belgravia group of companies. This had led the JFSC to serve a notice and direction on BAM dated 2nd May, 2008, requiring the board of BAM to provide certain information and answer certain questions. The direction had also had the effect of prohibiting new fund business from being taken on by BAM.
9. On 18th August, because of its concerns about the lack of information it was receiving from the board of directors, Barclays procured the passing of a shareholder resolution in respect of BFSG requiring all payments made by that company in excess of £10,000 to be approved in advance by Barclays.
10. On 21st August, the JFSC issued a further direction which prohibited BFSG and other entities in the group from disposing of or diminishing the value of any assets, including cash balances, without the prior permission of the JFSC. The direction also prohibited the removal or destruction of the companies' records.
11. On 22nd August, Barclays procured the passing of a shareholder resolution removing the existing board of directors of BFSG and appointing Barclays as sole corporate director in their place. On 29th August, BFSG, acting through Barclays, removed the boards of BAM and BAL. At the time of their removal, the boards of all three representors comprised Mr Simon Bailey, Mr James Rotherham and Mr Paul Barber. Barclays took this action because it had been placed on notice of an imminent police investigation into suspected criminal activities within the Belgravia group of companies and was aware of JFSC's heightened concerns as to the affairs of the group and the directors and individuals who were in control. Barclays approached the accounting firm Deloitte & Touche LLP ("Deloitte") on 22nd August, to provide advice to Barclays whilst it acted as corporate director on a temporary basis. Deloitte was also asked to investigate the financial position of the representors.
12. On 23rd August, the States of Jersey Police executed search warrants at the Belgravia offices and the home addresses of certain principal persons of BFSG.
13. On 1st Septembe,r the JFSC issued a further direction which, inter alia, suspended subscriptions and redemptions into the six collective investment funds either managed by BAL or managed by the two joint venture vehicles referred to earlier, namely BIFN and BAAN.
14. Deloitte has carried out a preliminary investigation and Mr Branch of that firm has sworn an affidavit. The following points emerge from his evidence:-
(i) Each of the representors is insolvent on a cash flow basis.
(ii) The position of the four wholly owned subsidiaries is unclear; they may or may not be insolvent.
(iii) There are concerns about the quality and completeness of the accounting records of the representors. There is also uncertainty as to the identity, quality and validity of the creditors and their claims. Certain of the balances shown may have arisen from fraudulent activities."
15. Barclays has additional concerns. First, there is an urgent need to protect the interests of the investors in the various funds pending appointment of new managers and administrators. Secondly, there is a suggestion that additional shares in BFSG may have been issued, thereby purportedly diluting the trust's interest. Thirdly, Barclays has established that the former board of directors proposed to sell BFSG's business to First London Plc but some of the consideration would have been paid to entities other than BFSG. That transaction did not proceed because of a lack of regulatory consent.
16. Barclays and the JFSC are therefore at one in concluding that a full investigation needs to be carried out in order to ascertain the true position.
The Law
17. Article 155 of the Law provides (so far as material) as follows:-
(i) A company, not being a company in respect of which a declaration has been made (and not recalled) under the Désastre Law, may be wound up by the court if the court is of the opinion that -
(a) it is just and equitable to do so; or
(b) it is expedient in the public interest to do so.
(ii) An application to the court under this Article on the ground mentioned in paragraph 1(a) may be made by the company or by a director or a member of the company or by the Minister or by the Commission.
(iii) An application to the court under this Article on the ground mentioned in paragraph 1(b) may be made by the Minister or by the Commission.
18. We were referred to two Jersey cases in which the provisions of Article 155 have been considered. In Re Leveraged Income Fund Limited 2002/209, 31st October 2002,the Court said this at paragraph 10 of its judgment::-
"Article 155 is based upon a similar provision of the Companies Act of the United Kingdom. English authorities are therefore of assistance. Although the English courts have developed certain categories of cases where the court will exercise its power under the just and equitable jurisdiction the court is not confined to such categories. The words 'just and equitable' are general words. As Palmer's Company Law Vol 3 para 15.219 puts it: "It has sometimes been suggested that there is an exhaustive list of situations that may fall within the scope of the 'just and equitable' clause, but it now seems that, although such classification may be convenient for purposes of presentation, the words 'just and equitable' require a more flexible interpretation. In the words of Lord Wilberforce: "Illustrations may be used, but general words should remain general and not be reduced to the sum of particular instances.""
19. The need for flexibility was emphasised by Bailhache, Bailiff in the other Jersey case of Jean v Murfitt (Jersey Unreported) 11th December 1996, at page 8 of the judgment where he said this:-
"We conclude by observing that the words 'just and equitable' in Article 155 of the 1991 Law should be given a flexible interpretation. Justice and equity cannot be confined within the four corners of specific instances."
20. Nevertheless, one of the categories which has developed in English jurisprudence is where an investigation into the company's affairs is required - see Re Peruvian Amazon Company Limited (1913) 29 TLR 384 and Bell Group Finance (Pty) Limited (in liquidation) v Bell Group (UK) Holdings Limited [1996] 1 BCLC 304.
Decision
21. Given that the representors are insolvent, they clearly cannot continue to trade through their board of directors. There would appear to be three alternative routes of bringing about the winding up of the companies. First, there is a creditors' winding up under Part 20 of the Law; secondly, there is a désastre; and thirdly there is just and equitable winding up.
22. On behalf of Barclays, Miss Robinson argues strongly that the best way forward is a just and equitable winding up. We would summarise her reasons as follows:-
(i) An investigation is required; there is possible misappropriation of assets and breach of fiduciary duties. That is an acknowledged ground for a just and equitable winding up. The representors have some assets.
(ii) The procedure in such a winding up is sufficiently flexible that the wholly owned subsidiaries, which may not necessarily be insolvent, can also be wound up and dealt with by the liquidator. The position would be more complicated in the case of creditors' winding up or a désastre.
(iii) There were a number of disadvantages in connection with a creditors' winding up:-
(a) Speed was essential because of the need to make arrangements for the continuing management of the funds in order to protect the interests of the investors. A creditors' winding up could not take in less than 14 days because of the requirement for notice of the requisite shareholder meeting to be given to creditors.
(b) There was a real possibility of a conflict of interest between the various investigatory authorities and those of the creditors. A liquidation committee appointed pursuant to Article 162 of the Law was not well equipped to deal with such issues.
(c) This was particularly so where a concern had been expressed as to the nature of certain claims made by creditors. The just and equitable winding up procedure had the advantage that the liquidator was appointed by and answerable only to the Court. This would be more appropriate in the light of the JFSC and police investigations.
(iv) The choice of liquidator was important as it would be necessary to find somebody with appropriate experience in relation to investment funds. In a creditors' winding up the choice of liquidator lay with the creditors and/or shareholders whereas in the case of a just and equitable winding up, the choice lay with the Court.
(v) A just and equitable winding up was also preferable to a désastre. Although that could be achieved immediately, the Viscount would not be able to deal fully with those wholly owned subsidiaries which were not insolvent and he would undoubtedly wish to appoint a firm such as Deloitte to advise, given the complexity of the structure and the need to continue management and administration activities in relation to the funds until a new manager could be found. It would be preferable therefore to appoint Deloitte direct rather than incurring the costs of both the Viscount and Deloitte. The Viscount's representative in Court, whilst of course indicating that the Viscount would be content to administer a désastre if that was the Court's decision, indicated that the Viscount supported the application for a just and equitable winding up.
23. Barclays' application was strongly supported by the JFSC. It too wished the Court to proceed under Article 155 rather than by means of a creditors' winding up or a désastre. In particular, the JFSC's main concern was the interests of investors in the funds. It strongly supported the appointment of two partners of Delotte's with experience in that field. It wished to have an open and continuing dialogue with the liquidator because of the various regulatory problems which had been identified and this could best be achieved by means of the Court appointing a liquidator rather than the creditors. There was a need for the liquidator to be appointed urgently in order to protect the interests of investors and to investigate the position fully. A creditors' winding up would not meet these concerns.
24. The Court has no hesitation in finding that it would be just and equitable to wind up the representors and the wholly owned subsidiaries and to appoint Mr Branch and Mr Manning of Deloitte as joint liquidators. We accept that, for the reasons put forward by Barclays and the JFSC, a winding up under Article 155 would be preferable in the circumstances of this case to a creditors' winding up or to a désastre. For these reasons the Court appointed Mr Branch and Mr Manning and conferred upon them the powers set out in paragraph 2 of the representation. The Court also made various ancillary orders as reflected in the Act of the Court.
Authorities
Re Leveraged Income Fund Limited [2002/209, 31st October 2002].
Jean v Murfitt (Jersey Unreported), 11th December 1996.
Peruvian Amazon Company Limited (1913) 29 TLR 384.
Bell Group Finance (Pty) Limited (in liquidation) v Bell Group (UK) Holdings Limited [1996] 1 BCLC 304.