Companies - application for an order that the representor be wound up.
[2012]JRC039
Before : |
J. A. Clyde-Smith, Esq., Commissioner, and Jurats Clapham and Crill. |
IN THE MATTER OF THE REPRESENTATION OF HORIZON INVESTMENTS (JERSEY) LIMITED
AND IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991.
Advocate D. P. Le Maistre for the Representor.
Advocate M. W. Cook for the Jersey Financial Services Commission.
judgment
the commissioner:
1. Horizon Investments (Jersey) Limited ("the Representor") applies for an order that it be wound up under Article 155 of the Companies (Jersey) Law 1991.
2. The Representor is a limited liability company registered in Jersey with the number 77134 and having its registered office at Maxwell Chambers, 35-39 La Colomberie, St Helier, JE2 4GB.
3. The Representor carries on the business of investment management and is regulated by the Jersey Financial Services Commission (The "Commission") to undertake investment and fund services business for the purposes of the Financial Services Commission (Jersey) Law 1998, as amended.
4. The Representor has an authorised share capital of £25,000 ordinary shares of £1.00 and an issued share capital of £25,000 ordinary shares of £1.00.
5. The Representor is currently owned as follows:-
Constant Eduard Maria Beckers 1.000%
David Jonathan Francis 47.24%
The estate of Michael John Weaver 2.50%
Peter Sayers 19.38%
Sarah Jane Roberts 7.75%
Ross van Geest 8.13%
Tradewind Investment Services Limited 5.00%
100%
6. The Representor forms part of the wider Horizon group (including Horizon Trustees (Jersey) Limited, Horizon Fund Management Limited and others) which is not a group in the usual corporate context, but shares some common ownership.
7. Mr Gary Bellot has a right to acquire 9,203 shares in the capital of the company from Mr David Francis. However, Mr Bellot has agreed not to exercise such right until such time, if any, as the Representor commences a winding up. Mr Bellot should therefore be regarded as having a potential 36.81% interest in the representor (and Mr Francis' interest would reduce to 10.43%).
8. The directors of the Representor are Mr Daniel McAlister, Mr Peter Sayers and Mr Andrew Treharne and the secretary is Sarah Jane Roberts.
9. The Representor has held a licence to conduct investment business since 17th November, 2000.
10. In April 2011 and following a visit by the Commission, certain issues with the conduct of the Representor's business were identified and, following a formal visit by the Commission on 12th-13th May, 2011, the Commission issued a report identifying certain key concerns. The Commission has also issued directions for the operation of the representor's business. A post-examination monitoring schedule was issued in order to record the improvements required and the Representor worked through the remediation steps as required by the Commission. However, as a result of other reviews undertaken by the Commission into the activities of the wider Horizon group of companies, certain conflicts of interest were identified and at the same time the Representor ceased to comply with its requirements under the Commission's Investment Business Code of Practice to maintain adequate financial resources. The Representor remains in breach of these requirements as at the date of this application.
11. At a meeting between the Commission and the Representor on 10th October, 2011, the Commission indicated that it was itself considering applying for the winding up of the Representor under Article 155 of the Law in particular in light of the failure to comply with the capital requirements of the Codes or Practice and it was indicated that, while such course of action remained open, it would be preferable for the Representor to commence the process. Since this date the directors of the Representor have focussed their efforts on an orderly winding up of the Representor's affairs and to this end secured agreement to sell its client assets to Spearpoint Limited ("Spearpoint"), a company registered in Jersey, as referred to in more detail below.
12. On 22nd December, 2011, (the "Completion Date") the Representor entered into a business sale agreement (the "Agreement") with Spearpoint and Spearpoint Retirement Services Limited ("SRS" and, together with Spearpoint, the "Purchasers") pursuant to which certain client assets of the Representor were sold to the purchasers such that the relevant investment clients would transfer to the Purchasers either with effect from the completion date or as soon as possible thereafter.
13. Spearpoint has agreed to employ certain of the Representor's employees with effect from the completion date.
14. In order to ensure the smooth transition of the relevant client assets from the Representor to the Purchasers, Spearpoint has agreed to provide certain oversight services to those clients, if any, who did not transfer to the Purchasers on the completion date (until such time as such transfer is effective, or the relevant client entity transfers to another provided) - these services comprise in summary those services which the Representor would usually be expected to provide to its clients in respect of their investment activities, but which it is unable to provide from the Completion Date onwards given that certain of its staff have transferred to the employ of Spearpoint. Since the Completion Date these employees have been working on behalf of Spearpoint to transfer the remaining client entities and these employees are expected to commence full-time duties with Spearpoint with effect from 1st March, 2012.
15. As at the date hereof there remain a number of client entities which have yet to transfer from the Representor to the Purchasers and there are some client entities which have declined to transfer to Spearpoint and will instead move to a third party provider.
16. With effect from the Completion Date the Representor is no longer actively carrying on investment business (these services are provided to its remaining clients by the Purchaser under the terms of the agreement, although the Representor has maintained adequate span of control oversight as required by the Commission). Given the financial position of the Representor it is anticipated that the Representor will cease to carry on any trading activities whatsoever following completion of the transfer of its client assets.
17. As at February 2012, the current creditors of the Representor are owed £529,116 and the major creditors are as follows:-
Creditor Amount (£) %of total debt
Mr Gary Bellot 250,186 47.28
Mr David Francis 200,000 37.80
Horizon Trustees (Jersey) Ltd 51,380 9.71
PricewaterhouseCoopers CI LLP 13,000 2.46
Cenkos Channel Islands 7,000 1.32
Horizon Management Services Ltd 2,100 0.40
Comptroller of Income Tax 3,850 0.73
Social Security Department 1,600 0.30
529,116 100
18. The Representor has cash of £91,316 and miscellaneous income due of £24,505.
19. Pursuant to clause 6.1.2 of the Agreement, the Representor is due to receive an additional payment of £50,000 from Spearpoint within 10 days of 22nd December, 2012. However, this payment is conditional upon the total value of discretionary assets under management in respect of clients transferred to Spearpoint pursuant to the agreement being not less than £20,000,000. The more clients that are transferred to Spearpoint therefore, the more likely it is that the Representor will achieve this target and receive the additional £50,000 consideration, which will then be available for distribution to the Representor's creditors. It is however noted that there can be no certainty that this target will be met.
20. The Representor is due in March 2012 to receive the sum of £10,000 from Horizon Management Service Limited ("HMSL", an associated group servicing company) in part settlement of a debt due by HMSL to the Representor. However, payment of this amount is dependant upon the receipt by HMSL of an equivalent amount from the debtor of HMSL and there is no guarantee that this payment will be made. HMSL is itself in financial difficulties and will not at any point be in a position to repay the remainder of its debt due to the Representor.
21. The Representor has effectively ceased its business activities (save to the limited extent necessary to complete the transfer of its client assets to the Purchasers or to third party providers) and, save as identified in paragraphs 18, 19 and 20 above, is not expected to receive any further income in respect of its business activities going forward.
22. The subordinated loan due from the Representor to Mr David Francis (referred to at paragraph 17 above) will become due and payable two years after the date on which it is called.
23. The claims of Mr Gary Bellot in respect of the contingent liability owed to Mr Bellot (referred to at paragraph 17 above) are subordinated to the payment of the representor's trade creditors and Mr Bellot's recourse in respect of this guarantee will in any case be limited to the assets of the Representor available upon a winding up and following payment of its trade creditors.
24. The amount owed to HMSL (referred to at paragraph 17 above) is in respect of trade creditors of the Representor - these trade creditors contract with HMSL (as a serving company) and HMSL recharges amounts due to the Representor.
25. In addition, there are a number of outstanding complaints from clients which may lead to formal legal proceedings being brought against the Representor and, given that any receipts of the Representor going forward are limited as noted above, it is unlikely that the Representor will be in a position to pay any amounts which the Court may ultimately order it to pay in respect of such proceedings. It is difficult to forecast the likely quantum of these potential claims until they are formally made, but given that the Representor has overall net liabilities in its balance sheet position, any such claims will then also render the Representor insolvent on a cash flow basis.
26. The Representor is currently in the process of seeking a renewal of its professional indemnity insurance policy (which is a group policy held with other members of the wider Horizon group). Due to the number of notifications made to the insurer in respect of potential claims under the existing policy, there is a strong possibility that this policy will not be renewed, or that the premium payable will be prohibitively expensive such that the Representor cannot afford the renewal. In either case, the Representor would cease to maintain insurance cover with effect from 31st March, 2012, and this would mean that any claims referred to in paragraph 25 above would potentially be payable by the Representor, thus compounding the Representor's poor financial situation.
27. The financial position of the Representor is not sustainable - the subordinated loan and the guarantee obligation referred to above have the impact of reducing all available assets to nil and, with all other liabilities (including potential claims against the Representor), this places the Representor in an insolvent position on a balance sheet basis. On the subordinated loan becoming due the Representor will not be able to pay its debts as they fall due and is not expected to be in receipt of any significant income going forward - advice has therefore been sought from the Representor's advisers (Collas Crill and Deloitte LLP) and the matter has been discussed with the Commission as to the courses of action available to the Representor and its directors.
28. The directors of the Representor believe that it will be in the best interests of those client entities which have yet to transfer (either to the Purchaser or to a third party provider) to allow the Representor to continue to complete the transfer of thee client entities. This exercise will have little or no impact on the position of the Representor's creditors as the costs of completing these transfers are minimal and the just and equitable winding up of the Representor will mean that the Representor will retain the ability to satisfy its target under the Agreement and therefore receive an additional £50,000 from Spearpoint (it being noted however that there can be no certainty that this target will be achieved). The Commission has indicated that, if the Representor does not institute a winding up under Article 155 of the Companies (Jersey) Law 1991, as amended (the "Law"), the Commission will consider instituting the proceedings in its own right. The Commission has therefore confirmed that it is supportive of this application being made.
29. For these reasons, the directors of the Representor believe that there is no other alternative than to make an application for just and equitable winding up in accordance with Article 155 of the Law.
30. The Representor has placed the Viscount, the Attorney-General, the Commission, the creditors, and the shareholders of the Representor on notice of this application and provided them with a copy of the Representation. The Viscount has written in saying that he has no comments to make. The Attorney-General has not responded. The Commission have appeared before us today and we will come to this submission in a moment. There are no creditors who have appeared and no shareholders, apart from the directors present.
31. Mr Gary Bellot, in his capacity as a potential future shareholder of the company, has been put on notice of this application and has been provided with a copy of this Representation.
32. Deloitte LLP has also had the opportunity to review the finances of the Representor, and having considered all of the options, concluded that it is in the best interests of the Representor and the Representor's creditors for the Representor to be wound up on the just and equitable basis.
33. The directors of the Representor unanimously agree that a winding up on a just and equitable basis would be in the best interests of the creditors and the public of the Island of Jersey, for the following principal reasons:-
(i) there are client entities which are yet to transfer to the Purchasers or to third party providers and, given that the Representor is licensed by the Commission to undertake investment business, there is a clear public interest in completing this transfer in an orderly fashion without adverse publicity for the Island's financial services industry;
(ii) a just and equitable winding up under Article 155 of the Law is appropriate in the circumstances given the need for the representor to continue its regulated business whilst it is wound down;
(iii) following the transfer of its employees to Spearpoint, the Representor no longer has sufficient resources to complete the transfer of its remaining client assets and requires the assistance of a suitably-qualified liquidator to complete this process; and
(iv) it would be in the best interests of all of the stakeholders for the process to be overseen by a liquidator who is directly accountable to the Court.
34. Deloitte LLP has informed the Representor that Mr Andrew Isham and Mr Gregory Branch would be willing to act as Joint Liquidators in a just and equitable winding up. However, Deloitte LLP would not be prepared to agree to the appointment of Mr Isham and Mr Branch as Joint Liquidators under a creditors' winding up, due to the lack of clarity about the scope of such a role in these circumstances.
35. The Commission, represented by Mr Cook, support the application which they say has been arrived at after consideration of all of the available options and they have taken into account the following factors, which are the same factors as relied upon by Mr Le Maistre acting for the Representor:-
(i) There is a primary need for the Representor to continue trading and to progress the orderly transfer of client entities to Spearpoint Limited or any other new service provider which may be identified. The effective transfer of clients appears to present the only real prospect of any funds being received by the Representor in the future and so should be prioritised as much as possible. The Article 155 appointment route is considered to be the most flexible of the routes available to the Representor and would allow for this process to be carried out. The Commission, mindful in particular of its "Guiding Principles" under Article 7 of the Financial Services Commission (Jersey) Law 1998, as amended to have regard to the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters and the best economic interests of Jersey, considers that there is a primary need to protect the interests of the clients and that this is best achieved through the orderly and expeditious transfer of the Representor's clients to another service provider;
(ii) In an article 155 appointment, a suitably qualified and experienced liquidator could be appointed and would be answerable to the Court. The proposed liquidator in this application has already been engaged within the Horizon business and so has a working knowledge of the issues which need to be addressed;
(iii) An Article 155 appointment is preferable to a creditors' winding up given the greater flexibility allowed for in Article 155 and the overriding duty to the Court. In a creditors' winding up, Article 159(1) of the Companies Law provides that the company must "cease to carry on its business, except so far as may be required for its beneficial winding up". This may therefore limit the extent to which a liquidator could take account of the interests of clients of the representor. There was also a statutory time-table and framework that would have to be followed in the case of a creditors' winding up and this may cause delay. Further, in a creditors' winding up, the liquidator would be chosen by the creditors and/or shareholders and in such a scenario there is the potential for conflicts to arise between the interests of the various creditors and other interested parties, such as clients, new service providers and the Commission.
(iv) In respect of a désastre, it should be noted that there are limited assets available. The Viscount would have to expend time and resources in acquiring a knowledge of the affairs of the Representor and would likely have to engage external advisers and service providers, thereby potentially increasing the costs of the wind down.
36. The scope of the Court's powers under Article 155 of the Law has been considered by the Royal Court on a number of occasions. In the case of In the matter of Leveraged Income Fund Limited 2002/209, the Court at paragraph 10 of its judgment stated:-
"10 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 put is:-
"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"."
37. The Court further considered this point in the case of In the matter of Belgravia Financial Services Group Limited [2008] JRC 161, where at paragraph 19 the Court took note of previous decision in Jean-v-Murfitt 1996/237 (Jersey Unreported), 11 December 1996, where the Court said:-
"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." (emphasis added)
38. In the later case of Representation of the Directors of Poundworld (Jersey) Limited [2009] JRC 042, the Court, when considering an application for just and equitable winding up under Article 155 of the Law, stated as follows, at paragraphs 15 to 16:-
"15. We are of the view that the Court should be cautious before ordering a winding up under Article 155 in the ordinary case of an insolvent company. The Law provides for the appropriate procedure and this is the one which should normally be followed. However, as referred to earlier, the Court's jurisdiction to order a winding up under Article 155 is a wide one and we are persuaded that, in the particular circumstances of this case, it would be right to exercise that jurisdiction.
16. We are satisfied that the best interests of the creditors would undoubtedly be served by Poundworld being able to sell its remaining stock at retail value from its outlets by means of the Company continuing to trade for the limited period necessary to achieve this. Conversely, if the stock were to be sold at wholesale values, the recovery for creditors, other than the landlords and the shipper, would be minimal. We are also satisfied that if the Court does not order an immediate winding up, there is a substantial risk that the shipper and/or the landlords will exercise their rights prior to the shareholders' and creditors' meetings required for a creditors winding up and this would be to the prejudice of the creditors as a body. Delay in the commencement of a liquidation until 16th February would therefore be damaging to the creditors."
39. It was the interests of the creditors which persuaded the Court to allow Poundworld to continue to trade and to order a just and equitable winding under Article 155.
40. In Representation of Andrew Hunter and James Boyd Re Charles Le Quense (1956) Limited [2011] JRC 155, the Court endorsed its earlier judgment in Poundworld and stated at paragraphs 12-14 that:-
"12 The Law provides for the appropriate procedure by way of a creditors' winding up and this is the one which should normally be followed. However, as stated in a number of cases, the Court's jurisdiction to order a winding up under Article 155 is a wide one and the Court may be persuaded to proceed under Article 155 in the case of an insolvent company where it is satisfied that there is particular advantage in doing so.
13 We are satisfied that this is the case here. If the Court refuses to proceed by way of a just and equitable winding up, the Company will either be placed en désastre or there will be a creditors' winding up. In either case the Company would not be able to continue to carry on business so as to complete the two contracts. This would mean that the creditors would be worse off by the anticipated sum of over £400,000.
.....
14 We accept of course that there can be no guarantee of this more favourable outcome for the creditors..."
41. In relation to guidance as to when the Court is likely to order a just and equitable winding up under Article 155 of the Law, the Court looked at this in the case of In the matter of Centurion Management Services Limited [2009] JRC 227 where at paragraph 9 it was stated:-
"In Belgravia [2008] JRC 161 the Court was concerned with the need to wind up companies that managed regulated funds and where an urgent investigation was required into the possible misappropriation of assets in breach of fiduciary duties. A need to investigate a company's affairs was one of the categories developed under English law justifying a winding up on just and equitable grounds. The Court accepted that a just and equitable winding up was the appropriate way of proceeding for a number of reasons, including:
i) the need for flexibility;
ii) the avoidance of conflict with the creditors;
iii) the need to protect the interests of the Investors; and
iv) the need for the appointment of an appropriately experienced liquidator."
42. The Court in Centurion went on to say (at paragraph 10):-
"In this case, whilst we are not dealing with a need for an investigation but with the need for the company to continue its regulated business whilst it is wound down, similar considerations apply."
43. Having considered the submissions and the relevant law we are satisfied that on the facts of this case it is appropriate for the Court to exercise its jurisdiction under Article 155 and this for the reasons put forward by both the Representor and the Commission. There are, as Mr Le Maistre said, issues of complexity when winding up a regulated business. An order in this case would appear to be in the interests of the creditors in that additional funds may become due but in the case of conflict between the interests of the creditors and the clients of the Representor, there is provision within the proposed directions to enable that conflict to be resolved by application to the Court.
44. We therefore grant the application and order that the Representor be wound-up pursuant to Article 155 of the Law.
Authorities
Companies (Jersey) Law 1991. as amended.
Financial Services Commission (Jersey) Law 1998, as amended.
In the matter of Leveraged Income Fund Limited 2002/209.
In the matter of Belgravia Financial Services Group Limited [2008] JRC 161.
Jean-v-Murfitt 1996/237.
Representation of the Directors of Poundworld (Jersey) Limited [2009] JRC 042.
Representation of Andrew Hunter and James Boyd Re Charles Le Quense (1956) Limited [2011] JRC 155.
In the matter of Centurion Management Services Limited [2009] JRC 227.