Before : |
J. A. Clyde-Smith OBE., Commissioner, and Jurats Crill and Christensen |
Between |
Robert Gordon Kidd |
First Representor |
And |
Milan Balac |
Second Representor |
And |
Lee Brian Cox |
Third Representor |
And |
All Services Group Holdings Limited (In liquidation) |
First Respondent |
And |
Malcolm Cohen and Philip Braun as Joint Liquidators of All Services Group Holdings Limited (In liquidation) |
Second Respondent |
IN THE MATTER OF THE REPRESENTATION OF ROBERT GORDON KIDD, MILAN BALAC AND LEE BRIAN COX (AS SHAREHOLDERS OF ALL SERVICES GROUP HOLDINGS LIMITED, IN LIQUIDATION)
AND
IN THE MATTER OF ALL SERVICES GROUP HOLDINGS LIMITED, IN LIQUIDATION
AND
IN THE MATTER OF ARTICLE 175 OF THE COMPANIES (JERSEY) LAW 1991 (AS AMENDED)
Advocate R. Christie for the Representors.
Advocate J. Speck for the Respondents.
judgment
the commissioner:
1. On 4th October, 2019, the Court appointed two additional liquidators of All Services Group Holdings Limited ("ASGH"), a Jersey incorporated company, in order for them to investigate, and if appropriate, to pursue a claim against the only substantial creditor of ASGH.
2. The Representors are the shareholders of ASGH, with Mr Robert Gordon Kidd owning 73%, Mr Milan Balac 16% and Mr Lee Brian Cox 11%. ASGH was, as its name implies, a holding company, its principal asset being all of the issued shares in another Jersey company, Rental Solutions and Services Limited ("RSS"). RSS was at all material times and still is in the business of large-scale electricity generators and cooling plant ownership and rental in the Middle East and Africa. Underneath it are a number of subsidiaries in various locations.
3. The essential facts, which are not in dispute, are as follows:-
(i) In mid 2015, ASGH entered into negotiations with CarVal Investors GB LLP for a facility of US$90 million. On 25th August, 2015, after a period of negotiation, a facility in the lower sum of US$40 million was made available to ASGH by two related CarVal entities, CVI CVF III Lux Finance Sarl and EOC Lux Finance Sarl. We will refer to all three CarVal entities as "CarVal". The facility was repayable in 12 months. In addition to CarVal taking security over the shares in RSS and the shares owned by Mr Kidd and Mr Cox in ASGH, RSS, along with other subsidiaries in the RSS group, was also a joint and several guarantor of the facility.
(ii) Paragraph 3.1 of the Facility Agreement provided that the amounts borrowed would be applied towards:-
(a) Repayment of an existing loan in an amount of US$24 million;
(b) The financing of deferred dividends to the Representors in an amount of US$3.5 million; and
(c) Its general corporate purposes and payment of certain fees and expenses.
(iii) In the early part of 2016 CarVal became concerned that ASGH would be unable to repay this facility upon its expiration in August that year and on 3rd March, 2016, it exercised its rights under the Facility Agreement to appoint an observer to attend any meetings of the boards or committees of ASGH and RSS and issued a Reservation of Rights letter to notify ASGH of various events of default and its right, amongst other things, to declare the loans immediately due and payable.
(iv) ASGH commissioned a report from Deloitte dated 18th April, 2016, referred to as the "Ambience Report" as to the re-financing options open to it. It is fair to say that the report highlighted the serious financial challenges the group was facing. Whilst not a valuation, it suggested the value of RSS was in the region of US$40 million and commented that selling the group was unlikely to yield any return to the shareholders.
(v) CarVal concluded that there was no viable re-financing opportunity, and accordingly it enforced its security, appropriating the shares in RSS on 26th July, 2016. On 9th August, 2016, and pursuant to Article 48 of the Security Interests (Jersey) Law 2012 ("the Security Interests Law"), CarVal gave notice to ASGH, at the offices of its administrators in Jersey, that it had appropriated the shares in RSS at a gross value of US$25.5 million, pursuant to a valuation it had obtained from Deloitte dated 9th August, 2016, and referred to as the "Aeon Report", leaving an amount outstanding to CarVal (including costs and expenses) of US$16.3 million. It is the case of the Representors that they did not see this report until 17th January, 2019, and this notification until 15th April, 2019.
(vi) By e-mail dated 15th November, 2016, Advocate Raulin Amy of Ogier, acting for CarVal, wrote to BDO with the view to that firm providing liquidators for ASGH for the specific purpose of pursuing the Representors for the repayment of the dividend of $3.5 million they had received shortly after the Facility Agreement had been drawn down (and as anticipated in the Facility Agreement), which it was contended had been made unlawfully.
(vii) Using the security powers of attorney given to CarVal, it procured the removal as director of Mr Kidd, who at that time was the only director of ASGH, and appointed a Mr Gerardo Bernaldez of CarVal as sole director in his place. On 3rd April, 2017, ASGH was placed into a creditors' winding up and the Second Respondents, Mr Malcolm Cohen and Mr Philip Braun of BDO, were appointed joint liquidators. We will refer to them as "the Joint Liquidators".
(viii) On 13th April, 2017, letters were issued by Ogier, acting for the Joint Liquidators, to the Representors making formal demand for the repayment of the dividends.
(ix) The statement of affairs prepared by Mr Bernaldez, pursuant to Article 160(2) of the Companies (Jersey) Law 1991 ("the Companies Law"), noted that as a result of CarVal appropriating the shares in RSS and all monies in the accounts of ASGH, no assets remained in ASGH other than the right to claim in respect of the dividends and other possible transactions that had taken place before the liquidation. The Joint Liquidators were therefore reliant on funding being obtained to carry out the winding up of ASGH and the pursuit of the claim against the Representors and this was to be provided by CarVal by way of a loan to ASGH, pursuant to a Funding Agreement dated 3rd April, 2017.
(x) By Order of Justice dated 4th October, 2018, ASGH, acting through the Joint Liquidators, issued proceedings against the Representors, demanding repayment of the dividends.
(xi) The Representors issued their representation on 2nd May, 2019. They asserted that:-
(a) Had CarVal complied with its duties under Article 46 of the Security Interest Law, RSS would have been valued at over US$40 million. CarVal would not, therefore, be a creditor of ASGH, and the Joint Liquidators' primary duty would be to the Representors.
(b) The Joint Liquidators had not been prepared to question the appropriation by CarVal and had insisted on retaining Ogier, who had drafted the security documents for CarVal and advised CarVal on the enforcement and appropriation. They alleged that Ogier's conflict was serious and unmanageable.
(c) The Joint Liquidators had shown a lack of independence, and were not conducting the liquidation in the interests of the persons most likely to be interested in it. In the circumstances, the Representors, as shareholders, had standing to apply for their removal.
The Representors therefore sought the removal of the Joint Liquidators or, alternatively, the appointment of additional liquidators for the specific purpose of investigating and if appropriate bringing a claim against CarVal. They sought a declaration that Ogier were conflicted and should be disinstructed and they also sought a stay of the dividend proceedings brought against them, pending resolution of the claim against CarVal.
(xii) In their representation the Representors raised a concern that any claim against CarVal could be prescribed at the expiration of three years from the date of appropriation suggesting a deadline of the 9th August, 2019. As a consequence, the Court fixed 9th July, 2019 for the hearing of the representation.
(xiii) In June 2019 Ogier ceased to act for the Joint Liquidators in this matter. Their new advisers, at that stage Appleby, required more time to prepare for the hearing, and applied for an adjournment beyond 9th August, 2019, having entered into a standstill agreement with CarVal dated 18th June, 2019. The hearing was then adjourned to 3rd and 4th October, 2019.
(xiv) The position of the Joint Liquidators is that ASGH was and remains insolvent and they have properly administered and investigated its affairs acting with due skill and diligence in the best interest of the creditors of ASGH. They considered that CarVal had complied with its obligations in the enforcement of its security with the benefit of advice from Ogier and Deloitte. They were satisfied with the Aeon Report which spoke for itself. In their view the Representors were simply using these proceedings to derail the dividend proceedings.
4. There is, of course, a great deal of flesh to be added to the bare bones of this summary of the background. The Court had before it affidavits and very extensive documentation from:-
(i) Mr Balac;
(ii) Mr Gaggar Shaggar, an individual who had shown an interest in purchasing part, if not the whole of RSS;
(iii) Mr Cox;
(iv) Mr Kidd;
(v) Mr Cohen, one of the Joint Liquidators;
(vi) Mr George David Jacobs of BDO, who had assisted the Joint Liquidators;
(vii) Mr Gregory Belonogoff, a principal of CarVal; and
(viii) Mr Braun, one of the Joint Liquidators.
5. The court also had expert reports from Mr Travis Taylor of Versant Partners, instructed by the Representors, and Mr Michael Thornton of Grant Thornton, instructed by the Joint Liquidators, together with a joint report from both experts.
6. In the 2 days available for the hearing, it was not possible for any of the deponents of the affidavits or the experts to be cross-examined, and the Court had to proceed as best it could on evidence that was accordingly untested.
7. The key issue for the Court was quite narrow, namely:-
(i) Was there a realistic prospect of a claim by ASGH against CarVal generating a surplus over the sums due to CarVal?
(ii) If so, who should investigate and, if appropriate, bring that claim?
8. Article 46 of the Security Interests Law is in these terms:-
"46 Duty to obtain fair valuation or fair price
(1) A secured party who appropriates collateral under this Part owes a duty -
(a) to take all commercially reasonable steps to determine the fair market value of the collateral, as at the time of the appropriation, and
(b) to act in other respects in a commercially reasonable manner in relation to the appropriation.
(2) ...
(3) A duty under this Article is owed to the following persons -
(a) the grantor;
(b) ...
(c)..."
9. It is helpful also to set out Article 48, which is in these terms:-
"48 Secured party to give statement of account to grantor and others
If collateral is appropriated or sold by a secured party under this Part after an event of default, the secured party shall, within the 14 days after the day on which the collateral is appropriated or sold, give each of the persons referred to in Article 49(1)(a) to (c) a statement of account in writing, showing -
(a) The gross value realized by virtue of the appropriation or the amount of the gross proceeds of sale;
(b) The amount of the secured party's reasonable costs incurred in relation to the appropriation or sale (being the costs referred to in Article 51(2) or (3) respectively).
(c) The amount of any other reasonable expenses incurred by the secured party in enforcing the security agreement after the event of default;
(d) The net value of the collateral, or net proceeds, referred to in Article 51(2) or (3) respectively; and
(e) The surplus owing by, or debt owing to, the secured party, as the case may be".
Under Article 1, the "grantor" is defined as the person who grants a security interest and "the secured person" is defined as the person who holds the security interest. ASGH, as grantor, was a person entitled to be given a statement of account.
10. The Court has not previously had an opportunity to analyse the ambit of Article 46, and although it was not a matter of argument before this Court, the following observations can be made:-
(i) The fair market value of the collateral has to be determined at the date of its appropriation, in this case the 26th July, 2016, and the secured party, in this case CarVal, has to take "all commercially reasonable steps to determine that fair market value".
(ii) In all other respects, CarVal as the secured party has to act in a commercially reasonable manner in relation to the appropriation, a provision of potentially broad application.
11. In discussion, Advocate Speck agreed that if the secured party has appropriated an asset for say £100 on the basis of a valuation in that amount, the grantor must be able to challenge that valuation if it can be shown to be flawed, or otherwise incorrect. It would not be commercially reasonable, arguably, for the secured party to appropriate an asset at a valuation that can be shown to be materially wrong. The whole point of the requirement under Article 48 to inform a grantor within 14 days of the gross value realised by virtue of the appropriation is to enable the grantor to satisfy itself that the secured party has discharged its duties under Article 46 and to challenge the secured party if it has not.
12. As the Court said in its file and parties judgment giving directions on 19th July, 2019, whilst it was not the task of the Court at this hearing to determine the fair market value of RSS at the material time (that would be for another Court if the claim against CarVal is pursued), it was relevant to determine on expert evidence whether there were flaws in the Aeon Report and whether the true market value was likely to be more than US$40 million, because only then would the claim against CarVal have the potential to generate a surplus over the amount due to CarVal, rendering ASGH balance sheet solvent.
13. Advocate Speck pointed out that the figure to be achieved would be slightly higher than US$40 million, taking into account arrears of interest that had built up, but for convenience, we will continue to refer to US$40 million as the key target.
14. Advocate Christie referred to earlier reports which he said cast considerable doubt over the Aeon Report valuation of US$25.5 million:-
(i) The Arc Report prepared by Ernst & Young for the purposes of the proposed lending by CarVal of US$90 million. That report was available in draft on 10th June, 2015, and whilst not providing a valuation, did form part of CarVal's due diligence in making a loan of US$40 million. It might be presumed that CarVal would be unlikely to make a loan in an amount that equated to the total value of the borrower.
(ii) On 1st May, 2016, Cavendish Maxwell valued the assets of RSS (comprising plant etc.) at a market value of US$69.04 million.
15. Advocate Speck responded by pointing to the Ambience Report, which he said painted a dark picture of the financial position of RSS in April 2016.
16. There was evidence of a number of offers both pre and post appropriation, perhaps more aptly described as expressions of interest, which Advocate Christie argued indicated an equity of US$60 million upwards. Mr Balac expressed the view in his meeting with the Joint Liquidators on 16th November, 2017 that RSS was worth US$80 million. The Joint Liquidators did not volunteer to Mr Balac at that meeting that RSS had in fact been appropriated for US$25.5 million, and Mr Balac says that he and the other Representors only became aware of this and of the Aeon Report as late as January 2019. The Representors appear not to have appreciated that ASGH was entitled to any surplus in the value of RSS over US$40 million, and to think that the position was akin to foreclosure.
17. However, we are concerned with the Aeon Report and the position as at the date of appropriation, and the key evidence in this respect is that of the experts to which we now turn in summary.
18. In the Aeon Report, Deloitte had considered three approaches to their valuation, namely the Market Approach, the Net Asset Approach and the Income Approach. Of these, Mr Taylor said that the Market Approach and the Income Approach were relevant, but there were errors and unsound assumptions made by Deloitte that resulted in a significant understatement of the value of the RSS shares. Taking first the Market Approach, he gave this summary at paragraphs 98 and 99:-
"98 In summary, Deloitte has inappropriately reduced the RSS valuation several times, double or even triple counting risk and artificially depressing the value of RSS under the Market Approach. First, they have artificially reduced the EV/EBITDA multiple. Second, they have applied this discounted multiple to the 2015 depressed EBITDA. Finally, they have applied a 30% discount for lack of marketability. The significant impact of these overly pessimistic assumptions can be seen when Deloitte's Market Approach valuation is compared to a more traditional implementation of the Market Approach.
99 Assuming, for the sake of argument, that Deloitte's preferred comparable publicly traded company (Aggreko) is in fact a reasonable starting point, then, in my view, it would be more appropriate to consider Aggreko's FY2016 EV/EBITDA multiple and apply it to RSS's FY2016 EBITDA. This results in an enterprise value for RSS of US$86 million. Deloitte's implementation of the three discounts combined implied that the FMV of RSS is therefore 60% lower than if a traditional Market Approach is implemented without these downward adjustments."
19. In terms of the Income Approach, which Deloitte had ultimately discarded, their valuation too was, he said, "severely flawed" and when appropriately updated, would increase the value of the RSS shares from a range of US$30 million - 33 million, as per Deloitte's, to a range of US$73 - 84 million.
20. Deloitte, he said, had not considered offers for the businesses of RSS, and had then applied a discount for lack of marketability of 30%, which was not justified. He concluded that the valuation conducted by Deloitte was fundamentally flawed and materially understated the fair market value of RSS. Based on the evidence available to him, he believed it was likely that the fair market value of RSS comfortably exceeded US$40 million as of 26th July 2016.
21. Mr Thornton also had criticisms of the Aeon Report which he sets out at paragraph 1.8 of his report, but whilst Deloitte had made assumptions that could be criticised and which led to a conservative view of value, in his view these were not so obvious and egregious that the report could not be relied on by the Joint Liquidators. Whilst some of the assumptions could have been better supported and explained, Deloitte had used generally accepted valuation methodology, and applied each methodology appropriately.
22. In Mr Thornton's opinion, Mr Taylor's view on the value of RSS was optimistic and failed to account for the risks and uncertainties surrounding the RSS business at the date of enforcement. He had "selected assumptions which increased the value mechanically generated from a valuation calculation but fails to address qualitative judgmental factors that are crucial in evaluating the value of a business that was not in a strong financial position, albeit with a turnaround plan in place." (paragraph 1.9).
23. Whilst he agreed that the Net Asset Approach was inappropriate, of the two other approaches he would expect more reliance to have been placed on the Income Approach rather than the Market Approach.
24. He had not been instructed to carry out a formal valuation, but he provided the Court with an illustrative range of values based on the work he had done reviewing the Aeon Report, which gave a value of US$37 - 42 million under the Income Approach, US$28.5 million to 33.7 million under the Market Approach and US$29 - 36.1 million under the Net Assets Approach. With regard to the overall range thus illustrated of US$28.5 - 42.0 million, he estimated the value of RSS to be around US$35 million or within a narrower range of US$32.5 - 37.5 million, and therefore less than US$40 million. In his opinion, it was not likely that the value of assets of RSS was greater than US$40 million at the date of appropriation.
25. Mr Taylor filed a second report, having had an opportunity to review the underlying business plan, referred to the Aeon Report, and Mr Thornton's report, and he said there was no change in his conclusions. It also appeared to him that Mr Thornton (and Deloitte) had conflated the financial position of RSS (which had little debt) with ASGH. In his view, it was inappropriate to consider the impact of the CarVal loan on ASGH in establishing the value of RSS.
26. The experts met and prepared a joint statement. They agreed upon a number of matters, in particular:-
(i) That the Aeon Report did not place the expected level of weight on the Income Approach to valuation.
(ii) That the Net Asset Approach was not an appropriate methodology to value RSS.
(iii) That Deloitte's use of the financial year 2015 EBITDA (Earnings before Interest Tax Depreciation and Amortisation) was less preferable than using the financial year 2016, when applying a comparable listed company method, because it did not reflect the future expectations of earnings.
(iv) Deloitte's projection of RSS cashflows may have been understated.
27. However, they remained in disagreement over the substantive issues between them, issues which the Court was not able to definitively resolve as they did not give evidence. What the Court was able to do was to reach a conclusion, as it did, that on the basis of their reports there was a realistic prospect of a surplus value being achieved, and this because:-
(i) Both experts were critical of the Aeon Report.
(ii) Despite Mr Thornton's view that the errors in the Aeon Report were not sufficiently obvious or egregious for it not to be relied upon, he had given an illustrative value of RSS some US$10 million above that of Deloitte, a very substantial increase.
(iii) Using the Income Approach, which Mr Thornton said should be preferred, he had valued RSS at a range (US$37 - 42 million) which at its upper end exceeded the debt due to CarVal.
(iv) Mr Taylor had taken the firm view that the fair market value of RSS "comfortably exceeded" the debt due to CarVal.
28. Advocate Christie also argued that the treatment of a certain debt known as the "Speedy debt" in the Aeon Report had artificially depressed the market value by US$5.1 million, which would take the mid-point of Mr Thornton's range under the Income Approach (US$40 million) to US$45 million, in itself a clear surplus. This was not accepted by Advocate Speck, and we were not in a position to determine whether it had been improperly dealt with within the Aeon Report.
29. The Joint Liquidators challenged the locus standi of the Representors to apply for the removal of the Joint Liquidators or the appointment of additional liquidators, although the argument was not pursued with any great vigour on the part of Advocate Speck.
30. This is a creditors' winding up and it is the case that the Representors have no locus to bring an application under Article 186A of the Companies Law, which is in these terms:-
"186A References to the Court
(1) The following persons, namely -
(a) the company, in a summary winding up;
(b) the liquidator or a contributory or creditor of the company, in a creditors' winding up.
may apply to the court for the determination of a question arising in the winding up, or for the court to exercise any of its powers in relation to the winding up."
31. A "contributory" is defined under Article 1 as a person liable to contribute to the assets of a company, pursuant to Article 192, which provides that where a company is wound up, each present and past member is liable to contribute to the assets to an amount sufficient for payment of the company's liabilities but not exceeding any amount unpaid on any limited shares in respect of which he or she is liable. The shares owned by the Representors are fully paid. They are not liable to contribute to the assets of ASGH and are not therefore contributories.
32. However, the power of the Court to appoint and remove liquidators is contained in Article 175, which is in these terms:-
"175 Appointment or removal of liquidator by the court
(1) The court may appoint a liquidator if for any reason there is no liquidator acting in a creditors' winding up.
(2) The court may, on reason being given, remove a liquidator in a creditors' winding up and may appoint another."
There is no restriction under Article 175 as to who may apply for an order appointing or removing liquidators in a creditors' winding up.
33. In the case of Deloitte & Touche A.G. v Johnson and Another [1999] 1 WLR 1605, a debtor of a Cayman Islands company in voluntary liquidation (and a defendant in an action brought by its liquidators) applied for the liquidators to be removed on the grounds that they had a conflict of interest. Giving the judgment of the Privy Council, Lord Millett said at page 1611 that two different kinds of cases must be distinguished when considering the question of a party's standing to make an application to the court:-
"The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will only act on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction."
34. The statutory provision in that case, as with Article 175 of the Companies Law, did not limit the category of persons who may make the application, and the debtor in that case, as with the Representors in this case, did not lack the qualification to invoke the power of the Court. However, as Lord Millett said, being qualified does not conclude the question, as the applicant must show that he is a proper person to make the application:-
"This does not mean, as the plaintiff submits that he 'has an interest in making the application or may be affected by its outcome.' It means that he has a legitimate interest in the relief sought." (his emphasis)
35. Where a company is balance sheet insolvent, the only persons who have any legitimate interest of their own in having liquidators removed from office are the persons entitled to participate in the ultimate distribution of the company's assets, that is, ordinarily, the creditors. The debtor in Deloitte & Touche A.G. v Johnson and Another was described by Lord Millett as not merely a stranger to the liquidation, but having an interest adverse to it and the interests of the creditors. He therefore had no legitimate interest in the identity of the liquidators and was not a proper person to invoke the statutory jurisdiction of the Court to remove the incumbent office-holders.
36. The position here is different. ASGH has one substantial creditor, namely CarVal. However, if the claim against CarVal is good and a surplus is achieved, ASGH would become balance sheet solvent. CarVal would cease to be a creditor and the Representors would be the only persons with an interest in the winding-up. Put another way, ASGH is arguably balance sheet solvent, which gives the shareholders a legitimate interest in the outcome (see In the representation of Sienna SARL [2015] JRC 260 at paragraph 19 and see also Re Corbenstoke Limited (No 2) [1898] 5BCC 765). Where, as here, it is claimed that a company in a creditors' winding-up is balance sheet solvent, then the shareholders do have a legitimate interest in making an application under Article 175 of the Companies Law.
37. Even if the Court found that there was a realistic prospect of a surplus, Advocate Speck challenged the bona fides of the Representors. He said they had known about the appropriation since July 2016, and had done nothing to challenge it, despite having all the knowledge necessary to bring a claim. It was only the bringing of the dividend claim against them that triggered their representation, the real purpose of which was to frustrate the dividend claim. He pointed to the costs that had been incurred in the liquidation since 2016, the amount of which he said should at least be paid into Court, as the necessary price for the Representors to pay.
38. Advocate Christie denied that the representation was a tactic to frustrate the dividend claim and pointed out that it would be a very costly way of doing so, and one which may ultimately achieve nothing. As to the costs of the liquidation to date, that would form part of the claim against CarVal. Whilst the Representors may have known about the appropriation, he said they were not aware of the Aeon Report and the valuation upon which that had taken place. We note in this respect that on the 10th August, 2016, the administrators of ASGH asked Mr Belonogoff whether the statement of account (under Article 48) and Aeon Report should be provided to the shareholders and he responded saying they should only go to ASGH. For them to go the shareholders, he said, would require the permission of the Principal Security Agent and Deloitte.
39. We had no grounds to find that the Representors were not acting in good faith. If there was a claim against CarVal which had a real prospect of achieving a surplus, then that was an asset of ASGH and the question was who should investigate and, if appropriate, pursue it. In the view of the Court, the Joint Liquidators were not the persons to do so. This was for two reasons:-
(i) They were being funded by CarVal.
(ii) They had reconsidered the Aeon Report in the light of subsequent events and the expert reports and remained satisfied that the Aeon Report contained no evident flaws which warranted any change of approach by them. They had therefore set their face firmly against the claim against CarVal, and, having done so, it would be inappropriate to expect them to pursue it now. Advocate Speck did not argue that it was appropriate for them to do so.
40. The position faced by the Court was that on the one hand CarVal was pursuing through ASGH a claim against the Representors and on the other hand the Representors wished to pursue through ASGH a claim against CarVal. These claims were being made through an entity which had no assets other than those claims.
41. This problem arose in the case of In the matter of Angel Group Limited [2015] EWHC 3624 Ch, where the administrators, at the behest of the sole secured creditor and majority unsecured creditor wished to investigate claims against the shareholder and the shareholder wished to investigate claims against the creditor. It was agreed in that case that the best thing would be for the companies to move into liquidation and for four new liquidators to be appointed, two nominated by the creditor and two nominated by the shareholder, to pursue the respective claims. A memorandum of understanding was approved by the Court, under which:-
(i) There was a delineation of responsibilities and powers between the two sets of liquidators, with the liquidators nominated by the creditor having sole and exclusive conduct of all matters in the liquidation except for the claim against the creditor, of which the liquidators nominated by the shareholder would have exclusive conduct.
(ii) There were provisions that each team was not to be liable for expenses incurred by the other team if one side issues proceedings.
(iii) There were provisions about access to documents and a procedure to resolve disputes about access.
(iv) There were provisions about remuneration, particularly that neither side would have recourse to the funding of the over.
(v) There would be liberty to apply to the Court.
42. This seemed to the Court to be the appropriate way forward in this case. It would not be appropriate for the Joint Liquidators to be removed from office and new liquidators appointed, nominated and funded by the Representors, who would have conduct of the dividend claim against the Representors. Accordingly, the Joint Liquidators should remain in office with responsibility for the liquidation generally and in particular for the dividend claim. It was agreed that the dividend claim should be stayed, at least for the time being, in that it would become otiose if the CarVal claim succeeded. Additional liquidators would be appointed to deal exclusively with the claim against CarVal.
43. It was not in dispute that the Court had the power under Article 175 to appoint more than one liquidator and to demarcate responsibilities between them, as made clear in Article 170(5):-
"170 Powers and duties of liquidator
(5) The appointment or nomination of more than one person as liquidator shall declare whether any act to be done is to be done by all or any one or more of them, and in default, any such act may be done by 2 or more of them."
44. Mr Adrian Rabet and Mr Darren Reeds of CVR Global, nominated by the Representors, were prepared to act as liquidators responsible for the claim against CarVal. We will refer to them as the "Additional Liquidators". They would investigate and, if appropriate, pursue the claim against CarVal, for which litigation funding and cover against adverse costs orders would have to be in place. In the light of the issue of prescription they would have to act expeditiously.
45. Advocate Christie informed the Court that the Representors had been in negotiation with a number of litigation funders and provided a letter from Balance Legal Capital LLP dated 1st October, 2019, stating that it was interested in providing litigation funding, subject to due diligence and agreeing funding terms.
46. Detailed directions were drafted by counsel, and, to the extent not agreed, finalised by the Court, which provided, inter alia, that:-
(i) The Joint Liquidators would have sole and exclusive conduct of all matters in the liquidation except for the conduct of the CarVal claim (as therein defined). The Additional Liquidators would have exclusive conduct of all matters in relation to the CarVal claim (as therein defined) and in relation to that claim, would have the power to:-
(a) Instruct legal advisers and other service providers in the name of ASGH.
(b) Raise funding in the name of ASGH, whether from persons connected to ASGH or from litigation funders.
(c) Within the scope of their authority to exercise all powers accorded to liquidators under Part 21 Chapter 4 of the Companies Law.
(d) To settle claims in the name of ASGH.
(e) To take all such other steps as are necessary for and ancillary to the investigation and conduct of the CarVal claim.
(ii) The Additional Liquidators were not permitted to bring any proceedings other than the CarVal claim without further order of the Court.
(iii) Both sets of liquidators will ensure that the contractual arrangements put in place in relation to the conduct of the liquidation, including with lawyers and other service providers acting for or providing services to ASGH comply with the following:-
(a) ASGH shall not be liable for the remuneration of the liquidators, except by recourse to assets of ASGH realised by their own conduct in the liquidation in relation to the matters reserved to them or by way of funding raised by those liquidators from third party sources.
(b) ASGH shall not be liable for the expenses of the liquidators or the expenses of ASGH incurred by the liquidators including, but not limited to, legal expenses, disbursements and after event insurance ("ATE") premiums, except by recourse to assets of ASGH realised by the conduct of the liquidation by those liquidators in relation to matters reserved to them or by way of funding raised by those liquidators from third party sources.
(c) Each set of the liquidators shall not be jointly and severally liable for the other liquidators' costs and expenses in relation to the matters reserved to them.
(iv) Each set of liquidators shall not have recourse for their remuneration, expenses incurred by them on behalf of ASGH or for any other purpose to funding obtained by the other set of liquidators or to assets of ASGH realised by the conduct of the liquidation by the other set of liquidators in relation to the matters reserved to the other set of liquidators.
(v) In advance of initiating the CarVal proceedings, the Additional Liquidators shall confirm in writing to the Joint Liquidators that the appropriate ATE in the sum of not less than £1 million is in place, in order to cover ASGH's risk of adverse costs. The Joint Liquidators would have a right to dispute whether or not that is an appropriate level of ATE.
There were also detailed provisions in relation to access to documents and for the resolving of disputes which were to be determined by the Court.
47. The Court required the liquidators to come back to the Court in 6 months' time so that the matter can be reviewed.
Authorities
Security Interests (Jersey) Law 2012.
Companies (Jersey) Law 1991.
Deloitte & Touche A.G. v Johnson and Another [1999] 1 WLR 1605
In the representation of Sienna SARL [2015] JRC 260
Re Corbenstoke Limited (No 2) [1898] 5BCC 765).