Scottish Court of Session Decisions

Simmers & Ors, Re Petition for an order [2003] ScotCS 137 (4 April 2003)

OUTER HOUSE, COURT OF SESSION
P353/03	OPINION OF LORD McCLUSKEY in the Petition of ARTHUR SIMMERS AND OTHERS Petitioners; For An order under Section 461 of the Companies Act 1985 in respect of the Scotpigs Limited ________________

Petitioners: Davidson, Q.C.; Maclay Murray & Spens

Respondents: Haddow, Q.C.; Brodies, W.S.

25 April 2003

1. This matter was last before me on 10 and 11 April 2003. At the conclusion of the proceedings on the motion roll on that occasion, I wrote a Note explaining the position as I saw it at that time in the light of the submissions made to me and the material presented to me. As will be seen from that Note, it was my hope that by the appointment of a receiver, the basic issue that lies at the heart of the case would be resolved. However, it is now plain that those who might seek to appoint a receiver do not intend to do so and the matter has come back before me for a resolution of the issues which were discussed the last time. However, in the meantime, the petitioners have prepared a minute of amendment and they make certain averments there which I must have regard to. Apart from the matters of fact which are referred to there, or at least averment of fact, the most important feature of the minute is that the petitioners have now come up with a new proposal. This is that Donald Repper, to whom I shall refer later, be appointed ad interim as director of Scotpigs Limited for a period of two months for the purpose of enabling completion of the missives of the sale of Ormiston Farm to M. Bruce and Partners Ltd by Scotpigs Ltd. There is another alternative which is contained in paragraph 4.
2. Mr Davidson in presenting his submissions today, drew the Court's attention to three productions Nos. 121, 122 and 123. The first of these is a letter written on behalf of Lloyds Bank. That explains their intention not to appoint a receiver. A similar letter from Cheale Meats Limited is No. 122 and that explains why that company does not seek to appoint a receiver at the present time. There is a document attached to that addressed "to whom it may concern", which sets forth certain views in relation to the possible future of the company Scotpigs Ltd. Mr Davidson submitted today that the appointment of a provisional liquidator would not be legally sound. Albeit the provisional liquidator would be independent, his appointment itself would not be a neutral event because it would effectively result in the ending of the company. He explained that the petitioners saw no sound basis for the appointment of a judicial factor because what was required in the case of this particular company, was not the management of inert assets, but the day-to-day hands on management of a business involving livestock.
3. In response to certain observations which appear in the Note that I wrote on 11 April 2003, Mr Davidson submitted that the Court has undoubtedly power to make interim decisions and interim orders at this stage. That was the basis upon which he proposed that the orders in the original petition should be made or at least one of those alternative set forth in the minute of amendment. In particular, he explained that the invitation to the Court to appoint Donald Repper ad interim as director of Scotpigs Limited for a short period to allow the sale to proceed was a response to the clear wish of the Court to have an independent person brought in to advance the interests of the company in the situation which had arisen. The whole circumstances of Mr Repper so far as relevant to the present matter could be found in the affidavit No. 87 of process, to which reference was made in the previous Note. He explained the basis upon which he submitted that Mr Repper could be regarded as an effective independent person to carry on the company, at least to the extent of effecting the sale. He also put forward other alternative courses of action to which I need not refer at the present time. In particular, however, he submitted that the competency of the Court to make an interim order in a petition of the kind brought by his clients was clear from Ferguson v Maclennan Salmon Co Ltd, 1990 SLT 658, and he made a number of references to the opinions in the Court in that case, demonstrating that it was competent to make an order ad interim. He accepted that, in that particular case, a substantial fact was indeed agreed between the parties and accepted that the Court would need to find a satisfactory basis before it would exercise his interim powers. Nonetheless he maintained that such a basis did exist and that, in any event, the competency of the Court's making an interim order was not in doubt. In response to certain remarks that I made in the Note of 11 April, he maintained that there was what might be described as a prima facie case for the making of an interim order. As he put it, there was "firm ground" in a number of respects and he detailed what they were.
4. These assertions by Mr Davidson included certain attacks upon the behaviour in the past, and indeed at the present time, of the respondent, but I have no proper basis for making a judgment about the validity of these attacks and I do not intend to attempt to do so. Mr Davidson also reminded the Court of the benefits that would appear to be likely to flow from the sale of Ormiston Farm; but I think that these are substantially those that are referred to in the previous Note. In any event, I shall return to this matter a little later. In relation to the petition for the appointment of an interim liquidator brought by Mr Innes, Mr Davidson renewed his submission that Mr Innes did not come to the Court with clean hands and therefore could not seek a remedy that was adjust and equitable remedy and again I was referred to a number of authorities in support of that position. However, I can deal with that matter shortly, really upon the same basis as I dealt with an earlier point, namely that I cannot conclude at this moment that Mr Innes does not come to the Court with clean hands. That is simply not a matter upon which I can make a judgment.
5. Mr Haddow renewed his opposition to the original motion and indeed to the alternatives, including the suggested appointment of Mr Repper for the period of two months, or indeed for any period. He did not object to the receipt of the minute of amendment but asked the Court to allow 28 days to lodge answers. He explained that he had first got sight of the minute of amendment this morning at 9.55 am. It was only within the last day or two that he had learned of the attitude of Lloyds Bank and Cheale Meats Limited. In so far as one important fact in paragraph 2 of the minute of amendment is concerned, namely the possible loss of the benefit of the a European union payment scheme if the company went into liquidation, he had no knowledge of this whatsoever and had had no previous intimation of it. In these circumstances he submitted that it was fair and proper to allow time for that minute to be answered. In the meantime, he invited the Court not to grant the petitioners' motion under the Companies Act. He again reminded the Court that the Court should be very careful of proceeding upon ex parte statements or even upon documents which were not entirely clear and accepted on both sides. He accepted that there was total deadlock in this case. Indeed I can say at this stage myself that it is plain from the proceedings before me that there is total deadlock and both parties of course accept that. He did not depart from his previous position that the sale of Ormiston Farm would have certain advantages. These advantages would accrue to the company and to its creditors. However, his client's position still was that the prospect of what might happen to the proceeds of the sale that was a matter of considerable substance and of great importance. The Court could not allow the sale of the farm to proceed with the result that the proceeds might be disposed of by the petitioners, whose management practises and history had been called into question by the respondent. He was also seriously concerned with the fact that the company was running at a loss and that to do anything other than to put the company into provisional liquidation would result in the company's continued running at a loss. He reminded the Court that the company had very substantial creditors and he submitted that the petitioners were effectively in denial of the true position as to the financial future of the company. The bank's position could be explained by the fact that its debts were well secured. They were not, at least in the most recent letter, taking any position in relation to the continued existence of the company.
6. While his client had nothing at all against Mr Repper personally, he had to be seen as an employee of the company and in that sense could hardly be said to be independent in the way that a judicial factor or a provisional liquidator could be said to be. He made certain submissions in relation to the suggestion that his client did not come into Court with clean hands; but I need not deal with these for the reasons already explained. He accepted that in certain circumstances it would be competent for the Court to make an order ad interim in a petition under Part 17 of the Companies Act 1985 but those conditions did not obtain here. There were cases that illustrated that the Court would step in to preserve the status quo. In the present case, however, the status quo was that the company possessed Ormiston Farm and was not actually selling it. The appointment of a provisional liquidator would not inevitably cause the company to be finally wound up. It would provide an independent person who was not a party to the squabble that was evident between the shareholders in the present case. He made certain submissions in relation to the possibility suggested by Mr Davidson about the buy-out of shares but I need not deal with that matter for reasons that will appear shortly.
7. The first matter I have to determine is whether or not it is competent for me to make an order ad interim in the petition under Part 17 of the Act. I am satisfied on the basis on the authorities placed before me and principally the case of Ferguson v Maclennan Salmon Co Ltd, supra that it is competent for the Court to make an interim order. The real question is whether or not the circumstances warrant the making of such an order. The powers conferred by Section 461(2) are indeed very wide. The first matter the Court has to address is whether or not it can be satisfied that a petition under Section 459 is well-founded. I approach this case upon this basis: if at the interim stage, before there has been any enquiry into or resolution of the facts, the parties are agreed about nothing, it would be almost impossible for the Court to be "satisfied" about anything. On the other hand, if the parties appear before the Court and are agreed about everything, it is not entirely easy to see what the Court would have to decide or do. We are in neither situation. Here we have a situation in which there is a measure of agreement and a substantial measure of disagreement.
8. I summarise. The parties are agreed, and it is clear that the Court can be satisfied, that there is deadlock here. The parties are agreed that the sale of Ormiston Farm would have material and obvious benefits for a number of interests, including in my judgment, the shareholders, the employees and certainly at least some, if not all, of the creditors. It is also clear that no one proposes that there should be a judicial factor appointed. It is also clear that there is no reasonable likelihood of a receiver taking control of the affairs of the company. It is also clear that the company is in financial difficulties but that the sale of Ormiston Farm might mitigate those difficulties at least in the short term. That, of course, would depend upon ensuring that the net proceeds of the sale were properly applied. I am also, I believe, entitled to have regard to the material place before the Court, indicating the attitude of Lloyds TSB Bank Plc and Cheale Meats Limited. I refer for their terms to the letters Nos. 121, 122 and 123 of process. I also have been reminded by Mr Davidson of the terms of No. 89 of process. That is a letter from Mr A Butterworth, Regional Head of Business Support on behalf of the bank, dated 3 April 2003. It states among other things that he is aware that the company has been trading at a loss for many months and that extended credit has been taken from a number of parties including the bank. He notes that Mr Arthur Simmers had proposed to sell the company property at Ormiston, repay the first mortgage to the mortgagee, which is not the bank, and from the remaining net sale proceeds which he expected to be close to a £1,000,000, satisfy at least in part the pressing creditors. The letter concludes:

"That said, it does seem to be a sensible course of action to raise funding through the sale of a surplus asset and to use those funds to satisfy pressing creditors and thereby, hopefully, secure the longer term future for the business. In my opinion, without the sale of the property and use of the funds as outlined, the future viability of the business has to be questioned."

It is also a matter of which I believe the Court can be satisfied to note that liquidation of a company would be more likely than not to jeopardise the interests at least in the shorter term of the employees.

9. Returning to Section 459(1), the Court has to consider whether or not it is satisfied that:

"The company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally, or some part of its members ... or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

It appears to me that the failure, for whatever reason, to sell Ormiston Farm for what appears to be agreed to be a good price to a willing buyer, with a view to reducing the outstanding claims of the many creditors, would be properly described as an omission of the company, that could be said to unfairly prejudicial to the interests of the members generally or some part of the members.

10. Against this background, I have to consider whether in the exercise of my discretion at this stage, it would be appropriate to adopt one of the courses proposed by the petitioners. My reading of the present situation is that the real and perhaps entirely proper concern of the respondent Mr Innes is to ensure that the proceeds of the sale are not dispersed in a way which is prejudicial to the interests of the company, the creditors and of course the shareholders. It is possible then to secure that the farm is indeed sold to the proposed buyer, while the legitimate interests with which Mr Innes is concerned, are protected?
11. In my opinion, it is possible to do exactly that. It appears to me that the solution now proposed in the minute of amendment, to appoint Mr Donald Repper as a director of the board for a limited period in order to effect the sale of Ormiston Farm, is one which is best judged to be in the interests of all whose interests the Court must consult. I refer to No. 87 of process which explains the background of Mr Repper. He is not a shareholder. His personal interest must be, I would judge, to make the company prosper and, if possible, survive. There is nothing said against his competence or his personal standing. If he is appointed to the board and if he, with the consent of one or both of the other directors, decides to effect the sale that is proposed, then, of course, a question will arise as to the disposal of the proceeds. There is nothing before me to indicate that Mr Repper, who will hold the whiphand in this situation, would distribute the proceeds in a way that would be prejudicial to the proper interests of those involved with the company, either as creditors or members or employees. He will no doubt seek to act with the consent and advice of his fellow directors. If he were to seek to act in some way in relation to the sale or the disposal of the proceeds that was likely to be prejudicial to the interests of the shareholders, then the shareholders who apprehended that the interests would be so prejudiced, would be able to come back to Court and present a petition under Sections 459 and 461 to challenge what was proposed to be done. I note in this context that the petitioners or the company produced a schedule of creditors who were to be paid in the event of the successful sale yielding the expected proceeds. No challenge has been brought to my attention in relation to that schedule and that is a factor which I take into account. In all the circumstances I shall grant the prayer of the petition as amended in respect of Donald Repper. I shall make no other order in that petition at this stage in relation to the other petition which is at the instance of James Gregor Innes for an order to wind up the company in terms of Section 122 and 124 of the Insolvency Act 1986 I shall simply make no order in hoc statu other than to allow due intimation. I shall ascertain from Mr Haddow in relation to the minute of amendment, which I propose to allow, whether or not he seeks a period for answers in the light of the decision which has been taken.

Expenses

12. It appears to me that there has been a fair amount divided success here, albeit the petitioners have ultimately succeeded on obtaining the order that they sought in the minute of amendment which was produced this morning, at a time when, as Mr Haddow correctly pointed out, today's expenses had already been incurred. In the whole circumstances, it appears to me that the proper course is this. In relation to the proceedings on 10 and 11 April, I will require each party to pay their own expenses. In relation to today's proceedings, I would have been inclined to grant the petitioners their expenses because of their success, but, having regard to the lateness of the appearance of this suggestion which the Court has ultimately accepted, I think the better course is to allow the expenses of today to be expenses in the cause.
13. The orders in relation to intimation and adjustments in the pleadings are those set forth in the interlocutor.