British American Racing (Holdings) Ltd, Re Insolvency Act 1986

This case concerns an application for an administration order in respect of British American Racing (Holdings) Limited (“the Company”), pursuant to paragraph 12 of schedule B1 to the Insolvency Act 1986 made by the Companies’ principal creditor BAT (Westminster House) Ltd (“BAT”). BAT is a company in the British American Tobacco Group which, as a result of events which I will describe, has become the 89% shareholder in the Company. The Company is the parent of British American Racing GP Limited (“the Subsidiary”). The Subsidiary carries on business as a manager of a Formula 1 motor racing team participating in the Formula1championship. One of the principal sources of income for the Subsidiary is sponsorship by those seeking to advertise their businesses and products by, amongst other things, placing advertisements on the Subsidiary’s racing cars. The Subsidiary’s principal sponsor is British American Tobacco PLC. As a result of recent legislation all tobacco advertising, including advertisements on racing cars must cease in April 2006.

The remaining 11% of the Company’s shares on issue are held by three minority shareholders of which one, Mount Eagle Inc (“Mount Eagle”) holds 7 % of those shares. Mount Eagle is controlled by two shareholders Mr John Pollock and Mr Gerald Forsythe both of whom are closely involved in the motor racing business in which they have substantial interests. Mount Eagle opposes the application. Both Mr Pollock and Mr Forsythe are directors of the Company. Between late 1998 and December 2001 Mr Pollock was the team principal of the British American Racing team by which the Subsidiary carried on business.

Early in the hearing I indicated my intention to deal first with the question of whether an Administration Order should be made, and, in the event of my conclusion that an order should be made, then to receive further submissions on the form of the order which should follow. In the result I decided that an Administration Order should be made and appointed joint Administrators. I reserved the giving of reasons for arriving at this conclusion. These are those reasons.

The Company has no business of its own and its only substantial asset is its holding of the whole of the issued share capital of the Subsidiary.

The Company was established pursuant to a joint venture agreement (“the JVA”) made on the 15^th October 1997 between BAT, Reynard Formula 1 Ltd (another of the Company’s minority shareholders), Mount Eagle, the Company and various other investors. Initially BAT held 50% of the Company’s issued shares the remainder being held by other investors of whom the largest, Mount Eagle, held 35%. The purpose of the Company’s promotion was to promote a formula 1 racing team intended to provide an outlet for advertising to commercial interests, primarily British American Tobacco who would be entitled, upon payment of fees to advertise on the Subsidiary’s racing cars.

The Subsidiary has always made losses. Those losses amounted to US$261m as at the 31^st December 2002 as shown by its last set of audited accounts to that date and US$314m as at the 31^st December 2003 as shown by its draft approved but un-audited accounts to that date. Those losses have continued through the current year. However the racing results of the Subsidiary in the 2004 season have markedly improved and it is currently regarded as having one of the leading teams. The Subsidiary’s losses have been financed by advances made by BAT to the Company primarily through the issue by the Company of convertible and un-convertible loan stock the proceeds of which have been lent on by the Company to the Subsidiary.

The business of the Subsidiary is governed by the JVA and six supplemental agreements made under it. At clause 5 of the JVA the nature of the business to be pursued is defined and at 5.1.3 it is provided that:-

“5.1.3

Each of the Shareholders undertakes to each of the other Shareholders to use all reasonable endeavours to promote the business of the Company and of Subco [the Subsidiary] in connection with the business.”

Clause 5.3 of the JVA contains undertakings by each of the joint venturerers with regard to the conduct of the business in particular at clause 5.3.1.(B) an undertaking:-

“(B)

To procure so far as it is able to do so that any director appointed by it shall so act and vote in relation to the affairs of the Company and Subco … to ensure that the Business and all the affairs of the Company and Subco are carried on in a proper manner and bona fide in the best interests of the Company and Subco.”

Clause 8 of the JVA deals with funding for the Company as follows:-

“8.1

Additional funding – shareholders

Subject to sub clause 8.2 it is agreed that, to the extent that further funding for operating expenses or capital expenditure is necessary for the Company or Subco in order to develop or carry on the Business in accordance with the terms and intention of this Agreement such funding shall first be provided by the Shareholders in proportion to the Shares held by such Shareholders and in accordance with the funding schedule set out at schedule 4 to this Agreement first by way of calls of the amounts outstanding in respect of the shares and thereafter as all the Shareholders shall agree whether by way of guarantees, un-secured loans or otherwise.”

Clause 8.2 of the JVA provides for additional funding from third party sources.

Clause 17.4 contains “entire agreement provisions” including at 17.4.2 that:-

“Each party confirms that except as provided in this agreement no party has relied on any representation or warranty or undertaking which is not contained in this agreement….”

The provisions of the first supplemental agreement dated 27^th November 1997 are not relevant to this judgment. By the second supplemental agreement BAT agreed to subscribe for US$45m convertible un-secured loan stock 2004 issued by the Company and repayable on the 30^th September 2004. It contained at clause 5 a “claw back option” which enabled minority shareholders at their option to be able to require the Company to issue to them shares for which they would subscribe so that their holdings would not be diluted in the event that BAT converted any part of that loan stock.

We are not concerned with the third supplemental agreement of 6^th October 1999. By the fourth supplemental agreement of 19^th June 2000 it was provided that the Company would issue further loan stock maturing in 2005 in six tranches of US$9m as to the first five and as to the final tranche US$8m. BAT continued to finance the losses of the Company by subscribing for the Company’s loan stock 2005.

The issue in this case primarily concerns the provisions of the fifth supplemental agreement dated 21^st March 2001. By clause 4 of this agreement the Company’s loan stock 2004 for which BAT had subscribed was converted as to US$31m into un-convertible loan stock 2010 leaving the balance of US$14m outstanding to mature on 30^th September 2004. Clause 4.2 provides that the whole of the US$53m of the Company’s loan stock 2005 was also to be converted into un-convertible loan stock 2010.

By clause 4.4 the minority shareholders including Mount Eagle waived their rights under the “claw back option agreement” and under clause 5 Mount Eagle obtained in substitution “Mount Eagle Incentivisation Options” . By that clause Mount Eagle was granted an option to subscribe for a number of Company’s shares at a price fixed by reference to the provisions of that clause. By clause 5.3:-

“5.3

The Mount Eagle Share Option shall only be exercisable:

Upon the issue of shares to BAT or any permitted assigns pursuant to the conversion of the 2004 loan stock referred to in clause 4.1.1 above…” [being the US$14m of the Company’s loan stock 2004 left un-converted into loan stock 2010 by the provisions of clause 4]

Clause 8 of the agreement contained provisions for “additional funding” as follows:-

“8.1

In the event that the directors of the company determine that the company or any of its subsidiaries requires any additional funding whether for capital or revenue expenditure in order to develop or carry on the business in accordance with terms and intention of the Joint Venture Agreement, to the extent that such additional funding is not available from third party lenders or sponsors or otherwise made available in accordance with clause 7.1 of this deed or clause 8.2 of the Joint Venture Agreement, the Shareholders (or any of them) may elect to provide (but, for the avoidance of doubt, shall have no obligation to provide) all or some of such additional funding…

8.2

Any shareholder electing to provide additional funding in accordance with clause 8.1 above shall be entitled to provide such funding (at its election) either:

Through the subscription, allotment and issue of Shares at par of the same class and carrying the same rights as those held by the Shareholder concerned…; or

Through the subscription of loan stock (“Additional Loan Stock”) on terms equivalent to those set out in appendix 5, which additional loan stock shall be deemed for the purposes of clause 13 of the Joint Venture Agreements and clause 9.4 of this deed and article 9-15 (inclusive) to have been converted into “shares” and references to “shares” in the said clause 13 and 9.4 and references to “ordinary shares”, “sold shares” and “share certificates” in the said articles shall be construed accordingly.”

Appendix 5 sets out the terms and conditions of such loan stock and provides that it will be repayable “on notice by the relevant stock holders at any time on or after 5 years from the date of issue….”

By clause 14 the fifth supplemental agreement is made an “entire agreement” by reference to the provisions of clause 17.4 of the JVA which I have referred to above.

We are not concerned with the provisions of the sixth supplemental agreement. On the 14^th October 2003 BAT wrote to the Company agreeing to provide a further loan of US$5m for the purpose of providing the company’s financing requirements until the 31^st December 2003. In fact the loan had already been drawn down on the 2^nd September. Paragraph 3 of the letter provided for the terms of repayment as follows:-

“3.1

[The Company] shall repay the Loan (together with interest which has accrued thereon) in full or in part immediately on receipt of a notice which may be given at any time from BAT requiring full or part repayment.

BAT may elect (but shall not be required) to apply all or any part of any repayment of the Loan together with accrued interest towards subscription of loan stock of a principle amount equal to the repayments so applied, such issue of loan stock to be made pursuant to the fifth supplemental agreement dated 21^st March 2001 relating to the Joint Venture Agreement…. ”

This loan made on 2^nd September 2003 was approved at a meeting of the board of the Company on 9^th September attended by Mr Pollock and Mr Rivers as alternate for Mr Forsythe. At paragraph 9.2 of the minutes of that meeting the loan is referred to in this way:-

“2003 funding

It was reported that BAT had made a final advance towards the US$35m funding requirement as set out in the BAR 2003 Budget by way of a loan of US$5 on the following terms:

Draw down date 2^nd September 2003

Repayment on notice from BAT at anytime

At BAT’s discretion, all or any part of repayment to be applied towards the subscription of loan stock pursuant to the fifth Supplemental Agreement

Interest at 5% pa

This draw down will fund the Company’s cash flow through to the end of December.

The board authorised any one director to sign the documentation in respect of this loan.”

Those minutes were approved at the subsequent board meeting of the Company on the 11^th November attended by Mr Rivers as alternate for Mr Pollock.

On the 12^th December 2003 BAT converted US$130m of outstanding convertible loan stock of the Company into shares thereby becoming the holder of 89% of the Company’s issued share capital.

On the 24^th September and 2^nd November 2004 BAT made two further loans, repayable upon demand, in the sums of US$5.6m and US$3m respectively. It is apparent from the e-mails passing between BAT and the Company on the subject of these loans that the US$3m was intended as a short term bridging facility and the US$5.6m although it was initially assumed it would be taken as loan stock was submitted for approval by the board of the Company either as a simple loan or to be converted into loan stock. These loans remain outstanding and neither has been converted into loan stock or capitalised.

I will refer to these two loans and the US$5m loan made on the 2^nd September 2003 as the “on demand loans”.

It seems that by the beginning of 2003 BAT was becoming increasingly disillusioned with its formula 1 racing joint venture to the support of which it was having to make continuous substantial advances. By reason of the restrictive provisions of the JVA it was unable, without the consent of the minority shareholders to reorganise the business in accordance with its wishes. An attempt was therefore made to buy out the minority shareholders by offers made to them in letters dated 14^th March 2003. Those offers were rebuffed.

The Company’s racing car engines were supplied by Honda pursuant to an agreement which was up for renewal in early 2003. In April 2003 negotiations commenced between BAT and Honda to renew that arrangement but also to arrive at terms under which a new joint venture between BAT and Honda could take over the business of the existing joint venture. The result of those negotiations was a memorandum of understanding between BAT and Honda signed on 22^nd July 2004 and a joint venture agreement between Honda, BAT the Company and Weston Investment Company Ltd (another Bat Group company party to the agreement as guarantor) signed on the 18^th November 2004 by Mr deCastro on behalf of the BAT Companies. These negotiations in which both Mr deCastro and Mr Brookes were concerned on behalf of BAT were not disclosed to the board of Holdings notwithstanding that they were both directors of that Company.

Having obtained Honda’s signature to the new joint venture agreement, on the same day BAT demanded repayment by the Company of US$27.6m being the amounts of the “on demand loans” and the proceeds of the US$14m loan stock which had matured on the 30^th September. On 19^th November BAT made a further offer to purchase the minority shareholders shareholdings in the Company valuing Mount Eagle’s 7% share holding at US$2.65m. In the letter accompanying the offer the minority shareholders were informed of the joint venture agreement entered into by BAT and Honda for the purpose of acquiring the formula 1 racing business and of the application for an Administration Order over the Company. Mount Eagle again rebuffed BAT’s offer which has, however, been accepted by the other two minority shareholders .

Mr Brookes swore two affidavits in support of the application. In the course of the hearing application was made to cross-examine him to which I acceded. Mr Brookes was pressed to give the date upon which BAT decided to commence these proceedings. It was his evidence that as the Company’s losses and the consequent commitment of BAT as a creditor of the Company mounted, by 2003, BAT was considering all its options for its future participation in the joint venture including the obtaining of a new joint venture partner to replace the minority shareholders with which relations had become strained. BAT considered a number of potential future joint venturerers but decided that Honda, the existing supplier of engines for the Subsidiary’s racing cars seemed much the most attractive.

It was Mr Brookes evidence, supported by the terms of the memorandum of understanding between BAT and Honda, that Honda refused to consider participation in a joint venture including the minority shareholders. It was also his evidence that by mid 2004 BAT had concluded that it was not prepared to continue to fund the joint venture constructed as it then was. The new company proposed by the BAT/Honda joint venture agreement, in which their participation would be 55/45 % respectively, would seek to purchase from the company the Subsidiary’s shares at a price (US$180m approximately) better than that obtainable elsewhere in the market. This would produce a greater realisation for the Company’s creditors and possibly shareholders than would result if a winding up of the Company were brought on by BAT ceasing to fund the continuing losses of the Subsidiary. (The provisions of the JVA preclude BAT, without the consent of the minority shareholders, from initiating a winding up of the Company).

Schedule B1 of the Insolvency Act 1986 so far as relevant provides as follows:-

“Conditions for making order

“11

The court may make an administration order in relation to a company only if satisfied –

(a)

That the company is or is likely to become unable to pay its debts, and

(b)

That the administration order is reasonably likely to achieve the purpose of the administration.

Administration application

12(i) An application to the court for an administration order in respect of a company… may be made only by –

(a)…

(b)…

(c)

One or more creditors of the company…

Purpose of Administration

Mr Kosmin on behalf of Mount Eagle opposes the grant of an administration order on two grounds: The first ground that BAT has no locus standi to petition because, although a substantial creditor of the company for future debts becoming due on the maturing of loan stock, it has no presently enforceable claim against the Company so as to qualify as a creditor within paragraph 12(i)(c) above: The second ground that, in any event, the application for the appointment of an administrator is not made for the proper purposes of such an appointment, but rather, for the purpose of excluding Mount Eagle from participating in the Company and the joint venture and is, in consequence, an abuse of process and ought to be dismissed.

It is clear that, either on a balance sheet basis or on an inability to pay present debts or on the basis that it is “likely to become unable to pay its debts”, the company is insolvent within the meaning of paragraph 11(a) of schedule B1, and the contrary was not seriously contended for by Mr Kosmin. Equally he did not suggest that a sale by an administrator would not be likely to realise more for the creditors and shareholders of the Company than a winding up brought on by the withdrawal of support for the Company by BAT. It was his contention, however, that an administration was unnecessary because there existed an alternative solution, namely, a reorganisation of the Company’s affairs and shareholding by its board of directors, possibly, involving Honda but replacing BAT as a shareholder. He submitted that the prospects for the Company trading profitably during the 2005 motor racing season were favourable and that it should be relatively easy to replace BAT as a sponsor to bring that about.

I will deal with the challenge to BAT’s locus standi to apply first.

It was contended on behalf of Mount Eagle that clause 8 of the fifth supplemental agreement, the material parts of which I have set out above, provided for an agreed method by which additional funding, over and above that provided for in the agreement itself, could be made available to the Company by any of its shareholders, the only admitted methods being those proscribed in sub clause 8.21 and 8.22. These methods were through subscription, allotment and issue of shares in the Company or through the subscription for loan stock “on terms equivalent to those set out in appendix 5” to the agreement. It follows, so it is submitted, that BAT were under a duty to convert the three “on demand” loans into loan stock repayable five years from the data of issue.

I am unable to accept that this is a proper construction of clause 8. In particular, it seems to me, that the use of the word “entitled” in the second line of clause 8.2 can only be construed as showing that the clause gives to the would be lender the right to lend in the manner proscribed in sub clause 8.21 and 8.22 but without excluding other methods. That the parties were themselves construing the provisions of clause 8 in that way and applying such a construction to the first “on demand” loan is borne out by note 15 to the 2003 accounts of the Company which, having shown the loan as an “amount owed to Group undertaking” continues:-

“The amount owed to Group undertaking consists of a loan from BAT (Westminster House Ltd) that is repayable on demand and accrues annual interest of 5%. At the lenders discretion all or any part of the loan can be applied towards the subscription of 2010 convertible loan stock.”

These draft audited accounts were approved by the board of the Company on the 25^th March 2004 with Mr Pollock and Mr Rivers as alternate for Mr Forsythe present (see para 7.2).

It is further submitted in respect of the second and third “on demand” loans that they never received board approval which is indeed the case. Nonetheless the loans were made and the Company has applied them for the purposes of its business. Furthermore I accept Mr Trower’s submission that if a non-exclusive construction of clause 8 is wrong, it is apparent from the e-mails, which are evidence of the terms upon which these two loans were made, that BAT, in making them, was acting under a mistake or misconception in so doing and must have, in consequence, restitutionary rights.

In relation to the “on demand” loans and to the US$14m of 2004 convertible loan stock left outstanding as described in paragraph 14 above it was submitted by Mr Kosmin that BAT was estopped from using a claim for he loans and proceeds of the loan stock as a debt on which to launch an application for an administration order by reason of an understanding between BAT and the minority shareholders arrived at at the time of making of the fifth supplemental agreement that all loans not converted into shares “would be treated as equity rather than debt”. The evidence in support of this contention is contained in paragraph 31 of Mr Pollock’s first affidavit as follows:-

“31

As more funding was required in 2001, the existing loan stock was re-categorised into convertible and non-convertible loan stock. The non-convertible loan stock was not able to be called for repayment for eight/nine years being 2010 loan stock. The understanding was that the convertible loan stock would not be called for repayment but only converted into shares. In addition, to protect the other shareholders against the prospect that further funding might be required and called for repayment, it was specifically agreed in clause 8.2 of the fifth supplemental agreement that any additional funding could only be injected by the shareholders by way of equity or convertible loan stock. The net effect of these arrangements was to ensure that, in the event additional funding was required to supplement operating income and one or more partners decide to provide that funding, the funds are provided as equity or long term debt/quasi equity. The understanding was that, even when loan stock became due for repayment, the loan stock holder would convert it to equity and could not use it to render the Company insolvent, as the applicant is now seeking to do.”

The existence of any such understanding was denied by Mr Brookes. It is, of course, inconsistent with note 15 to the 2003 accounts which I have set out above. It is also inconsistent with note 17 to those accounts which deals with the US$14m convertible loan stock 2004 left outstanding. The material parts of that note reads:-

“At the end of the year the US$14m of 2004 convertible loan stock remained in issue.

The convertible loan stock is repayable, if not previously converted into shares, at par, on notice by the Company or the relevant stockholders at any time on or after the 30^th September 2004. Conversion is at the option of the stockholder at any time on or after the 30^th September 2004 or upon certain other specified events…”

Mr Pollock’s allegation of the existence of an understanding between BAT and the minority shareholders, or certainly, Mount Eagle, does not give any particulars of how it is said that the understanding arose. It is not suggested that any equivalent term is to be implied into the fifth supplemental agreement. The existence of such an understanding outside the agreement is inconsistent with the “entire agreement” provisions at clause 14. No document, in an otherwise well documented case, has been drawn to my attention which points to the existence of such an understanding. In addition neither Mr Pollock’s affidavit nor the submissions of counsel written or oral point to any detriment suffered by Mount Eagle or any of the other minority shareholders as a result of breach of the alleged understanding by BAT thereby founding an estoppel.

In my judgment, on the material before me, I cannot accept that BAT were in any sense estopped from demanding repayment of the amounts of the “on demand” loans and the US$14m 2004 loan stock. It follows that BAT have established their locus standi to apply for an administration order.

Paragraph 34 of the respondents written submissions reads as follows:-

“34

The overall aim of BAT’s application for an administration order is to secure the sale of [the Subsidiary] to a Newco, owned and controlled by BAT and Honda thereby depriving the existing minority shareholders of [the Company] of their legitimate commercial interests in that company. A more serious case of attempted self dealing and expropriation of minority shareholders is hard to imagine. The court should not permit the statutory administration procedure to be the method by which such action is achieved.”

As authority for this submission Mr Kosmin cited two cases. The first was Re Bugle Press Ltd 1961 CH p270. In that case the Court of Appeal were considering a case where two shareholders holding more than 90% of the issued shares of the company with the admitted intention of getting rid of the holder of the remaining shares, had incorporated another company for the purpose of acquiring all the shares of the company. The acquiring company made an offer to purchase the company’s shares at a value thrown up by an accountants valuation of the company’s business. The majority shareholders accepted the offer but it was refused by the minority shareholder. The acquiring company gave notice of intention to exercise the statutory power of compulsory acquisition under section 209 of the Companies Act 1948. that section provided:-

“209(i) Where a scheme or contract involving a transfer of shares or any class of shares in a company (in this section referred to as “the transferor company”) to another company, whether a company within the meaning of this Act or not (in this section referred to as “the transferee company”) has, within four months after the making of the offer in that behalf by the transferee company been approved by the holders of not less than 9/10^ths in value of the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary), the transferee company may at any time within two months after the expiration of the said four months, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares, and when such a notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on which the notice was given the court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company:…”

The minority shareholder applied under the section that the transferee company was neither entitled nor bound to acquire his shares on the terms offered notwithstanding the approval of 9/10^ths of the shareholders. The minority shareholder filed evidence to show that the offer undervalued his shares. The majority shareholders did not file any evidence verifying their valuation. Mr Justice Buckley made the declarations sought and the Court of Appeal upheld his decision. Mr Justice Buckley found that, in circumstances where the assenting 90% majority were unconnected with the offeror the normal burden of proof rested on the dissenting minority to show grounds why the court should “order otherwise”. However that rule did not apply where there was a connection between the assenting majority and the offeror, in particular, where, as in that case, the acquiring company was simply the alter ego of the assenting majority. At page 276 of the report, Mr Justice Buckley, having described a submission that the respondent’s use of section 209 was contrary to the purpose of the section continued:-

“I am bound to say that I see very great force in that argument. Whether, in such a case, if the court were fully satisfied that the price offered to the minority shareholders was a fair price to be offered for their shares, the section ought to be allowed to operate according to its tenor is, I think, a matter which it is unnecessary for me to decide today because, in my view, on the facts of this particular case, at any rate, the onus must rest on Mr Instone’s clients [the majority shareholders] to satisfy the court that the price offered is a fair price. In the ordinary case of an offer under this section, where the 90 % majority who accept the offer are unconnected with the persons who are concerned with making the offer, the court pays the greatest attention to the views of that majority…

This case, however, seems to me to be quite the reverse of that, because here, although as a matter of law the body making the offer must be regarded as distinct from the persons who hold shares in that body, nevertheless as a matter of substance the persons who are putting forward this offer are the majority shareholders…In a case of this kind it seems to me that the onus must clearly be on the other side, and that it must be incumbent on the majority shareholders to satisfy the court that the scheme is one with which the minority shareholder ought reasonably to be compelled to fall in with.”

The judge went on to find that the acquiring company had not discharged that burden. The Master of the Rolls Lord Evershed agreed that the constitution of the acquiring company and its connection with the majority shareholders rendered this a special case where the normal rule as to the burden of proof did not apply. At page 286 he says this:-

“But if the minority shareholder shows, as he shows here, that the offeror and the ninety per cent of the transferor company’s shareholders are the same, then as it seems to me he has prima facie shown that the court ought to order otherwise, since if it should not so do the result would be…that the section has been used not for the purpose of any scheme or contract properly so called or contemplated by the section, but for the quite different purpose of enabling majority shareholders to expropriate or evict the minority…”

Lord Justice Harman was more forthright. At page 288 he says:-

“The minority shareholders advisers waived that objection also, and he having applied to the court under the section had, like any other applicant, to prove his case, that is to say to set up a case which the respondents had to answer. He did that…quite simply by showing that the transferee company was nothing but a little hut built round his two co-shareholders, and that the so-called “scheme” was made by themselves as directors of that company with themselves as shareholders and the whole thing, therefore, is seen to be a hollow sham. It is then for the transferee company to show that nevertheless there is some good reason why the scheme should be allowed to go on. The transferee company, whether because the two members did not wish to go into the witness-box and be cross-examined or for some other reason, did not file any evidence at all; they merely purported to rely on a copy of a valuation said to have been made on their behalf by a firm of chartered accountants. That valuation was not sworn to, nobody has been able to cross-examine the authors of it and there was in my judgment no case in answer. The minority shareholder has nothing to knock down; he has only to shout and the walls of Jericho fall flat. I am surprised that it was thought that so elementary a device would receive the court’s approval.”

The second case relied on by Mr Kosmin was Re a company No 001573 of 1983 1 BCC p 98937. In that case the court was considering the petition of a creditor to wind up a company. The company had leasehold premises which contained a provision for forfeiture of the lease in the event of such a petition. The petitioner had agreed with the company’s landlord that if a petition to wind up the company was presented before a certain date the landlord would terminate the lease and grant a new lease to the petitioner. Mr Justice Harman dismissed the petition as an abuse of process. At page 98940 he says this:-

“The question, therefore, is not “does the petitioner genuinely wish to wind up the company”,…. It would be hard for me to find that this petitioner which has taken all regular steps to prosecute its petition and which plainly has reasons to desire the winding-up of this company, since that must put beyond much cavil the future of the company’s lease, does not in truth desire to wind up the company. In my judgment the true question is “for what purpose does the petitioner wish to wind up this company” A judge has to decide whether the petition is for the benefit of the class of which the petitioner forms a part or is for some purpose of his own. If the latter, then it is not properly brought. If the petitioner can show that he and his class stand together and will benefit or suffer rateably, then his ill motive is nothing to the point. But here it is plain that no such even-handedness exists. If the petition is properly brought, then the petitioner stands to get a valuable asset for itself and the rest of the class of creditors are likely to get nothing. If the petition is not properly brought, so that in Scotland the company’s lease remains un-“irritated” (and I have no certainty that this will be so) then the class of creditors including the petitioner may all have some hope of payment or will at least suffer rateably.

In the present case I have found that BAT has presently enforceable claims against the Company totalling US$27.6m. The Company is prospectively indebted to BAT in respect of loan stock maturing in the future in sums totalling US$145m. BAT holds 89% of the Companies issued shares. BAT’s agreement with Honda provides for the payment in full of all “outside creditors”. The only substantial creditor apart from BAT of the Company is Mr Pollock for the sum of £30,000. Because of the statutory restrictions on tobacco advertising BAT has no interest in remaining a shareholder of the Company in the long term. The Company is substantially insolvent and thus, in my view, BAT is entitled to proceed on the basis that its shares are valueless notwithstanding the recent affidavit of Mr Forsythe. I accept that there is no prospect of BAT continuing its support for the Company under its existing circumstances for longer than the immediate short term and that its only remaining interest in the Company is the realisation of its only asset, the shares in the Subsidiary, at the best possible price primarily for its own benefit but also for the benefit of Mr Pollock and any other unpaid creditor pari passu. I also accept that it is a genuine concern of BAT that so long as the ownership of the Subsidiary, and thus the racing team, remains in its present state of limbo there is a danger that value will leek away by the loss of key staff.

A realisation of the Company’s interest in the Subsidiary needs to happen quickly. A sale by an Administrator will be a much simpler and, subject to what I shall say as to the duration of the Administration, quicker than a sale being arranged by a dividend board of directors. There does not seem to me to be any prospect of BAT receiving any disproportionate benefit from an administration such as found by Harman J in the re a Company case. BAT will only receive, in the administration a dividend the same as any other creditor entitled to prove. BAT’s purpose in launching the administration proceedings is, in my judgment, only to achieve the object set out in paragraph 3(1)(b) of Schedule B1.

The essential distinction between the facts of the present case and the Bugle Press and re a Company cases is the presence of the administrators appointed as a result of an administration order. They are officers of the court with distinct statutorily imposed duties “in the interests of the company’s creditors as a whole”. It does not seem to me that my conclusion should at all be affected by the fact that BAT and Honda have negotiated a further joint venture agreement presaging a company that will be in a position to make a bid for the Subsidiary’s shares to the administrators. They will be bound to take all steps necessary to ensure that any potential bidders for the Subsidiary’s shares are aware that they are on the market and to encourage them to make the highest bid which they can be persuaded to make even though this may overtop the new joint venture’s intended bid. BAT has only committed itself to the support of the Company until the end of December.

I accept that Honda have indicated that they are only prepared to be part of a bid for the Subsidiary’s shares where the bid, if successful, will result in the acquisition of the whole of the issued shares of the Subsidiary. The proposed BAT/Honda bid will provide a minimum price for the Subsidiary’s shares which any other bids will have to match or exceed.

It may be that the administrator will take the view that more time is required for a proper testing of the market for the Subsidiary’s shares beyond the end of December when BAT’s short term funding is planned to end. Further finance for the Company may therefore be necessary. It is for this reason that I directed the administrators to report back to the interested parties within a short time, inter alia to give their views on the time necessary properly to test the market for the Subsidiaries shares and in order to negotiate the further finance necessary to keep the Company in operation for any further period thought necessary. I was told that BAT have not ruled out making further finance available for this purpose and Mr Forsythe has also indicated his willingness to do so .

In my judgment, for these reasons, the making by BAT of this application for an Administration Order was not an abuse of process.