Assetco Plc v Shannon

I have before me an application by AssetCo plc ("the Company") for an interim mandatory injunction against Mr John Shannon, who is its Chief Executive Officer and holds 30% of its issued share capital. The injunction is sought to compel Mr Shannon to vote in favour of an equity placement by the Company in accordance with an alleged promise by Mr Shannon to do so contained in a deed of undertaking purportedly executed by him on 2 March 2011. The placement will provide £16 million of necessary liquidity for the Company and its subsidiaries.

The general meeting of the Company at which Mr Shannon was due to vote in favour of the placement was scheduled to take place at 10.00 am this morning, 21 March 2011. However, after 4.00 pm last Friday, 18 March 2011, Mr Shannon asserted in a letter from his solicitors that the deed of undertaking was not binding and could not be relied upon at the general meeting for the following reasons: the deed had not been signed by Mr Shannon in the presence of a witness who had attested his signature; it was faxed to the Company's solicitors signed but unwitnessed at about 10.30 pm on 2 March 2011; the next day, 3 March 2011, Mr. Shannon's wife signed the deed, purportedly as a witness, and it was then again faxed to the Company's solicitors at about 7.15 am that morning; however, because Mrs Shannon did not witness or attest the signing of the deed by Mr Shannon, it did not constitute a deed in accordance with section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989.

The Company's solicitors responded to Mr Shannon's solicitors' letter at about 9.00 p.m. yesterday, Sunday 20 March 2011. At 11.30 pm Mr Shannon's solicitors sent an email to the Company's solicitors giving notice that Mr Shannon had issued a Part 7 claim form on Friday 18 March 2011 seeking a declaration that the deed of undertaking was not binding. That claim form was served by post and received at about 1.00 pm this afternoon.

As a result of this action by Mr Shannon, the general meeting due to take place this morning was adjourned until 10.00 am tomorrow morning, 22 March 2011 and, says the Company, the effect of his action has been to place the future of the placement and the survival of the Company and its subsidiaries in real jeopardy because, without Mr Shannon's vote, the placement cannot proceed and the essential working capital that it would provide will not be made available to the Company. The only course open to the Company will be for it and some or all of its subsidiaries to be placed in administration or some other kind of insolvency procedure.

The background to the application is set forth in a witness statement of Mr Wightman, the current Chairman of the Claimant, dated 21 March 2011. He explains that the business of the group of companies headed by the Company involves the provision of international fire and rescue services to major customers such as the London Fire and Emergency Planning Authority (“LFEPA”) and the Abu Dhabi Government. However, in 2010 the Company began to suffer cash flow pressures as a result of the acquisition in late 2007 of a number of manufacturing businesses which began to fail; a mismatch between the revenue and debt repayment portfolio on its core LFEPA contract; and a programme to accelerate the repayment of corporate debt.

These matters required the Company to enter into a number of payment plans with HMRC. However, despite verbal assurances to the contrary from HMRC, it seems that winding up petitions were filed by HMRC against the Company and a further six companies within the group on 7, 12 and 17 January 2011. These petitions all came on for their first hearing on 23 February 2011, at which the Company and HMRC reached an agreement for the petitions to be adjourned for 56 days, which the Registrar duly ordered, giving the parties liberty to restore on seven days' notice.

The placement was announced on 3 March 2011 and, as I have said, the timetable anticipates that funds in the sum of £16 million will be received on 22 March 2011 and held by Arden Partners plc, the Company's nominated adviser and broker.

On 15 March 2011, David Richards J ordered the winding up petitions filed by HMRC to be restored and listed to be heard on 23 March 2011 in anticipation of the completion of the placement, and at which hearing the Company and its subsidiaries proposed to apply for the petitions to be dismissed. HMRC has apparently consented to the petitions being dismissed on receipt of the overdue payment of about £3.5 million in respect of which the petitions were issued.

In the meantime, and in order for the Company to continue conducting business, it has made four applications for validation orders for payments to creditors. Mr Shannon has signed witness statements in support of three applications, namely those heard on 24 and 28 February 2011 and 11 March 2011.

In his witness statement Mr Wightman further explains why Mr Shannon needs to consent to the equity placing. He says, and this does not seem to be in dispute, that it is customary in equity capital market transactions for directors and substantial shareholders to provide undertakings to the relevant company confirming their support, and in this instance Arden and the placees would not have been prepared to commit to a placing and the Company would not have been prepared to proceed with a placing unless they had certainty that the shareholders would vote in support of it. He also says that Arden would not have signed the placement agreement without Mr Shannon's irrevocable undertaking, since he owns approximately 30% of the shares in the Company.

Mr Wightman also explains the circumstances surrounding Mr Shannon's signature on the deed of undertaking. His evidence is largely consistent with the position taken by Mr Shannon's solicitors in their letter of 18 March 2011 to which I have referred. Specifically, he says that Mr Shannon signed and returned the deed of undertaking at about 10.00 pm on 2 March 2011, at which point Mr Ian Newman, a partner in the Company's solicitors, noticed that Mr Shannon's signature had not been witnessed, and so sent a text to Mr Shannon at about 11.00 pm asking him to find someone to witness his signature and to re-send the document. Mr Shannon replied virtually immediately in the following terms: "No, Iain, I can't its 11.00 pm I’m the only person in the office and you know it's my signature!". Mr Newman and Mr Shannon agreed that Mr Shannon would provide a signed and witnessed version as early as possible the following morning.

Accordingly, on 3 March 2011, shortly after 7.00 am, Mr Newman sent Mr Shannon a text asking him to send the signed and witnessed deed of undertaking by 7.30 am. Mr Shannon then sent the signed and purportedly witnessed deed, the purported witness being, as I have said, his wife, to the Company's solicitors at approximately 7.29 am. Mr Newman duly acknowledged receipt.

On the basis of the evidence before me, I think it is tolerably clear that from 2 March 2011 to 18 March 2011, Mr Shannon has conducted himself in a manner consistent with the deed of undertaking. Specifically, he signed the placing agreement confirming the truth and accuracy of various statements, including his undertaking to vote in favour of the placement. Second, he has, as I have said, signed witness statements in support of the applications for validation orders. Third, the payments made pursuant to the validation order of 11 March 2011 were funded by a short-term bridging loan from the Bank of Scotland, provided on the basis of the placement funds being available on or around 22March 2011. As a board member, Mr Shannon approved this loan.

Upon this application, Mr Stephen Atherton QC has appeared on behalf of the Company and, recognising the deficiency in the deed of undertaking identified by Mr Shannon's solicitors, submits that the Company is nevertheless entitled to a mandatory injunction compelling Mr Shannon to comply with its terms. In the light of the matters to which I have referred, I am satisfied that the Company has a good arguable case that it is entitled to this relief on the basis that Mr Shannon is now estopped from resiling from his representation that the deed of undertaking is effective, and similarly he is estopped from resiling from his undertaking and promise to vote his shares in favour of the placement. I am also satisfied that the Company has established an arguable case that Mr Shannon and the Company have entered into an agreement under which Mr Shannon promised to vote his shares in favour of the placement, and the Company promised to proceed with and make all necessary arrangements to bring it about, thereby inevitably incurring costs and liabilities.

That brings me to the crucial question, namely whether it is appropriate to grant the mandatory relief sought at this interim hearing and before trial. The principles which must guide me in exercising my discretion were explained by Chadwick J in Nottingham Building Society v. Eurodynamics Systems [1993] FSR 468, 474, in the following passage approved by Phillips LJ (with whom Simon Brown LJ agreed) in Zockoll Group Ltd. v. Mercury Communications Ltd. [1998] FSR 354:

In my judgment, it is necessary to have all of these matters in mind in connection with this application, but particularly that an order which requires a party to take some positive step may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo, in light of the fact that this application has been made on very short notice and Mr Shannon has not had an opportunity to file evidence in response to it.

Mr Shannon has, however, been represented at this hearing by Mr Philip Gillyon, who has informed me of various matters which Mr Shannon would seek to develop in evidence if I accede to his request that the application be adjourned and that I give appropriate directions for the speedy resolution of the whole dispute.

The urgency and need for the grant of relief this evening is elaborated in the statement of Mr Wightman. He explains that if the placing does not proceed and the placement funds are not received by the Company, it will have the following consequences. First, although the Company was granted (at a hearing before me this morning) a validation order to pay certain creditors, it will not be in a position to make any such payments.

Second, the Company will be unable to have the winding up petitions issued by HMRC against it and its subsidiaries removed.

Third, the waivers of various defaults under the facilities received by the Company from its banks, including specifically Northern Bank, Bank of Scotland, Cooperative Bank, Lombard and Barclays, will become ineffective because they are all conditional on evidence of payment to HMRC in order to remove the petitions by no later than 23 March 2011, with payments being required by certain of these banks on or around 25 March 2011. In the result, the Company will be in breach of its banking arrangements and agreements to the tune of some £60 million.

Mr Atherton has told me on instructions from those behind him, who I understand include the directors of the Company, that in all these circumstances it is very likely the Company will be put into administration. Mr Wightman gives evidence to the same effect in his witness statement.

Mr Gillyon resists the order sought and has told me on instructions that another shareholder called Pelham Olive has offered to provide bridging finance of some £3.5 million tomorrow; that Lloyds has indicated it is willing to continue its support to allow another company called Arcapita to make a bid for the company; and that the ‘Chairman’ of the Company, I assume Mr Wightman, has recently spoken to Arcapita asking it to confirm its willingness to proceed.

All of these matters do provide possible alternative avenues for the Company to pursue but, in my judgment, they lack the certainty provided by the placement which is due to complete tomorrow. Moreover, Mr Atherton has taken instructions in relation to them and has told me that the line of enquiry with Pelham Olive has not borne fruit; that the Chief Financial Officer of the Company, Mr Scott Brown, has spoken to Lloyds, as have the Company's accountants, KPMG, and they have been told that no further funding from Lloyds will be made available; and Arcapita has recommended that the board should proceed with the placement as planned.

Mr Gillyon also submits that the funds of £16 million to be provided pursuant to the placement are now recognised to be inadequate and, further, that Mr Shannon is extremely concerned, in the light of the various warranties that he has given, that the market has not been provided with full information in this regard.

This argument is inevitably difficult for me to assess fully at this stage. However, Mr Wightman has exhibited a letter from North Atlantic Value indicating in connection with the placing that if working capital is provided then they would, over the next 12 months, be willing to provide financial support to the Company of up to £3.3 million to ensure its long term future. Mr Atherton has told me on instructions that letters in like terms have been received from Gartmore Investment Limited and Utilico Investments Limited.

As for the concern that the market has not been provided with full information, Mr Wightman has also exhibited a statement published by the Company on 21 March 2011 which makes clear that the company expects to require a working capital facility post placing of £3 to 4 million to ensure working capital is available and has received indications of financial support from funds advised by North Atlantic Value, Gartmore and Utilico that they would each be prepared to provide additional funding of up to £3.3 million in consideration of a further issue of ordinary shares at a price of 10p per share.

Weighing these matters as best I can on the limited information available I am satisfied that the grant of the injunction sought is the course which involves the least risk of injustice if it turns out to be wrong. Indeed, I believe that the balance of justice comes down firmly in favour of the grant of the injunction