Alldey Michael Loveridge v Craig Povey & Ors

These linked proceedings are the latest round of litigation arising from a bitter dispute, which first arose in 2019, over the Loveridge family business that is owned and operated through five companies and three partnerships.

One of the family companies is now in administration. The administrators have decided to put into effect a rescue of that company as a going concern by accepting an offer of refinance, which is to be funded through the cash reserves of another family company.

This is my judgment following the hearing of several applications primarily to:

Michael is the son of Ivy and her late husband Alldey, and is the brother of Audey. In earlier litigation, Michael pursued an unfair prejudice petition and a partnership claim, which were concluded by way of:

So far as is relevant to the present proceedings:

My first involvement with the case was at a hearing on 24 August 2023 dealing with an application then made by the Administrators for:

The respondents to the Administrators’ earlier application were Kingsford and Bewdley. I was invited to approve a draft consent order, which in summary provided for:

I approved the draft order and the transcript of my judgment recorded my reasons for doing so as follows:

“[13.] So as things stand today, Michael has made an offer to purchase the business and assets of the Company for the sum of £5,750,000 and Ivy has proposed a refinance which, if completed, would enable the Company to be rescued as a going concern. Both Michael and Ivy have evidenced that their offers are fully funded such that each option is viable and realistic.

[14.] However, the statutory scheme (Paragraph 3 Schedule B1 1986 Act) produces a hierarchy of objectives, such that the administrators must perform their functions with the objective of rescuing the Company as a going concern (sub-paragraph 3(1)(a)) unless they think that it is not reasonably practicable, or that the objective specified in sub-paragraph 3(1)(b) would achieve a better result for the creditors as a whole.

[15.] In short, if the administrators now consider that Ivy's proposed refinancing would lead to the creditors being paid in full and the Company being rescued as a going concern, they are bound to perform their functions in order to bring about that result. However, that necessarily entails a substantial revision to the proposals previously approved by the creditors, albeit by the deemed consent procedure.

[16.] Therefore, the critical issue for me today, as I see it, is whether there is proper justification for bypassing Paragraph 54(1) Schedule B1 1986 Act requiring the administrators to seek prior approval of the creditors to the revised proposals.

[17.] I am persuaded that there is a proper justification for making the direction sought pursuant to Paragraph 68 Schedule B1 1986 Act reflecting the changed circumstances and for the following reasons:

a.

in the event that I did not make the direction sought today, then effectively what would happen is that the administrators would seek by way of the deemed consent procedure approval from the creditors of the revised proposals;

b.

in the event that there were no objections, then the revised proposals would be approved by way of deemed consent;

c.

in the event that Michael objected, and it would in practice only be Michael, then a creditors’ meeting would be called for a majority decision to be taken;

On 31 August 2023, the Administrators gave notice to Michael that completion of the proposed loan by MIAD was reasonably likely to achieve the objective of Breton being rescued as a going concern.

On 13 September 2023, Michael applied under Paragraph 74 of Schedule B1 to the 1986 Act for a direction that the Administrators do not cause or authorise Breton to enter into the proposed loan, since it would cause unfair harm to his interests as a member of Breton (“the Insolvency Application”).

On 27 September 2023, Michael issued (i) an unfair prejudice petition alleging that, by lending £4 million of Kingsford’s money to MIAD, Ivy was in breach of her director’s duties to Kingsford by acting for her own purposes; and (ii) an application for an interim injunction (“the Injunction Application”) restraining Ivy and MIAD from paying away the £4 million pending determination of the unfair prejudice petition.

The Insolvency Application and the Injunction Application were originally listed to be heard by me on 3 October 2023, but at the request of the parties I adjourned the hearing to 29 November 2023. In doing so, I made an order of my own motion that:

“The Applicant’s solicitors shall serve a copy of this order on Audey Loveridge and Melinda Rose Doherty, along with copies of [the Insolvency Application and the Injunction Application] and the evidence filed in support of those applications. Any application by Audey Loveridge and Melinda Rose Doherty to be joined as a respondent in either application shall be made within 14 days of service.”

On 6 November 2023, Melinda applied (“the Joinder Application”) to be joined as a respondent to both the Insolvency Application and the Injunction Application.

On 9 November 2023, the Administrators applied for a further extension of the administration to 31 May 2024 (“the Extension Application”).

The Insolvency Application, the Injunction Application, the Joinder Application and the Extension Application were all heard at the same time, and this is my judgment on those applications. I am unable in the course of this judgment to refer to all the evidence and argument relied upon but I have taken it all into account in reaching my decisions.

Michael and Ivy consent to Melinda being joined as a respondent to the Insolvency Application, but object to her being joined as a respondent to the Injunction Application because she has no interest in or connection to Kingsford.

The Administrators, Bewdley and Kingsford are neutral on the Joinder Application.

It was submitted on behalf of Melinda and Ivy that the Joinder Application is governed by Civil Procedure Rules (“CPR”) r.19.2, which confers a discretion on the court to join a party, but only if the following conditions are satisfied:

It was submitted on behalf of Michael that the Joinder Application, so far as it relates to the Injunction Application, is governed byThe Companies (Unfair Prejudice Applications) Proceedings Rules 2009 (“the 2009 Rules”), which provide that the “court shall give such directions as it thinks appropriate” [r.5].

However, I note that r.2(2) of the 2009 Rules provides that “Except so far as inconsistent with the Act and these Rules, the Civil Procedure Rules 1998 apply to proceedings under Part 30 of the Act with any necessary modifications.” Therefore, in determining the Joinder Application, so far as it is now contested, I apply CPR r.19.2, whilst recognising that any case management powers must be exercised in a manner consistent with the overriding objective of dealing with cases justly and at proportionate cost.

Melinda has applied in the parallel Financial Remedy Proceedings for an order that the Breton Share Transfers be set aside pursuant to s.37 of the 1973 Act, which raises a statutory presumption that where, as here, the Breton Share Transfers were made for no consideration within the period of 3 years prior to the commencement of the Financial Remedy Proceedings, they were made with the intention of defeating Melinda’s claim.

It is Ivy’s case in the Financial Remedy Proceedings that she is, and always has been, the sole beneficial owner of the shares in Breton, and she seeks a declaration to that effect. I am in no position to form a view upon the merits of the respective cases being run in the Financial Remedy Proceedings. However, if Melinda is successful on the Section 37 Application then the Breton Share Transfers will be void ab initio (Footnote: ⁴) and the Breton shares remain vested in Audey such that they will be a matrimonial asset available in the Financial Remedy Proceedings. The outcome of either the Insolvency Application or the Injunction Application will determine the nature of this financial resource in terms of whether it is treated either as a capital asset or also as an income producing asset. In the circumstances, Melinda is closely connected to/interested in both applications.

In addition, the Financial Remedy Proceedings are private such that she may be able to provide information relating to the Financial Remedy Proceedings (so far as she is able whilst preserving confidentiality), which may assist me in determining the Insolvency Application and/or the Injunction Application.

For these reasons, I am persuaded that it is just, proportionate and desirable that Melinda be heard on the Insolvency Application and the Injunction Application, and so I grant the Joinder Application.

All parties are now agreeable to the administration of Breton being extended to 31 May 2024. Accordingly, I made that order at the end of the hearing on 29 November 2023.

The Administrators submit that their role is solely to perform their statutory functions as officers of the court pursuant to the proposals approved by the creditors or as directed by the court. However, they further submit that there are serious difficulties with the Insolvency Application insofar as it impinges on their fulfilment of the statutory objectives in Paragraph 3 Schedule B1 of the 1986 Act.

Ivy and Melinda actively oppose the Insolvency Application albeit in doing so they largely adopt the arguments put forward on behalf of the Administrators.

Bewdley and Kingsford are neutral on the Insolvency Application.

Paragraph 3 of Schedule B1 to the 1986 Act provides:

“(1)

The administrator of a company must perform his functions with the objective of –

Therefore, the Administrators are statutorily mandated to perform their functions to rescue Breton as a going concern without the realisation of its assets unless they think that such a rescue is not reasonably practicable or the Paragraph 3(1)(b) objective would achieve a better result for Breton’s creditors.

Michael argues that:

The Administrators argue that:

There is no suggestion that the Administrators have acted in bad faith when choosing the higher ranking objective of rescuing Breton as a going concern.

However, and with each relying upon the same authority (Davey v Money):

In Davey v Money, Snowden J held (with my emphasis added):

“[255] Given the range of interests to be addressed under paragraph 3 of Schedule B1, the use of the expression that the administrator “thinks” rather than, for example, “reasonably believes” is a clear indication that Parliament intended a degree of latitude to be given to an administrator in deciding upon the objective to be pursued, and that he is not lightly to be second-guessed by the court with the benefit of hindsight. In Lightman & Moss on the Law of Administrators and Receivers of Companies, 6th ed (2017), para 12-022 it is suggested, by reference to case law and the legislative debate upon this provision, that the appropriate standard of review by the court should be one of good faith and rationality. This would mean, for example, that an administrator’s decision not to pursue the first objective will only be open to challenge if it were made in bad faith or was clearly perverse in the sense that no reasonable administrator could have thought that it was not reasonably practicable to rescue the company as a going concern. I agree with that approach.”

In Re Zinc Hotels (Holdings) Ltd [2018] EWHC 1936 (Ch), Carr J held (with my emphasis added);

“[98.] I should add that a decision of an administrator as to which objective to pursue is only capable of challenge on grounds of a lack of good faith or irrationality, see the judgment of Snowden J in Davey v Money [2018] EWHC 766 (Ch); [2018] Bus. L.R. 1903 at [255]. In the present case, on the evidence before me, I consider that there is no serious question to be tried that the decision of the administrators was either irrational or taken in bad faith.

In my judgment, the use of descriptors such as “clearly perverse” or “irrationality” do not impose a higher threshold for intervention, but merely act as a reminder of (i) the wide latitude given to administrators when exercising commercial judgments and (ii) a warning to judges that, when exercising what is ultimately a supervisory jurisdiction, they are not entitled to substitute their own views. That said, the court can and should intervene if satisfied that no reasonable administrator could have thought that it was reasonably practicable to rescue Breton as a going concern in all the circumstances.

Where, as here, a company in administration is balance-sheet solvent such that the position of creditors is unaffected by the decision that administrators take:

Again Michael and the Administrators rely upon the same authority in support of their competing arguments (Re Hat & Mitre). In particular, the Administrators rely upon the following extract from the judgment of Trower J (with their emphasis added):

“[204.] In my view, where a Company in administration is balance-sheet solvent, the Administrators have a duty to have regard to the interests of the Company’s members as a whole when deciding on the appropriate course of action. Paragraph 74 of Schedule B1 itself makes this plain. It is drafted in a way that gives members a remedy where the acts of the administrators cause unfair harm to them and it contemplates that the interests of the members as a whole are central to the question of what if any relief should be granted. That duty will be particularly significant where the position of creditors is unaffected by the decision that they take. It follows that, if there is more than one alternative way forward, but there is no material difference between them in either achieving or failing to achieve the first statutory objective (paragraph 3(1)(a)), I think that administrators should normally adopt the course of action which is most likely to be in the interests of the members as a whole.”

However, it is necessary to consider that quoted extract in its wider context. In Re Hat & Mitre:

Trower J decided (with my emphasis added) that:

“[206] ….. the Administrators having given careful thought to their duties…. were correct to conclude that they were required to have regard to the impact which their decision on how to proceed may have had on the antecedent claims…… [and] it would not be in the interests of the Company’s members as a whole for the Administrators to take any steps which impaired the Company’s ability to pursue those claims.

[207] It follows that, in my judgment, the Administrators have not caused unfair harm to the Applicants as members in the way that they have approached a difficult administration. Their relief under paragraph 74 of Schedule B1 must be dismissed.

……

[210] Finally, I should add this by way of postscript…. [it was] submitted that the creditors would and could be paid out of the proceeds of sale of the Property, but thereafter the obvious course would be for the Company to go into liquidation, at which stage the antecedent claims could be pursued by liquidators or sold to a third party litigation funder or indeed sold to any one or more of the existing shareholders……

[211] However, it is not obvious to me why the Company should not go into liquidation before the Property is sold. The Administrators are under a duty to apply to the court under paragraph 79(2) of Schedule B1 where they think that the purpose of administration cannot be achieved in relation to the Company. It is of course their case that the first objective cannot be achieved, and I have held that they were justified in reaching that conclusion.”

Therefore, in Hat & Mitre, Trower J concluded that the administrators were justified in abandoning the objective of a rescue as a going concern of a balance-sheet solvent company in circumstances including where such a rescue would be contrary to the interests of the members as whole in that it would impair the company’s ability to pursue the antecedent claims.

I conclude that I do have jurisdiction to intervene, if persuaded that no reasonable administrator could have thought that it was reasonably practicable to rescue Breton as a going concern when having regard to the interests of the members as a whole in circumstances where Breton is balance-sheet solvent and the creditors will be paid in full in any event.

Paragraph 74 of Schedule B1 provides:

“(1)

A creditor or member of a company in administration may apply to the court claiming that–

(a)

the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or

(b)

the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).

(2)

A creditor or member of a company in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.”

It is not disputed that in order to engage the court’s jurisdiction under Paragraph 74 of Schedule B1, Michael must show that his interests are being unfairly harmed as a shareholder of Breton rather than as a bidder seeking to purchase Breton’s site.

Ivy and Melinda argue that:

Michael argues that:

The conduct of the Financial Remedy Proceedings is governed by the Family Procedure Rules (“FPR”), which state:

The Family Court:

It is clear from the orders made in the Financial Remedy Proceedings that Michael failed repeatedly to (i) comply with court directions and (ii) attend court hearings. For example, the order dated 14 September 2021 records that “The Court took the view that on the balance of probabilities [Michael] has full notice of these proceedings and has chosen not to attend.” The Family Court decided that Michael’s continuing default was serious enough to make a debarring order.

In my judgment, it would be wholly contrary to the fair administration of justice to allow Michael to argue that his interests as a member of Breton would be harmed by the proposed rescue in circumstances where he has absented himself from the Financial Remedy Proceedings such that he is no longer permitted to argue that he has a beneficial interest in the Breton shares. Indeed, Michael was specifically warned of the potential wider implications of him failing to engage with the Section 37 Application. On 9 March 2021, Ivy’s solicitor (in connection with the earlier unfair prejudice petition) wrote to Michael’s solicitor in the following terms:

“We are informed by [Ivy’s] representative in Audey’s divorce proceedings that Michael has been joined to the matrimonial case, specifically the s.37 application made by Audey’s wife in regards to the transfer of Breton Park’s shares. We are further informed that Michael has failed to file his evidence in response before the prescribed date (being 24 February 2021)……….

Please can you confirm whether Michael intends to take an active part in those proceedings (as required by the family court) as this will obviously have a bearing on the position in respect of Breton in the company claim. Any decision by the family court will be binding on your client even if he fails to engage with those proceedings. It would also be odd for him to not defend her application (as the Court can order the transfer of his shares back to Audey Loveridge) yet maintain his claim in the Unfair Prejudice proceedings (which can only be pursued if he is a shareholder).”

Further, Melinda confirmed at this hearing that she would now be applying to lift the stay in the Financial Remedy Proceedings, which are at the Pre-Trial Review stage. (Footnote: ⁵) It was previously directed that the final hearings of the substantive claim and the Section 37 Application be heard at the same time. It strikes me as unreal to proceed on the Insolvency Application by reference to Michael’s interests as a member when in short time there will be a hearing in the Financial Remedy Proceedings to determine the Section 37 Application, which determination will be binding upon Michael. In light of the debarring order, there can realistically be only one of two outcomes – either Ivy is the beneficial owner of the shares, or Audey is the beneficial owner of the shares and in which case they are a financial resource available to meet Melinda’s assessed reasonable needs. Therefore, the reality is that Michael is pursuing the Insolvency Application without any legitimate interest as a member for doing so, but rather in an attempt to pursue his interest as a prospective purchaser of the site.

I am not satisfied that Michael has standing to bring the Insolvency Application.

In the event that I am wrong, and Michael does have standing to bring the Insolvency Application, he argues that:

The Administrators argue that:

In Hockin, the former directors of the company alleged that the corporate insolvency resulted from the bank having mis-sold an interest swap agreement. There was a challenge to the administrators’ decision not to pursue claims against the bank, which unfairly harmed the interests of the 1^st applicant (“Diane”) as a creditor, who then sought a direction that the claims be assigned to the applicants. It was held by Nicholas Le Poidevin QC (sitting as a deputy High Court judge):

“[14] Mr Tamlyn submitted, correctly in my view, that because para 74 could be invoked only by a creditor or a member, the reference in it to unfair harm was a reference to unfair harm to an applicant as a creditor or member. It was not intended to provide a facility for someone who merely wished to purchase a claim as an investment.

……..

Perversity

[15] Mr Tamlyn went on to submit that it was open to the court to interfere with the administrators’ decision not to pursue the claims only if the decision was perverse……..

[16] I do not accept Mr Tamlyn’s submission……., I consider that the wording of para 74 precludes it………, it lays down its own test for interference, a test of unfair harm. That is evidently not the same thing as a test of perversity. To adopt a test of perversity in place of the statutory test would plainly be impermissible……

Differential treatment

[17] Mr Tamlyn also submitted that para 74 could not be invoked unless the applicant was complaining of some discrimination between one creditor and another or between one member and another. Unfairness within the paragraph meant, he said, unequal or differential treatment given to Diane (or a class to which she belonged). He accepted that his submission would have the consequence that an idiotic decision by an administrator which affected all creditors equally was incapable of challenge under para 74.

[18] The submission has to get over the express wording of para 74(1), which twice refers to harming ‘the interests of the applicant (whether alone or in common with some or all other members or creditors)’. In support of it Mr Tamlyn cites Re Coniston Hotel (Kent) LLP [2013] EWHC 93 (Ch), [2013] 2 BCLC 405 in which Norris J said (at [36]),

‘Paragraph 74 does not exist to enable individually disgruntled creditors to pursue administrators for compensation. Its focus is “unfair harm”: and that, I think, will ordinarily mean unequal or differential treatment to the disadvantage of the applicant (or applicant class) which cannot be justified by reference to the interests of the creditors as a whole or to achieving the objective of the administration. (The reference to an administrator acting unfairly to harm the interests of “all other members or creditors”, so that unequal or differential treatment had not occurred, would (I think) only arise in relation to issues concerning the expenses of the administration, or where the administrator was also an office holder in another insolvency and acted unfairly prejudicially as regards the stakeholders in company A in promoting the interests [of] the stakeholders in company B).’

That passage was taken literally in a decision in Northern Ireland, Curistan v Keenan [2013] NICh 13, where an application under the Northern Ireland equivalent of para 74 was rejected because the decision challenged did not discriminate against the applicant.

[19] Paragraph 74 requires unfair harm, not merely harm, and the requirement of unfairness certainly prevents a creditor complaining of a disadvantage to his own interests when the disadvantage is justifiable by reference to the interests of the creditors as a whole. But I do not myself see why the requisite unfairness must necessarily be found in an unjustifiable discrimination. A lack of commercial justification for a decision causing harm to the creditors as a whole may be unfair in the sense that the harm is not one which they should be expected to suffer. I am not sure that Norris J had such a case in mind in the passage quoted from Coniston. In Coniston, the applicants (who appear to have been acting in person earlier in the proceedings) had muddled claims for professional negligence against the administrators for acts before the administration commenced with claims for harm suffered by them as members or creditors and the decision, given on a striking-out application, was one of case management.

[20] My view is that a differential treatment is not the only form of unfairness capable of satisfying para 74 and so I do not accept Mr Tamlyn’s submission.”

In re Meem SL Ltd (in administration) Goel and another v Grant and others [2017] EWHC 2688 (Ch), the administrators decided to sell by auction a claim which the company had against its directors for unlawful means conspiracy. Two of the company’s shareholders, who also claimed to be creditors, contended that the proposed sale would unfairly harm their interests by allowing the claim to be bought in order to stifle it. Having undertaken a review of the relevant authorities, including Hockin, David Halpern QC (sitting as a deputy High Court judge) concluded:

In my judgment, and so far as relevant to the present case where Breton is balance-sheet solvent and the creditors will be paid in full in any event, the applicable legal principles are as follows:

The Administrators obtained a professional valuation of the site in the bracket of £3.95 million to £4.4 million. The Administrators arranged a professional marketing exercise, which produced 4 arms-length offers in the range of £3.3 million to £3.685 million. Michael’s offer is £5.75 million, which exceeds (i) the top of the professional valuation by £1.35 million (c. 30%) and (ii) the best other offer by £2.06 million (c. 55%). A rescue of Breton will therefore deprive the members of the opportunity of the company realising its assets on such favourable terms.

Michael argues that, if his bid had been accepted, Breton’s shareholders could have expected to receive £2.7 million in dividends from the company. Therefore, by making this application, Michael seeks to advance the interests of the members as a whole by increasing the funds that will be available for distribution.

However, what is unfair must be judged by reference to all the circumstances of the case, and so it is important to consider and weigh in the balance the full extent of the practical consequences of an immediate sale of Breton’s assets. Such a sale would deprive the members of the opportunity of the company generating future earnings from those assets whilst at the same time benefiting from growth in land values.

The available evidence demonstrates that Breton has been, and is likely to continue to be for the reasonably foreseeable future, a profitable business:

The Court of Appeal recorded by way of introduction in Loveridge (No 1) (with my emphasis added) that:

“[1] The Loveridge family own and operate a very successful caravan park business in Worcestershire, Warwickshire and Shropshire. They do so in part through five companies and in part through three oral partnerships at will.”

Further, an immediate sale of Breton’s assets would be contrary to the expressed wishes of those persons who would otherwise most likely benefit from the surplus arising on such a sale:

It is also striking that, by letter dated 31 March 2023, Michael, via solicitors, made his own offer of refinance and no doubt himself recognising the value in maintaining Breton as a going concern:

“Our client would be prepared to advance £3.6 million to [Breton] as a loan in return for a charge over the Breton site and its assets. Our client has been in discussions with his lenders, and we understand funds are in place to effect the proposal.

The terms of the charge would be negotiated with the Administrators, and our client is confident he would be able to offer more favourable terms to the Company both in respect of repayment terms and interest rates, than any offer from Bewdley. It is intended that the loan would pay off the secured and preferential creditors as well as the Administrators expenses. The loan would also settle claims made by the Unsecured Creditors subject to these being scrutinised and proven…..”

In all the circumstances, Michael has not established that the Administrators’ decision to pursue the rescue of Breton as a going concern over a sale of its business and assets (even at a price substantially in excess of the professional valuation or best other offer) lacks commercial justification or does not withstand logical analysis.

Michael further argues that the interests of the members as a whole will be harmed by returning the site to the management of Ivy. It is Michael’s evidence that, whilst Breton is a good business, it requires constant attention. Following Michael’s exclusion, Breton has been mismanaged particularly around maintenance, repairs and residents’ bills.

It is Ivy’s evidence that Michael did contribute to the success of the business prior to the family dispute, but it is self-serving and false for Michael to claim sole responsibility for that success. The whole family played their part including Ivy, who saw to accountants, lawyers, paperwork, banks, paid bills and organised amenities. After Michael was removed as a director of Breton, he continued to interfere with the running of the business and refused to return the books/records he had removed from the site office. It was only in late 2020 that these were finally returned following an application compelling him to do so. This interruption did interfere with Ivy’s ability to manage the site during that time.

There is no love lost between Melinda and Ivy, but Melinda does not accept Michael’s portrayal of Ivy and her management of Breton, which she believes has continued to thrive.

Whilst an administrator of a company is given a wide measure of latitude in the way he goes about the exercise of his powers so at to achieve the statutory purpose, Paragraph 4 of Schedule B1 provides that the administrator “must perform his functions as quickly and efficiently as reasonably practicable.” It would, in my view, be wholly contrary to the role of the Administrators in achieving a speedy and cost effective outcome to embark upon an investigation into the allegations and counter allegations of historic mismanagement of the Breton site particularly when:

Michael complains that the proposed rescue will allow Ivy to resume control of Breton and thereafter potentially to run the site in her own interests and contrary to Michael’s own interests.

The test of unfair harm requires unfair harm, not merely harm. In my judgment, the Administrators are seeking in good faith to carry out their functions in order to achieve the primary statutory objective of rescuing an otherwise profitable company as a going concern. Therefore, any risk of harm to Michael’s interests that might be caused from returning Breton to the control of Ivy is justifiable by reference to the interests of the members as a whole and would not have been caused unfairly within the meaning of Paragraph 74 of Schedule B1. If any such harm did arise, it would then be open to Michael to bring proceedings under s.994 of the 2006 Act in relation to Breton. Administration is not designed for and is entirely unsuited as a remedy to deal with shareholder disputes.

The Administrators are not mandated to pursue a rescue of Breton simply because it is capable of fulfilment. The court has jurisdiction to intervene if satisfied that no reasonable administrator could have thought that it was reasonably practicable to rescue Breton as a going concern when contrary to the interests of the members as a whole in circumstances where Breton is balance-sheet solvent and the creditors will be paid in full in any event.

Whilst the court has jurisdiction to make the order sought, Michael does not have standing to bring the Insolvency Application. In light of the debarring order made in the Financial Remedy Proceedings, Michael is pursuing the Insolvency Application without any legitimate interest as a member for doing so, but rather in an attempt to pursue his interest as a prospective purchaser of the Breton site.

In the event that I am wrong and Michael does have standing to bring the Insolvency Application:

The Insolvency Application is dismissed.

The Injunction Application is opposed by Ivy and Melinda with Melinda largely adopting the arguments of Ivy.

The Administrators, Bewdley and Kingsford are neutral on the Injunction Application.

The long established test to be applied when deciding whether to grant an interim injunction is laid down in American Cyanamid Co v EthiconLtd [1975] AC 396:

A helpful summary of the applicable principles was given in National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16:

Michael argues that:

Ivy argues that:

It is no part of the court’s function at this stage of the litigation to try to resolve conflicts on the written evidence as to the facts on which the case of either party may ultimately depend or to decide difficult questions of law which call for detailed argument. Those are matters to be dealt with at the trial or upon any earlier application for strike out and/or summary judgment. At this stage, the court must only be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. Therefore, unless the material available to me at this hearing fails to disclose that Michael’s substantive claim has any real prospect of succeeding at trial, I should go on to consider the remaining American Cyanamid questions.

I am satisfied for the purposes of the Injunction Application that there is a serious issue to be tried. It would be wrong for me to express any firm views on the merits at this provisional stage, but I note in particular that:

The next American Cyanamid question is whether Michael would be adequately compensated if Ivy is permitted to continue with her proposed refinancing of Breton but Michael subsequently succeeds at the trial of his unfair prejudice petition.

Michael accepts that, if he succeeds at trial, it is likely that the court would order Ivy to buy his shares in Kingsford at fair value, adding a premium designed to reflect any loss caused by Ivy’s breaches of duty. However, Michael argues that it would not be fair to confine him to such a monetary award.

Firstly:

Ultimately, I consider that an analysis of the risk of default is academic for the purposes of the Injunction Application. By virtue of s.996 of the 2006 Act, the court has a wide discretion as to the nature of the relief to be granted in that it can “make such order as it thinks fit”. That wide discretion extends to prescribing on a buy-out the method and assumptions for valuation including that the valuation be carried out on the basis of hypothetical factual assumptions seeking to put the petitioner back in the position that that they would have been had the unfairly prejudicial conduct not occurred in the first place.

Therefore, if the loan remains unpaid at the time of the trial of Michael’s unfair prejudice petition and the court finds Ivy’s conduct has been unfairly prejudicial, the court can and no doubt will simply order that the valuation of Michael’s shares be calculated on the hypothetical assumed basis that Kingsford did not advance the £4 million to MIAD. There is no suggestion that Ivy would not be able to pay any such adjusted higher figure. Indeed, by her solicitors’ letter dated 29 November 2023, Ivy made an offer to purchase Michael’s shares in Kingsford on the following terms:

This offer was expressed as an O’Neill v Phillips offer such that, if not accepted, Michael’s petition may fall to be struck out as an abuse of process in the event that the court was subsequently to conclude that continued prosecution of the claim would serve no useful purpose in that the offer cures the alleged prejudicial conduct by providing all the relief that Michael could reasonably expect to obtain at the trial of the petition. (Footnote: ⁸)

Secondly, in his written evidence, Michael states that:

“Unless Ivy is stopped from using Kingsford’s money to refinance Breton ….. [this will] prevent me buying the site at Breton… I do not think the court could adequately compensate me for my loss. It will be difficult for the court to calculate what that loss will be.”

In Loveridge (No1) Floyd LJ observed in relation to Michael’s earlier unfair prejudice petition that:

“[41] A number of uncontroversial propositions can be derived from the authorities cited to this court:

(i)

For a petition to be well founded the acts or omissions of which the petitioner complains must consist of the conduct of the affairs of the company: Re Neath Rugby Ltd, Hawkes v Cuddy [2007] EWHC 2999 (Ch), [2008] BCC 390 at [202] per Lewison J;

(ii)

The conduct of those affairs must have caused prejudice to the interests of the petitioner as a shareholder: ibid;

(iii)

The prejudice so caused must be unfair: ibid;”

Floyd LJ in Loveridge (No. 1) (at para [45]) and Falk J in Loveridge (No 2) (at para [67]) both made the point that it is necessary to consider the various business entities through which the Loveridge family decided to carry on business separately.

In Loveridge (No 2) Falk J continued:

“[68] This does not mean that an overly strict approach should be taken to determining whether Michael has suffered a particular detriment in respect of a particular company. In the context of ss 994–996 it is clear that the conduct must be unfairly prejudicial to the interests of one or more members as members, but in O’Neill v Phillips [1999] 2 BCLC 1 at 15, [1999] 1 WLR 1092 at 1105 Lord Hoffmann stated, by reference to R&H Electrical Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 (‘R&H Electrical’), that ‘the requirement that prejudice must be suffered as a member should not be too narrowly or technically construed……...

……..

[103] Whilst the requirement that conduct must be unfairly prejudicial to the interests of a member in his capacity as such must not be too narrowly construed, there are some limits to it…….

[104] Mr Anderson relied on R & H Electrical [1995] 2 BCLC 280. In that case Mr Pitt was a 25% shareholder of Haden Bill and controlled a loan creditor of it, R & H. It was held that Mr Pitt had a legitimate expectation of being able to participate in the management of Haden Bill for so long as R&H remained a significant creditor, such that Mr Pitt’s ouster from management should be remedied by having his shares bought out and the loans repaid. Robert Walker J concluded that the fact that R & H was a separate legal entity from Mr Pitt, and that it was said that the prejudice was to R&H rather than to Mr Pitt as a shareholder, did not make a difference. There was a relationship based on mutual trust, and the loans were procured by Mr Pitt and formed an essential part of the arrangements entered into for the venture (at 294–295).

[105] In reaching his conclusion Robert Walker J relied on an earlier decision of Hoffmann J in Re a Company (No 00477 of 1986) [1986] BCLC 376, (1986) 2 BCC 99. In that case a husband and wife had sold a company in exchange for shares in the respondent on the basis of various understandings, including that they would continue to participate as directors and the husband would be employed as managing director. Hoffmann J declined to strike out the petition on the grounds that the wrongs complained of were wrongs done to the petitioners as vendors or as a wrongfully dismissed employee.

[106] In each of those cases the court’s approach allowed account to be taken of broader considerations, going beyond the interests of an individual strictly in his capacity as a shareholder, in determining whether the actions taken were unfair. Similarly in Gamlestaden [2008] 1 BCLC 468, in circumstances where a joint venturer had invested in the joint venture by means of loans as well as shares, it was decided that there was locus standi for the application where the relief would be of real value in facilitating recovery of part of the investment even though the company was insolvent (paras [33] and [36]–[37]). But common to all of these cases was the petitioners’ relationship with the company in question, and the petitioners’ objective of safeguarding the value of their investment in it, whether by share capital or otherwise.”

In summary:

In complaining that he will be prevented from buying Breton’s site, Michael is seeking to safeguard his personal interest as a potential purchaser of that site, rather than seeking to safeguard the financial worth of his investment in Kingsford. The prejudicial impact upon Michael’s interest as a potential purchaser of Breton’s site is not sufficiently connected/bound up to his membership interests so far as they relate to Kingsford. Therefore, any difficulty over quantification does not arise because the loss of opportunity of Michael buying Breton’s site could not in any event found a claim for relief brought in connection with Kingsford pursuant to s.994 of the 2006 Act.

Thirdly, in his written evidence, Michael states that:

“If Kingsford uses its money to enable Ivy to refinance Breton… it will not be able to use that money for other purposes. It will be difficult for the court to calculate how much better off Kingsford would have been if had used its money for other purposes….”

I disagree. In Loveridge (No 1) it was noted (at para [70]) that “There is no evidence that these companies have plans to expand”. Michael’s petition fails to identify any alternative purpose(s) for which the cash reserves could reasonably be applied, if not paid away to MIAD, although as noted earlier in my judgment Michael does make passing reference in his written evidence to the alleged “dilapidation” of the Kingsford site, which potentially would be a target for capital expenditure. Ultimately, he and Ivy can give evidence at trial on this issue so that the court can decide, on the balance of probabilities, what Kingsford would have done with its cash reserves, if not paid away to MIAD, and then on that basis undertake an evaluation of what Kingsford lost, if anything, as a result. Again, the buy-out figure for Michael’s shares can be adjusted by adding a premium to reflect any such assessed loss.

As Arden LJ observed in Pringle v Callard [2007] EWCA Civ 1075 (at para [26]) an interim injunction ought to be refused “where the remedy sought at the end of the day is a buyout and where the matters complained of on an interim basis can be taken into account in the process of the valuation of the shares for the buyout.”

Having determined that a monetary award (by way of appropriate upward adjustment(s) to the buy-out figure for Michael’s shares) would be an adequate remedy for the relief sought under the unfair prejudice petition, the Injunction Application is dismissed.

In the event that I am wrong about a monetary award being an adequate remedy for Michael, then Ivy explains in her written evidence that:

“the value of [Breton] to me in retaining and operating its site cannot be measured in monetary terms. Caravan sites can be difficult to source and acquire, and the opportunity to purchase another site similar to Breton…, which is close to my other sites and my home, and one where I have spent years developing the site, my relationships with the residents, employees, supply chain …… is not something that could be replicated.”

It strikes me that, if Michael cannot be adequately compensated by a monetary award for the lost opportunity of buying the Breton site, then neither can Ivy be adequately compensated by a cross undertaking in damages for the lost opportunity of retaining the Breton site.

The hearing bundles ran to 1285 pages, and the authorities bundles ran to 896 pages. Stripping back all the evidence and legal argument, this is essentially a continuing battle between Ivy and Michael over control of the site at Breton.

As already noted, there is a statutory presumption that the Breton Share Transfers to Ivy and Michael were made with the intention of defeating Melinda’s financial remedies claim. Melinda says that, if the Section 37 Application is successful, the shares in Breton will be the only substantial asset available in the Financial Remedy Proceedings to meet the financial needs of both her and Audey. Further, if the site is sold in the meantime, both Melinda and Audey “will potentially suffer financially severe prejudice and detriment [as]….. they will lose a capital and income resource.” Notwithstanding that Melinda has now been joined as a respondent to the Injunction Application, this is not a loss that in my view can be fairly compensated by any cross-undertaking in damages.

Therefore, the risk of irremediable financial harm to Melinda would have tipped the balance in me withholding the interim injunction even if I had been persuaded that neither Michael nor Ivy could be adequately compensated by a subsequent monetary award for the wrongful refusal or grant of the interim injunction.

The Joinder Application is granted.

The Extension Application is granted.

The Insolvency Application is dismissed.

The Injunction Application is dismissed.