"… it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."
“I have reflected on this email several times as part of my evidence to understand why I wrote that when my recollection is not that I believed that to be the case and trying to square up the two things …”
“by the conclusion of the True North programme, over 60% of the store space acquired in the Somerfield transaction will have been divested by the Group.”
“Sale of business after moving ‘good’ bits out.”
“Sale of business – may have to pay dowry to enable SSL to keep going for two years as if collapses can look back two years.”
“Transfer ‘core assets’ out of SSL by end of 2014 (key dependency on SSL pension trustees and Banking syndicate approval) Divestment of SSL by end of 2015 Depending on the method and timing of divestment, the business may have to continue to support the buyer (operationally or financially) for 12-18 months.”
“Ideally, SSL would transfer these non-trading and onerous leases to another entity. However, the landlords of SSL's non-trading or onerous leases are unlikely to consent to such a transfer: the landlords currently have SSL "on the hook" for these obligations and have no incentive to transfer them to a new company with a weaker covenant. Therefore, Group has been considering options to transfer the core stores away from SSL and leave the non-trading and onerous leases behind with a view to the ultimate disposal of SSL.”
“The key principle underpinning Project Chicago is to separate the core stores that the Group wishes to retain from the non-core stores and onerous leases.” ii) Second, Deloitte outlined the framework of the internal restructure, likely following discussions with/instructions from tCG: a) “SSL will use the proceeds from the transfer to repay its intercompany debt due to Food in full and then to return share capital to its parent company.” b) “Transfers are being made to a dedicated Newco specifically designed to support the SSL Pension Scheme covenant” and “the proposed transaction has been designed to ensure that the covenant of the Scheme is at least maintained and more likely improved.” iii) Third, it is clear by this time that a sale of SSL was envisaged by tCG, or at least by Deloitte, rather than merely considered as an option in that it was explained that: “The Group will seek to dispose of SSL to a third party”
“Illustrative P&Ls show that profits in Newco could be c.£39m higher than currently in SSL as Newco will no longer incur losses from non-core trading stores and the cost of onerous leases.”
“the three of us have sufficiently full agendas to not need the additional burden of seeking legal advice for a company we are just director figure heads for, rather than actively managing. To this end, I’d still suggest that it would make sense for the key individuals who are proposing the Chicago scheme to volunteer themselves as Directors of SSL if their belief in the validity of the scheme is so strong? […] This point should not be considered lightly by the Group – if there is personal risk to the three of us, I want to be absolutely certain the risk is very, very minimal?” ii) Following further discussion, Mr Lang also noted in an email to Mr Cutting that: “I’m sure you understand that placing ourselves in a potentially vulnerable professional situation is not a comfortable place for us to make any decision from!” iii) On29 October 2014 , Ms Sellers emailed a member of the pensions team to indicate that: “The hold up has been the nervousness of [the SSL Directors] to the Chicago project overall given their responsibilities and the possible adverse consequences.”
“In any event, if the transaction makes the company insolvent, who in their right mind would take on that directorship?”
“It is a big issue more broadly, Steve, (still unresolved) on which I and the other two SSL directors (Andy Lang and Anthony Crossland) are seeking legal advice.”
“Please can you confirm that the appointment of Zolfo Cooper will be a joint instruction – if it is not then this will be a concern to the SSL Board.”
“I am advised that we don’t require a joint engagement letter at this stage. We can, however, add a duty of care to SSL into the work Zolfo Cooper are doing.”
“we re-iterate our client's desire to work with SSL on this project and keep dialogue open. To that end we very much hope to avoid the need for SSL to engage external consultants as the intention is certainly to work together to find the best solution for SSL and its key stakeholders.”
“I hope that the update was useful. As agreed, we will be in touch at the earliest opportunity to confirm the direction of travel following discussion with the Group Executive and will engage with you at that point to plan any involvement required from you in the next steps.”
“As discussed, we have to be very careful with what we share with the SSL directors to ensure we do not lose legal privilege in the event of an insolvency.”
“I took legal advice at every turn.”
“although we appreciate that the transaction is subject to the SSL directors becoming more comfortable and tCG Board approval tCG are keen to maintain that momentum. There is a concern that an appointment of someone new at this stage could jeopardise the timescales and add to the costs. [Ms Foster (of AG)] is to forward a proposed timeline which should help demonstrate what needs to be done and when (and explain the concerns about “derailment”).”
“there needs to be commercial pressure exerted in order to make it financially and commercially rational for the SSL Board to conclude that it should go ahead with the restructuring. It will be necessary for the Group to consider withdrawing its support and calling in the intercompany loan, unless SSL complies with its requests.”
“Work ongoing to provide SSL Directors with necessary level of comfort re post transaction support and solvency.”
“tCG has concluded that it is only willing to continue its support if the SSL business is restructured in line with what is known as "Project Chicago”, and that “[i]t is tCG's intention to issue formal demand for the repayment of the inter-company loan due to tCG on or around21 October 2015 ”
“13 [Mr Crossland] noted that the onerous lease provision was not included in the balance sheet, as they are held on a balance sheet elsewhere in the Group. 14 A discussion took place regarding the potential value of these liabilities (of c£60 million net of 2 years support from Group), and the potential impact on the SSL Directors ability to agree a statement of solvency. 24 [Julian Heathcote (of Deloitte)] and [Mr Crossland] raised the point that should the onerous lease provision be moved onto the SSL balance sheet, this would result in an intercompany debtor being created (due by Group Holdings) and that the net assets of SSL would not be affected. [Mr Bailey] agreed it would not affect net assets, assuming the intercompany debt was recoverable. 25 [Mr Cameron] raised the question as to the release of the SSL guarantee to the Somerfield Pension Scheme. The process to remove the guarantee was discussed, in that it is a process to apply post transaction with the consent of the Trustee. 26 It was agreed that the SSL Directors and [Mr Wormald] would consider the position regarding the onerous lease provision in the coming days.”
“what we need to understand is how the onerous leases relating to SSL got transferred to 2011 holdings in terms of accounting entries.”
“the directors therefore believe that a figure of£50m would be more appropriate” than a lower level, on the assumption that “the information provided in relation to the onerous lease liabilities (believed to be in the region of£62m ) is complete and accurate.”
“I don’t need the SSL directors (sic) risk on thanks.”
“… in the face of the ultimatum threatened by tCG, the Board considered [redacted] and discussed the options available to SSL and agreed that it was presented with two options: (i) support Project Chicago, or (ii) risk the withdrawal of tCG’s support and the consequent insolvency of SSL.”
“The Trustee [of the SSL Pension Scheme] has been informed that the core assets of SSL will be transferred from SSL to [CFS] during October 2015. In consideration of such transfer of assets, [CFS] has agreed to assume all the liabilities of SSL in relation to the [SSL Pension Scheme].”
“Phase 2 of the Chicago project is the divestment of SSL, where the significant NPV benefit arises. We will refresh the NPV analysis (including the potentially reduced economies of scale point) once the quantum and structure of the likely Dowry become clearer through discussions with Greybull.” ii) Further, Mr Hore emailed Mr Wormald and Mr Rowland on19 October 2015 to say that: “The main reason for the 2 year point is that the directors could be challenged if SSL fell into insolvency within 2 years of restructure. [..] As part of any sale of SSL we will be looking to secure a similar window between the restructure and any sale.”
“The more complex piece is the question of how long a purchaser should be made to hold it before they can put it into an insolvency process. [..] Subject to people being comfortable with the legal arguments made it becomes a timing and brand/reputations risk mitigation question. There is no right answer just a continuum over which we have to pay more by way of a dowry but we reduce our risk.”
“the divestment of SSL, after its conversion to a limited company and change of name, be approved subject to a purchaser agreeing to avoid an insolvency of SSL before30 November 2016 and if the period was to be extended following discussion with the SSL Directors for a dowry payment of less than£50m .”
“A credit of£73,652,000 has occurred in 2016 following the derecognition of former Somerfield onerous leases. On25 July 2016 , Co-operative Group Food Limited, a fellow group undertaking, sold its investment in Somerfield Stores Limited to HUK (65) Limited which is not part of tCG. As part of the sale, HUK (65) Limited agreed to take responsibility to pay the onerous leases which had been transferred to the Society during the restructuring of Somerfield following its acquisition by the Group in 2009.”
“The situation seems to be that sometime in 2015 a decision was made by CGF to cherry-pick the viable assets of the business and withdraw£500m and then leave a rump of landlord creditors substantially unpaid.”
“(2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section. (3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction. (4) For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if— (a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or (b) the company enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company. (5) The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied— (a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.” (a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or (b) the company enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company. (a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.”
“[it] includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.”
“there was a rule within the banking facility agreements that no one of those three groups (banks, bondholders, or pension schemes) could have a guarantee if the other ones did not.” iv) Although clause 8 provided for the “Deferred Consideration” to be payable by2 May 2016 in any event, it is submitted that the intention was that it be set off against SSL’s liability in respect of the Second Withdrawal of Share Capital . Reliance is placed upon paragraph 5.1 of the minutes of the SSL board meeting dated2 November 2015 under which the request for withdrawal of£481,042,860 of the share capital held by CGF was expressed to be subject to a number of conditions including that: “(ii). … the remaining 50,000,000 shares remain held by [CGF] until [SSL] receive[s] confirmation that the relevant bank institution no longer defines [SSL] as a “Material Subsidiary” (in relation to all and any relevant finance documents).” v) It is said that upon the release being given, the board of SSL permitted the Second Withdrawal of Share Capital to proceed, reference being made to paragraph 3.2 of the minutes of the board meeting dated10 February 2016 : “the chairman confirmed that [SSL] have now received the confirmation from the relevant bank institutions and therefore the conditions imposed by the board in relation to the Second Share Withdrawal had now been satisfied.” vi) Relying thereupon, it is argued that, consistent with the language adopted by Falk LJ in TAQA CA at [82], the release of SSL from the guarantee liabilities was the “quid pro quo” for the payment by SSL of the Second Withdrawal of Share Capital . In other words, SSL would not have agreed to the Second Withdrawal of Share Capital unless it was released from the guarantee liabilities. vii) In answer to the case that had been advanced that on ceasing to be a “Material Subsidiary”, SSL simply had the right to resign as a guarantor, it has been the Respondents case that: a) The net effect of clauses 22.18, 26.5, 26.7 and 26.8 of the amended and restated Facilities Agreement dated11 December 2013 was that SSL did not have any right to a release from its guarantee liability upon ceasing to be a “Material Subsidiary”
“… there was a course of dealings initiated by the debtor for the purpose of and having the effect of extinguishing the debt.”
“(iv) It is possible for a transaction to comprise or include arrangements which are not legally binding contracts to which the debtor is a party. (v) The court must take a common sense view of what is comprised in a transaction and should have regard to the statutory purpose of preventing the avoidance of debts. (vi) The fact that a series of steps may be interlinked, even in the strong sense that one step would not have happened without the other(s), does not mean that the entire series necessarily constitutes a single transaction for the purposes of section 423. (vii) Indeed, the courts are likely to be reluctant to view a number of contracts involving different parties as constituting a single transaction unless the contracts have been artificially divided. (viii) The phrase “a person enters a transaction” is a composite one. There must be a transaction and the relevant person must have entered into it. (ix) In deciding whether the transaction includes a step said to comprise part of a wider transaction, it is material to consider the subject matter of the step, the parties to the relevant step and to the other elements of the alleged transaction, and whether there has been an artificial division of an overall transaction into [apparently] separate parts. (x) The purposes of the debtor in entering into a particular step may be relevant to whether it constitutes part of the relevant transaction for the purposes of the statute.”
“… The entity has the unconditional right to refuse redemption of a member’s shares.”
““co-operative society” does not include a society that carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person.”
“9. Shares Determination whether any or all shares are transferable, and provision for the form of transfer and registration of shares, and for the consent of the committee to transfer or registration. Determination whether any or all shares are withdrawable, and provision for the method of withdrawal and for payment of the balance due on them on withdrawing from the society.” ii) Paragraph 11 thereof provides as follows with regard to withdrawal of shares: “Withdrawal etc Determination whether members may withdraw from the society and if so how.”
“Co-operatives of voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership …”
“… we do not think it correct to describe members selling their shares to the society, or the society buying them back. The word “withdrawable” better accords with the idea of cashing in an entitlement, like withdrawing money from a bank account in credit, or cashing in premium bonds. When a share is withdrawn, there is no contract of sale. Rather, a member puts in money, and then takes it out again.”
“… shares may be withdrawn with the approval of the Board. For the avoidance of doubt, such approval shall be given in the absolute discretion of the Board and the Board shall not be required to provide any reason for withholding its approval.” v) Rule 13 went on to provide that: a) Without the consent of the Board, not more than one-tenth of the paid-up share capital at the commencement of any calendar year should be withdrawable during that year, and that without such consent, no member should be entitled to withdraw during any year more than one-tenth of the share capital standing to their credit at the commencement of any calendar year unless the member withdrew from SSL as provided for by Rule 15. b) The “right to withdraw” might, by resolution of the Board, be suspended either wholly or partially and either indefinitely or for a fixed period. c) The amount paid to a member on withdrawal should be the amount paid-up or credited in the shares to be withdrawn together with any accrued interest. vi) Rule 14 provided that any share withdrawn in accordance with Rule 13 should be cancelled. vii) Rule 15 provided that a member: “may withdraw from the Society by withdrawing all the shares in the Society or, if the right to withdraw shares has been suspended, by surrendering all their shares to the Society.”
“There may be a situation where the consideration paid by the debtor to the third party is fixed in a contract but payment is delayed. Provided that the initial contract was not entered into with the s 423 purpose, that delayed payment is not a transaction with the s 423 purpose because the purpose is to fulfil the contractual obligation to make payment. … The payment of the dividend is not, in my judgment, the satisfaction of an earlier obligation in the same way. It is true that the reason why the member of the company, rather than any other person, receives the dividend is because of the pre-existing relationship of company and shareholder. But the decision to pay the dividend and choice of its value is not the consequence of that relationship because it is discretionary not only in its amount but in whether it is paid at all.”
“(2) Directors are entitled to such remuneration as the directors determine- (a) for their services to the company as directors.” (a) for their services to the company as directors.”
“71. The articles are framed in the language of entitlement. If someone is entitled to something, it usually means that they have a legal right to it. It follows from this, in my judgment, that as and when directors performed services for the company, they did so on the legally binding basis that the directors would exercise the power of determination given to them by the articles in a rational manner and in good faith: see, by analogy, e.g. Horkulak v Cantor Fitzgerald International[2004] EWCA Civ 1287 ,[2005] ICR 402 . Once remuneration has been declared under that article, it is a debt for which a director can sue: see e.g. Orton v Cleveland Fire Brick and Pottery Co Limited (1865) 3 Hurl & C 868. It is no different, in my judgment, from the case of an employee whose contract of employment provides for the employer to have an (apparently) unfettered discretion to decide whether or not to award that employee a bonus. The decision will, in practice, be taken after the period of service that the bonus is designed to cover; but I do not consider that that makes the services past consideration.”
“The inquiry is entirely constructional in nature: proceeding from the express terms of article 65, viewed against its objective setting, the question is whether the implication is strictly necessary. My Lords, as counsel for the GAR policyholders observed, final bonuses are not bounty. They are a significant part of the consideration for the premiums paid. And the directors' discretions as to the amount and distribution of bonuses are conferred for the benefit of policyholders.”
“Sequana CA established that, for the purposes of s.423 IA 1986, a dividend was not a gift but was both a “transaction”, and one “on terms that provide for [the company] to receive no consideration”
“The position of the company is no different.”
“… are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a company with a person who is connected with the company.”
“… it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.”
“…the assets to be valued are the present assets of the company. There is no question of taking into account any contingent or prospective assets.
“… the prospects of the company obtaining further assets which it does not already own cannot be taken into account.”
“There is no statutory provision which links section 123(2) of the 1986 Act to the detailed provisions of theCompanies Act 2006 as to the form and contents of a company’s financial statements.”
“Rs’ position is that if applying [the relevant accounting standard] IAS 37, a liability can properly be excluded from the statutory accounts [as were the liabilities in respect of the C Properties], that liability can be valued at zero for the purposes of the balance sheet test. That reflects the economic reality that another entity (in this case, Holdings) had signed off its audited accounts on the basis it has no realistic alternative but to meet the liability based on either a legal or constructive obligation to do so . … Such an approach accords with commercial reality and gives proper weight to the surrounding circumstances in which the balance sheet test falls to be considered.”
“… ultimately, we respectfully submit there is a lack of commercial reality, to use his word, to my learned friend’s submissions and a full fundamental contradiction at their heart which pervades this part of the case. He wishes to rely for the purposes of solvency on an expectation or indeed obligation on the part of the Group to support SSL. But the whole purpose and object of Project Chicago was to avoid any such expectation or obligation. And that is the paradox that essentially undermines his whole case on this. They cannot have their cake and eat it. Which is to avoid their responsibilities towards SSL and then at the same time say, aha, it was actually still solvent because we were maintaining that commitment.”
“If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision”. ii) However, paragraph 14 thereof provides that a provision should only be recognised where three conditions are satisfied, namely: a) The entity has a “present obligation (legal or constructive) as a result of a past event”
“Sale of business after moving ‘good bits’ out”. ii) The 2013 Deloitte Report proposed a two-stage process under which Phase 2 would be “a sale of the remaining loss-making stores and onerous leases to third party.”
“Phase 2 of the Chicago project is the divestment of SSL …”. ix) In his email dated19 October 2015 , Mr Hore discussed ensuring a “window” before any sale so as to mitigate litigation risk, the clear assumption being that a sale would occur. x) Following2 November 2015 , as envisaged by the earlier contact with possible purchasers, prompt steps were taken to get on with a sale of SSL on the basis that a quick sale would maximise the financial benefit to be obtained by tCG from Project Chicago. This is evidenced by, for example, the email dated6 November 2015 from Mr Hore to Mark Brewer, copying in Mr Wormald. I refer to the quote therefrom set out in paragraph 133 above, including “the quicker we do it, the greater the NPV.”
“it was always anticipated that the endpoint for SSL would be an insolvency.”
“requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be measurable in money or money's worth and both must be considered from the company's point of view.” ii) The critical issue is whether the value of the incoming consideration is “significantly less” than the outgoing consideration – see Re Thoars CA, at [104], per Jonathan Parker LJ. iii) Any consideration passing between the parties requires to be valued as at the date of the transaction – Phillips HL,at [26], per Lord Scott. iv) However, this does not mean that the Court is precluded from having regard to events subsequent to the date of the transaction, and consideration of subsequent events may be of particular utility in resolving valuation ambiguities in circumstances where the consideration moving each way at the time of the transaction is uncertain, at least to the extent that subsequent events help to clarify the position as at the date of the transaction. As Lord Scott put it in Phillips HL, at [26]: “Where the events, or some of them, on which the uncertainties depend have actually happened, it seems to me unsatisfactory and unnecessary for the court to wear blinkers and pretend that it does not know what has happened.” v) Where the value of the consideration sought to be relied upon by a party is speculative, then the onus is on the party seeking to rely thereupon to establish its value. As Lord Scott put it in Phillips HL, at [27]: “Where the value of the consideration for which a company enters into a section 238 transaction is as speculative as is the case here, it is, in my judgment, for the party who relies on that consideration to establish its value. [the respondents] are, in the present case, unable to do so.”
“… It is the market value of the asset which is relevant.”
“The value of an asset that is being offered for sale is, prima facie, not less than the amount that a reasonably well-informed purchaser is prepared, in arms’ length negotiations, to pay for it.”
“The right approach is to say what he could have sold this for on that date.”
“Persuasively though these submissions were advanced, I am not persuaded by them. In applying s 423(1)(c) to the facts of the present case, one must look at the transaction as a whole; the tenancy agreement cannot be considered in blinkers. Due weight must be given (inter alia) to the facts not only that the agreement was entered into by the first defendant with his wife for the purposes outlined above, but that the land in question was mortgaged and that the wife, through the grant of the tenancy, would be placed in the “ransom” position described above. Accepting that she agreed to pay for her yearly tenancy which was the best rent reasonably obtainable for that tenancy viewed in isolation, and that she undertook the other tenant’s obligations imposed by the tenancy agreement, it seems to me nevertheless clear that, when the transactions are viewed as a whole, the benefits which the first defendant thereby conferred on her were significantly greater in value, far greater in value, in money or money’s worth than the value of the consideration provided by her. To hold otherwise would seem to me to fly in the face of reality and common sense. No further evidence was, in my judgment, required to establish that the transaction was one falling within s 423(1)(c); the agreed facts speak for themselves. On the facts of this case, the substantial detriment incurred by the first defendant under the transaction was largelymatched by a substantial benefit conferred on the second defendant beyond the rights specifically conferred on her by the tenancy agreement.”
“In particular, I do not accept the proposition that, in the absence of direct evidence of the existence of a special purchaser for the policy, the conclusion must follow that its value was no more than its surrender value of£71 . With all respect to Mr Moss, his submission to that effect seems to me, to adopt Slade LJ’s words in Woodward (in the passage from his judgment quoted in para [58] above) to fly in the face of reality and common sense. As the judge correctly pointed out (in para [106] of his judgment, quoted in para [60] above), the surrender value was the sum which Skandia was contractually obliged to pay on the surrender of the policy. It does not follow that it represented the value of the policy as at26 July 1996 in money or money’s worth, from Mr Thoars’ point of view.”
“see why you would say that.”
“in reality the true value will be closer to the technical provision liability of£35m ”
“the banking syndicate, bondholder and pension scheme guarantees could be classed as contingent liabilities. A discussion took place around the reasonableness of the directors valuing such guarantees at £nil given that there would likely be a call upon these guarantees by stronger Group entities, prior to SSL.”
“where the events, some of them, on which the uncertainties depend actually happened, it seems to be unsatisfactory and unnecessary for the court to wear blinkers and pretend that it does not know what has happened.”
“My approach therefore involves an assessment of the potential cost to SSL (if any) of the contingent liabilities under the Guarantees.”
“if you valued a debtor’s obligations by reference to its own resources, it could never be insolvent, which would be ridiculous.”
“Considered from the point of view of BHUK, the grant of security involved no transfer of value from BHUK. If a company uses an asset worth£100 to repay a debt of£100 , there is no question of the transaction being at an undervalue. From the company’s perspective the value received equals the value given. It may well be that, looking at it solely from the creditor’s point of view, the debt had a value less than£100 because of [sic] the company was unable to pay the full amount, so it received more than it gave. But that is irrelevant as value is to be assessed from the point of view of the company.”
“The estimated amount for which an asset and/or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
“… specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of value available only to a specific owner or purchaser.”
“any element of value available only to a specific owner or purchaser.”
“Prime yield relates to well-specified, well configured Grade A stock let rack rent on 10-15 year lease in a prime location to a strong covenant.”
“I have not carried out a number of them”
“I am more than happy to answer no to that question if it is clear for you”
“… All fixed and loose plant and machinery, racking, tools, petrol pumps, furniture, trade utensils and other chattels fixtures and fittings and the fixed plant and machinery owned or used or held for use by the Seller and used in connection with the Business, but excluding the Fixtures.”
“(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.”
“is not necessarily the same question as whether [the company’s directors] were in breach of their fiduciary duties in failing to act in the best interests of the company, although there is plainly an overlap” – see TAQA HC at [255]. I would note that, as already identified, it forms no part of the Joint Liquidators’ case that the SSL Directors did act in breach of their fiduciary duties as directors of SSL, but that does not necessarily mean that they did not. iii) In considering whether a company/society entered into a transaction for the purposes of carrying on its business, it is not a requirement that the transaction was “necessary” for its business - see TAQA HC at [260] – [261], and TAQA CA at [72] – [73]. iv) In so far as the Joint Liquidators suggested that the transaction was required to be in the ordinary course of the company’s business, I do not consider that this can be correct. The original wording of the Bill enacted as the IA 1986 did refer to “ordinary course of business”, but this was deleted in the s. 238(5) as enacted. This change was explained by the Minister to Parliament as being: “so that it is clear that one-off transactions in genuine special circumstances – are not automatically caught by the undervalue transaction provisions.”
“whether the transaction in fact benefits the company is not the question, although there may be a temptation to apply hindsight.”
“… it would be wrong to adopt a blinkered approach that would require the surrounding circumstances to be ignored. Indeed, it is very difficult to see how, taken in isolation, a transaction at an undervalue could ever reasonably be believed to benefit an insolvent company. What s.238(5)(b) must require is a consideration of all the relevant circumstances in order to determine whether there were in fact reasonable grounds for the belief”. iv) The fact that the transaction might involve the company or society disposing of some of its assets is not inconsistent with it being for its benefit. In TAQA CA at [58], Falk LJ referred to the example of “a company being driven to sell a valuable asset at speed in order to stay afloat.”
“The fact that s. 238(5) contains different and more challenging tests from the perspective of a defendant than s. 423(3) reflects the fact that insolvent companies should not, as a general rule, enter into transactions that deplete assets available for creditors, undermining the pari passu principle by instead preferring the interests of their shareholders. It is unsurprising in those circumstances that the defence under s. 238(5) is relatively narrowly targeted. In contrast, s. 423 is not restricted to cases of insolvency.”
“Group is no longer willing to unconditionally support SSL and requires a restructuring to address future liabilities.”
“I wouldn’t say very. 1.5% margin isn’t very profitable. It was profitable. It was made on£2 billion , roughly of revenue, so it was profitable. I will leave it there.”
“stated that it almost seemed like the SSL directors would be better off to be backed into a corner by the actions of the Group”, and Mr Barnes as having suggested that: “it was in the SSL directors’ interests to have limited options.”
“collective understanding that the SSL Directors needed to be pushed into a corner and for everyone to be able to present the position as one where [they] had no good option and Project Chicago was the least worst option.”
“ … We felt there was sufficient value tied up in Project Chicago for the group to see their threat through and manage the situation because we knew that they had concerns about reputational impact and so on. We assumed they would be able to manage that, manage their relations with their bondholders and funders to bring it all about.”
“The letter as written is not what would have happened.”
“It does, actually. Given all of the previous information that you have shared and the expert evidence or information that has been provided by other people from an SSL board director point of view. Certainly I was of the belief that Group might carry through its threat. So I'm surprised that Mr Pennycook said that.”
“That is surprising to me because that was never put to us as directors. Withdrawing the support services would have led to it going into administration. Yes, you have presented various bits of evidence that suggest that Group might not have done that, we weren’t party to that. Maybe we should have asked harder but we always felt that threat was credible. The credibility of the threat was supported by the fact that we believed that Mr Pennycook and others that had come into the Group for the rescue phase were prepared to do things inside and outside the Group that may be perceived as really ruthless and therefore that is why we believed that they would carry through on that threat. The fact that they had prior knowledge and all that supporting information and still put the Transaction Demand to us I think evidences how ruthless the Group Executive were in its rescue bids.”
“if I’m frank, I didn’t really care what Group wanted in the situation. If we wanted it, we could or should have pushed it harder.”
“In the event such advice cannot be provided to SSL, SSL will consider engaging accountants directly.”
“A. I don't know about a naivety of what is going on, but maybe a belief that we knew more than we possibly thought. We thought we had the right knowledge and information for us to make the right decision. Again, in retrospect and knowing what we now know, we might have pursued that harder. … Q. In retrospect, it is fair to say that you and the other directors were out of your depth, isn't it ? A. At that point in time, we felt we were getting the right information/explanations. Q. What about now? A. Now I would say probably given what we know that yes we might have brought someone in. I am not sure I would define that as being out of our depth, it is just that you would bring a specialist in.”
“(a) that person is one of the company’s creditors or a surety or guarantor for any of the company’s debts or other liabilities, and (b) the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.” v) S. 239(5) then provides that the court shall not make an order under s. 239 in respect of a preference given to any person “unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that purpose the effect mentioned in subsection 4(b).” vi) S. 239(6) provides that a company which has given a preference to a person connected therewith at the time when the preference was given “is presumed unless the contrary is shown to have been influenced in deciding to give it by such a desire as is mentioned in subsection (5).”
“At Trial, the court or tribunal simply considers the evidence in the round and decides a particular issue on the balance of probabilities.”
“a sum due to any member of the company (in his character of a member) by way of dividends, profits or otherwise is not deemed to be a debt of the company, payable to that member in a case of competition between himself and any other creditor not a member of the company, but any such sum may be taken into account for the purposes of the final adjustment of the rights of contributors amongst themselves.”
“Intention is objective, desire is subjective. A man can choose the lesser of two evils without desiring either.”
“a) ‘Desire’ incorporates a subjective test, distinct from intention. A person may be taken to intend all the necessary consequences of his actions, but he is not to be taken as desiring them. b) The desire in question is a desire to produce the effect referred to in s.239(4)(b), namely to improve the creditor’s position in the event of an insolvent liquidation. It is not enough for there to be a desire to do the act that creates the preference. c) Rather, the company must have ‘positively wished to improve’ the creditor’s position in the event of its insolvent liquidation. d) Mere presence of that desire is not enough unless it influenced the decision to enter into the transaction, in the sense of being one of the factors which operated on the minds of those who made the decision. However, it need not be a decisive factor. e) The test must be applied at the time when the decision to grant the preference was made.”
“Other than giving us the ultimatum, Group never instructed us in relation to the transaction. We were never asked or directed to do anything specific. We had nothing to gain ourselves from Project Chicago and I had nothing to lose; it was not like my position within the Food business was being threatened if I did not go along with Group’s proposal. We were never asked to prefer Group's interests over any other creditors and we were never motivated by a desire to prefer tCG. We had no reason to prefer the Group in the circumstances; we just wanted to do the right thing for SSL. I cannot say that any more strongly. We wanted to do the right thing so if anyone examined or questioned our actions in the future, we could say with a clean conscience that we did what we were supposed to do for SSL and we took the right advice.” [Emphasis added]
“As I have explained above, the decision to enter into Project Chicago was made by us as SSL directors. I did not think about preferring any Group entity as a creditor when making decisions. I thought about the position that Group had put us in and whether the transaction would have left SSL solvent and in a position to operate in the future. I was clear that the basis on which we needed to consider the transaction was what was best for SSL, its creditors and its stakeholders, and not what was best for Group. I was never asked to prefer Group's interests over other creditors. Nor was I motivated myself by a desire to prefer Group’s interests. Our position was very clear to me then, as it is now, that we needed to act as directors of SSL in the best interests of SSL and all of its creditors, despite the very difficult position we were placed in by Group.”
“Q. … and that is something which you wanted to do, wasn’t it? A. No. We didn’t have a view. As I said, we were separate from group in this. We had to face -- we had it make a decision in our mind at the time whether to accede to Project Chicago or allow the business to fall into insolvency.”
“Section 238(3) is in the nature of a ‘but for’ test. The court must seek to restore the position to what it would have been but for the transaction at an undervalue. It is well-established that this provision confers a discretion. In exercising its discretion, the court will have regard to a wide variety of considerations with a view to achieving justice between the parties (see for example Reid v Ramlort[2004] EWCA Civ 800 ,[2005] 1 BCLC 331 at [125]-[126] in relation to the bankruptcy equivalent of s.238). [Phillips] HL provides an example of this in requiring account to be taken of the loan to meet the first rental payment, although it was not suggested that the loan was itself part of the consideration.”