Siena SARL and Glengall Bridge Holdings Ltd and Newbridge (G.P.) Ltd v Newbridge (G.P.) Ltd in its capacity as General Partner of Newbridge Ltd Partnership and Linray Ltd and Omey Ltd and Gryphon Ltd

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: J. A. Clyde-Smith,Jurats Nicolle,Sparrow
• Judgment Date: 25 July 2015
• Neutral Citation: [2015] JRC 260
• Date: 25 July 2015

[2015] JRC 260

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith, Esq,., Commissioner, and Jurats Nicolle and Sparrow

IN THE MATTER OF THE REPRESENTATION OF SIENA S.A.R.L. AND IN THE MATTER OF THE INHERENT JURISDICTIONOF THE COURT

AND IN THE MATTER OF AN APPLICATION TO ISSUE A LETTER OF REQUEST TO THE HIGH OF ENGLAND AND WALES IN RESPECT OF THE FIRST TO SOXTH RESPONDENTS FOR THE APPOINTMENT OF AN ADMINISTRATOR

Between

Siena SARL

Representor

and

Glengall Bridge Holdings Limited

First Respondent

and

Newbridge (G.P.) Limited

Second Respondent

and

Newbridge (G.P.) Limited in its capacity as General Partner of Newbridge Limited Partnership

Third Respondent

and

Linray Limited

Fourth Respondent

and

Omey Limited

Fifth Respondent

and

Gryphon Limited

Sixth Respondent

Advocate N. A. K. Williams for the Representor.

Advocate E. B. Drummond for the Respondents.

Advocate J. M. P. Gleeson for the Interveners.

Authorities

In re Alard Investments Limited [2015] JRC 137.

In re HSBC Bank Plc [2013] JRC 046.

In re RBS Plc [2012] JRC 080.

In re REO (Power Station) Limited [2011] JRC 232A.

In re Anglo Irish Asset Finance [2010] JRC 087.

HSBC Bank Plc v Tambrook (Jersey) Limited [2013] EWHC 866.

Insolvency Act 1986.

Companies (Jersey) Law 1991.

Bankruptcy (Désastre) (Jersey) Law 1990.

Jersey Insolvency and Asset Tracking 4th edition by Dessain and Wilkins.

In re Désastre of Blue Horizon Holidays [1997] JLR 124.

Limited Partnerships (Jersey) Law 1994.

Companies — application for letter of request for appointment of administrators.

THE COMMISSIONER:

1 The representor (“Siena”) applies to the Court for a letter of request to be issued to the High Court of England and Wales for the appointment of administrators to the respondents (all Jersey incorporated companies) on the basis that their main assets are situated within the jurisdiction of the High Court and that administration in England (which is not available in Jersey) would be in the interests of all the creditors.

2 The application follows a line of cases where such requests have been issued in similar circumstances (see In re Alard Investments Limited [2015] JRC 137, In re HSBC Bank Plc [2013] JRC 046, In re RBS Plc [2012] JRC 080, In re REO (Power Station) Limited [2011] JRC 232A and In re Anglo Irish Asset Finance [2010] JRC 087) and the English Court of Appeal has recently confirmed its ability and willingness to assist in response to such requests (see HSBC Bank Plc v Tambrook (Jersey) Limited [2013] EWHC 866 (Ch)).

3 This application differs, however, in two respects:–

• (i) Whilst it is accepted that the respondents are insolvent on the cash-flow test, there is a possibility that they are solvent on the balance sheet test.

• (ii) The appointment of administrators might give rise to a material reduction in the value of the assets of the respondents, which will disproportionately prejudice the interests of the unsecured creditors and the shareholders.

Background

4 There is no dispute as to the factual background, which although complex, can be summarised in this way:–

• (i) Siena is a special purpose vehicle, wholly owned by Meadow Real Estate Fund II L.P., an entity managed by Meadow Capital Management Limited (“Meadow”), which is registered with the New York Securities and Exchange Commission and is a fund manager.

• (ii) Siena is a creditor of the first respondent, pursuant to a mezzanine finance agreement dated 7 ^th March, 2014. The original principal amount of the facility provided by Siena to the first respondent was £14.5M (“the Mezzanine loan”).

• (iii) The remaining respondents were a party to the Mezzanine loan as guarantors, hence the financial position of the respondents being considered on a consolidated basis.

• (iv) The respondents are all managed and controlled from Jersey. Together with an English company, Glenart Limited, they carry on the business of investment in and development of a number of adjacent properties in London called the Glengall Bridge Estate, Millwall Dock, E14 (“the property”), title to which vests in the respondents.

• (v) At the time the Mezzanine loan was advanced, there was an existing loan outstanding in favour of Bank of Scotland Plc (“the Senior loan”) and by the terms of an intercreditor agreement, the Mezzanine loan was subordinated to the Senior loan.

• (vi) Both the Senior and Mezzanine loans are governed by English law and both are secured by way of fixed and floating charges over the assets of the respondents.

• (vii) The respondents are in default of the provisions of the Mezzanine loan. The first event of a default occurred on 31 ^st July, 2014, but latitude was shown by Siena which remained supportive of the respondents until 30 ^th September, 2015, when it issued a formal demand for repayment. Interest under the Mezzanine loan is at the fixed rate of 24.63% per annum, compounded quarterly, rising to 29.63% following a default and the amount due under the facility is £31,376,912. Enforcement could not take place until a further 45 days had elapsed and that expired on 14 ^th November, 2015.

• (viii) The Senior loan has been purchased by an entity related to Meadow. The respondents are in default of that facility and it was placed on demand on 19 ^th November, 2015, although repayment has not been demanded. The amount outstanding under the Senior loan is circa £16.6M. The new senior lender does not oppose the enforcement of the Mezzanine loan or the appointment of administrators.

• (ix) By letter dated 20 ^th November, 2015, Mr Patrick Conlan of Glenart Limited complained of what he said was the failure of both secured lenders to engage with a view to a consensual outcome and gave notice that unless details of the enforcement steps they intended to take were given by 23 ^rd November, 2015, the respondents would take their own steps to commence insolvency proceedings in Jersey. He expressed concern that the appointment of administrators by the English court would crystallise significant UK tax liabilities prejudicial to the existing unsecured creditors and shareholders.

• (x) It is admitted by the respondents that they are in default both under the Mezzanine and Senior loans and are insolvent on the cash flow test.

Insolvency regime

5 It was not in dispute that if an insolvency regime is to be put in place, then the appointment of administrators by the English courts was in the best interests of all of the creditors for all the reasons canvassed in the previous cases cited above and which it is unnecessary to rehearse for the purposes of this judgment.

6 In this case, there is a pre-let agreement with Telecity Plc (“Telecity”) over the northern part of the site and planning applications are in progress in relation to the southern part of the site which is earmarked for residential development. The project needs active management in order to maximise value for all the creditors, which can be achieved through an English law administration and which cannot be achieved under any Jersey law insolvency process.

7 Siena is entitled unilaterally to appoint receivers over the property, who would be entitled to realise the property by sale at open market value with the proceeds (after costs) being distributed to the secured creditors and with any sums remaining thereafter being distributed to the persons entitled. However, as a receiver will be appointed in relation to the property, the procedure would not enable the overall control of the businesses and assets of the respondents afforded by administration, which Siena considers more appropriate in the context of a relatively complex structure with different freehold and leasehold interests and the property being vested in different respondents and where a strong and coordinated management of those assets is required in order to preserve and maximise value. The other parties do not demur from this.

The issue

8 The issue before the Court is therefore not what insolvency regime to request be put in place, but whether, on the application of the interveners supported by the respondents, it should adjourn the application for a letter of request to be issued to the English High Court until the end of February 2016 (the significance of which we will explain later), in order to see whether a consensual approach can be agreed between the respondents and Siena. Before turning to the reasons put forward for such an adjournment, we need to deal next with the interveners.

The interveners

9 Advocate Gleeson applies to intervene on behalf of the shareholders of the respondents, namely Mrs Mary Connolly, Mr Michael Cosgrave, Minerva Trust Company Limited as trustee of the Assam Trust, Mr Neville O'Boyle as trustee of the Mill Harbour Trust, Mr Cosgrave as trustee for himself and his wife Mrs Nadine Cosgrave, and Mrs Helen Conlan.

10 Of these, we are told only Mr Cosgrave and Mr Conlan, are actively involved in the business of the respondents.

11 Advocate Gleeson also sought to intervene on behalf of the following unsecured creditors, namely Mr Conlan, Tameric Management Consultants Limited and Glenart II Grosvenor Crescent Limited.

12 Collectively, these unsecured creditors claim to be owed £7.8M by the respondents. This figure includes some £7.35M of what may be intra group loans. The affidavit of Mr Raymond John Wood of Minerva Trust and Corporate Services Limited attaches a schedule of unsecured creditors totalling only £1.7M (excluding any intra-group loans), and a consolidated statement of assets and liabilities as at 23 ^rd November, 2015, drawn up by Mr James Andrew McDaniel of Meadow, from information provided by the respondents and exhibited to his affidavit, lists the claims of unsecured creditors as totalling a lower figure still of £882,680.

13 We did not have time to explore these discrepancies with the parties during the hearing, but make the observation that if the claims of the unsecured...