Re Debenhams plc (Company No. 5448421) (in compulsory liquidation); Frasers Group plc v Official Receiver and others; Frasers Group plc v Rowley and others

2022] EWHC 3028 (Ch)

 

Chancery Division, 29 November 2022

 

Introduction

The decision of Judge Sir Paul Morgan allowed the appeal of Frasers Group Plc (“Frasers”) to amend its points of claim to add an allegation that certain parties committed a criminal offence under section 164 of the Insolvency Act 1986  “Corrupt inducement affecting appointment”.  

 

Background

These proceedings arose out of the liquidation of Debenhams plc (“Debenhams”). Frasers is the beneficial owner of 29.9% of the shares in Debenhams and is also a creditor. On 9 April 2019, Debenhams entered administration and on the same day there was a pre-pack sale of all of its assets. On 25 January 2021, the court ordered the winding up of Debenhams and the Official Receiver became the liquidator of the company.

 

Debenhams had two indirect subsidiaries known as Debenhams Retail Ltd (“Retail”) and Debenhams Properties Ltd (“Properties”) which were the principal operating companies in the Debenhams group. Both were placed into administration on 9 April 2020.

 

Creditors had taken security over, amongst other things, the assets of Retail and Properties. In particular, certain fixtures and fittings owned by Retail and Properties were the subject of security interests. Legal title to those security interests was vested in GLAS Trust Corporation Ltd (“GLAS”) who held that title on trust for various creditors which included Silver Point Capital LP (“Silver”). GLAS released its security interests over the fixtures and fittings and Retail and Properties sold the fixtures and fittings to Sportsdirect.com Retail Ltd (“SRL”) which is a wholly owned subsidiary of Frasers. At the same time, various parties entered into a Claims Release Deed with Frasers and SRL pursuant to which, amongst other things, Frasers and SRL agreed to release all claims against certain parties. The Claims Release Deed also contained certain provisions dealing with the appointment of a liquidator in relation to Debenhams.

 

In these proceedings, Frasers was seeking declarations that the Claims Release Deed, or alternatively certain of its provisions, were illegal and unenforceable, or that it was void or voidable (and has been avoided). In the proceedings, Frasers advanced three main contentions in support its claim, one of which was that the Joint Administrators of Retail and Properties committed a criminal offence under section 164 of the Insolvency Act 1986 by entering into the Claims Release Deed.  Frasers now wished to amend its pleadings to allege that GLAS and Silver also committed an offence under the section.  In January 2022, a liquidator nominated by the majority of the creditors (including Silver) replaced the Official Receiver. Frasers disagreed with the majority of the creditors (including Silver) as to who should be the liquidator and sought to have the liquidator removed by the court and a new liquidator appointed. Frasers' case was that there should be a liquidator who would investigate the affairs of Debenhams and who would bring claims against those who might be responsible for any wrongdoing. Sir Paul Morgan noted that the enforceability of the Claims Release Deed against Frasers could be highly relevant to the dispute as to the choice of liquidator for Debenhams, because it contained provisions dealing with the appointment of a liquidator.

 

On 23 May 2022, ICC Judge Jones dismissed Frasers’ application for permission to amend its pleading and made a consequential order for costs. Frasers appeals that decision.

 

Section 164 of the Insolvency Act 1986

Corrupt inducement affecting appointment.

A person who gives, or agrees or offers to give, to any member or creditor of a company any valuable consideration with a view to securing his own appointment or nomination, or to securing or preventing the appointment or nomination of some person other than himself, as the company’s liquidator is liable to a fine.

 

Observations

Sir Paul Morgan stated that for the purpose of his judgment, which concerned an application by Frasers to amend its pleading, it was not necessary or appropriate for him to give a definitive ruling on the meaning and effect of section 164 of the Insolvency Act 1986 – these matters should be considered in a ruling in the proceedings. However, he did make the following observations:

 

“29.     Prima facie, “a person” means what it says. The section can potentially apply to any person, including a corporate body: see the Interpretation Act 1978, section 5. Of course, a person only commits an offence under section 164, if he or it does the things described in the section with the intentions therein described (by use of the words “with a view to”).

 

30.     Section 164 refers to three different things, by the use of three different verbs or phrases. The first is “gives”; the second is “agrees … to give” and the third is “offers to give”. The object of all three verbs or phrases is “any valuable consideration”. Therefore, the section appears to refer to three different ways in which an offence under section 164 can be committed. Prima facie, a person “gives” valuable consideration if valuable consideration passes from that person to a recipient of it. Similarly, a person “agrees to give” valuable consideration to a recipient where he agrees to give valuable consideration to a recipient, whether or not he later did so. Finally, a person “offers to give” valuable consideration to a recipient where he offers to do so, whether or not he later agreed to do so or actually did so.

 

 31.     “Valuable consideration” has a well understood meaning in the law and is to be contrasted with nominal consideration. If there were an issue as to whether a person gave valuable consideration to a recipient, then one would expect to find the answer to that issue by examining the transaction in question. If the transaction involved performance of a written agreement, then one would expect to find the answer by considering the meaning and effect of the written agreement. If there were an issue as to whether a person agreed to give valuable consideration to a recipient, then one would expect to find the answer to that issue by examining the terms of the agreement. If there were an issue as to whether a person offered to give valuable consideration to a recipient, then one would expect to find the answer to that question by examining the terms of the relevant offer.

 

32.     Section 164 refers to valuable consideration being given etc to any member or creditor of a company. In the present case, there is no issue as to meaning of that requirement. Frasers was both a member and a creditor of Debenhams.

 

 33.     Section 164 contains a requirement of a mental element for the commission of an offence. There are three possible mental elements which will satisfy the requirements of the section. The different cases referred to are that a person does what is described in the section with a view to:

 

i)             securing his own appointment or nomination as liquidator; or

 

 ii)            securing the appointment or nomination of someone other than himself as liquidator; or

 

 iii)           preventing the appointment or nomination of someone other than himself as liquidator.”] 

 

Decision

 ICC Judge Jones had given the following reason for refusing permission to amend:

 

“However, the fundamental point is that the court does not decide whether or not someone has committed a criminal offence.  It would be wholly inappropriate to allow an amendment to make such an allegation in order to try to cause this court to declare that those two companies or either of them have committed a criminal offence.”

 

Sir Paul Morgan determined that this was wrong in law.  He then turned to the reasons advanced by GLAS and Silver as to why he should nonetheless uphold the judge’s decision.  He was unpersuaded by arguments that “a person” should be narrowly construed in section 164, and concluded that Frasers has a real prospect of success in arguing that “a person” in section 164 means any person.  While recognising that detailed arguments may be advanced on trial on the issue of whether clause 3.3 of the Claims Release Deed involved the giving of consideration to Frasers and, if it did who gave it, he considered that he should not refuse permission to amend the pleading on the ground that GLAS did not give the necessary consideration to Frasers. Finally, he considered that Frasers’ arguments that the acts were done with a view to preventing their choice of liquidator from taking the appointment to be sufficiently arguable as to stand a real prospect of success.  Permission to amend was granted.

 

The judgment is available here.