Montpelier Business Reorganisation Ltd v AJP One LLP & Ors, Court of Appeal - Queen's Bench Division, July 05, 2016, [2016] EWHC 977 (QB)

Resolution Date:July 05, 2016
Issuing Organization:Queen's Bench Division
Actores:Montpelier Business Reorganisation Ltd v AJP One LLP & Ors
 
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4163-8000-2821, v. 1

Case No:2LS40452

Neutral Citation Number : [2016] EWHC 977 (QB)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

LEEDS DISTRICT REGISTRY

MERCANTILE LIST

The Court House

Oxford Row

Leeds LS1 3BG

Date: 5/07/2016

Before :

His Honour Judge Saffman sitting as a Judge of the High Court

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Between :

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Mr S Myerson QC for the Claimant

Mr H Jory QC for the 4th Defendant

The First and Second Defendants being not represented nor present

The Third and Fifth Defendants being in person

Hearing date: 14, 15, 18, 19, 20 and 21 April 2016

Date draft circulated to the Parties 9 May 2016

Date handed down 5 July 2016

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JUDGMENTIntroduction

1 On 28 September 2010 the parties in this action entered into various agreements including an Asset Purchase Agreement and a Management Services Agreement. This case requires determination of a claim and counterclaim arising out of alleged breaches of those agreements.

2 Mr Simon Myerson QC appears for the Claimant. Mr Hugh Jory QC appears for the Fourth Defendant, Mr Anthony Armitage. The first and second Defendants, both Limited Liability Partnerships, ceased to trade on 31 December 2012 and are now in voluntary liquidation. Their liquidator has not taken an active part in this litigation and they are not represented at the trial. The Third Defendant, Mr Christopher Jones is a litigant in person, as is the Fifth defendant, Mr Simon Padgett. It is agreed however that the positions of the Individual Defendants, both as to their defence of the claim and their prosecution of their counterclaim, is identical and that they stand or fall together.

Dramatis Personae

3 It is wise to provide some brief detail of the people and companies involved in this case, both those who were parties to the agreements and, where the parties are not individuals, those involved in them or with them.

4 The Claimant, Montpelier Business Reorganisation Ltd (MBR) was incorporated in September 2010. It is now dormant.

5 Mr Philip Nuttall, a chartered accountant, was, at the material time, a director of MBR. Until their resignation on 4 May 2012 Messrs Jones, Armitage and Padgett (collectively called the Individual Defendants) were fellow directors.

6 The shareholders in MBR are the Third to the Fifth Defendant who between them own 50% of the issued shares and Montpelier Professional Ltd (MPL) which owns the remaining 50 %. A Shareholders Agreement was entered into simultaneously with the Asset Purchase Agreement and the Management Services Agreement and was intended to regulate the relationship between the shareholders and their obligations to MBR. No issues arise for determination in this case with regard to that agreement.

7 MPL is a holding company of which a Mr Edward Watkin Gittins is a director and, I believe, major shareholder. Mr Gittins resides in the Isle of Man and that is also his business address. Until his resignation on 31 December 2011 Mr Nuttall was also a director of MPL. The subsidiary companies of which MPL is the holding company are collectively known as the ``Montpelier Group''. All group companies practice as chartered accountants.

8 Mr Nuttall is a director of Montpelier Professional (Leeds) Ltd which is one of MPL's subsidiaries.

9 The Individual Defendants are all professional men and are highly experienced in the field of ``turnaround'' work arising out of insolvency. That is, they are experienced in assisting businesses in financial distress or their creditors and in insolvency work generally. All three have an enviable reputation in this work. Mr Armitage is a certified accountant and Insolvency Practitioner, Mr Jones is a solicitor and Mr Padgett a property consultant.

10 The First Defendant, AJP One LLP was incorporated in January 2009 under the name Armitage Jones LLP. The individual defendants were the partners. It was set up to offer corporate turnaround advice. I refer to it hereafter as Armitage Jones because this is the name by which it is described in the agreements.

11 The Second Defendant, AJP Two LLP was set up on the same date and with the same partners. Its remit was to provide advice to lenders in the property market and administrative services to Mr Armitage and Mr Jones acting as LPA Receivers. I shall refer to it hereafter as LPA Direct because this was the name by which it is described in the agreements.

Background leading to the execution of the agreements

12 It is not in dispute that in about May 2010 Mr Nuttall approached Mr Jones with a view to initiating discussions as to whether both LLPs might wish to become part of the Montpelier Group. It seems clear that he made this approach with the blessing of Mr Gittins on behalf of MPL. Mr Gittins's evidence was that Mr Nuttall put the idea to him and vouched very highly for Mr Jones in particular whom he had known for many years.

13 Mr Nuttall and no doubt Mr Gittins felt that the Group and the LLPs could mutually benefit by such an arrangement. It would give the Defendants (who were after all a start up business) access to a wider market and the Defendants' expertise in the field of insolvency would complement the services offered by the businesses operating within the Montpelier Group.

14 Initially Mr Nuttall envisaged that the opportunity to work within the Montpelier Group umbrella would be sufficiently attractive to entice the Individual Directors to agree a deal without seeking any capital payment. Suffice to say that was not how Messrs Jones, Armitage and Padgett saw it.

15 Initially Mr Gittins was happy to leave it to Mr Nuttall to progress the talks but ultimately he became more directly involved. Mr Armitage and Mr Jones spoke of a meeting in June at the offices of Mr Nuttall at which all three Individual Defendants and Mr Nuttall and Mr Gittins were present at which essentially a deal was agreed. It was that the Defendants would associate themselves with the Montpelier Group I phrase it in this way because it was, according to Mr Armitage (whose evidence on this was not challenged) that the new company would not initially be an MPL subsidiary but it was intended that it may be in due course. on the basis that a company would be incorporated in which the Individual Defendants would between them own 50% of the shares and MPL would own the balance of the shares and which would purchase the goodwill and certain defined assets of the LLPs for £500,000. The company actually incorporated for this purpose in September 2010 was MBR.

16 The agreement did not envisage the creation of an employer/employee relationship between MBR and any of the Defendants. The Defendants would continue to remain partners in the LLPs. It was to be what Mr Jones referred to as a ``lateral hire'' whereby Armitage Jones and LPA Direct, through the Individual Defendants, would supply services (as defined in the Management Services Agreement) to MBR on the terms set out in the Management Services Agreement.

17 It is the evidence of Mr Armitage that at that meeting he and his individual co defendants were assured amongst other things that there would be direct access to the group's extensive client network including their international clients, that they would be supported by the group's administrative and marketing structure and that two substantial funds would be established, one for corporate rescue purposes and the other to facilitate distressed purchases. I acknowledge that it was the evidence of the Individual Defendants that this latter point was of great interest to them because the funds had the potential to generate significant profits both in connection with their administration and out of the purposes to which the money in the funds was put. They complain that the funds were not put in place. The Claimant argues that it was not contractually obliged to do so. I do not feel that it is necessary to address any issues with regard to the funds because the Defendants do not make any claim arising out of the fact that no funds were set up. They merely make the point that the prospect of such funds materialising was one of the matters which made an association with the Claimant attractive.

18 The Individual Defendants, and particularly Mr Armitage, were also very much attracted to the idea that if the deal was wrapped up in this new company in which they had equity than ultimately they may well have a lucrative exit route at the time that they wanted to retire.

19 The only issue of principle about which the parties were not in fairly early agreement was how the £500,000 consideration was to be paid. Unsurprisingly the Defendants wanted it up front; equally unsurprisingly Mr Gittins wanted a deferred payment plan since it was always expected that he or MPL would be the source of that money (or part of it). By 5 July however that particular wrinkle had been resolved. It was agreed that the consideration would be paid in three tranches namely £150,000 on completion, £100,000 payable 6 months after completion and the balance of £250,000 payable 12 months after completion. The obligation to make these payments was recorded in the Asset Purchase Agreement. The latter 2 payments were described in the Asset Purchase Agreement as the First Deferred Payment and the Second Deferred Payment respectively.

20 Mr Gittins's evidence was that he was not overly concerned about this payment. The LLPs were billing well and that was clearly expected to continue. The deal involved the new company (MBR) retaining a significant proportion of the costs generated by the LLPs and it was felt therefore that the deferred payment would to all intents and purposes be self funding, albeit he was ready to meet any shortfall through MPL if necessary.

21 Agreement having been reached in principle, solicitors were instructed. That culminated in the...

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