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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Rock Nominees Ltd. v RCO (Holdings) Plc & Ors  EWHC 936 (Ch) (29 April 2003)
Cite as:  EWHC 936 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
| Rock Nominees Ltd
|- and -
|(1) RCO (Holdings) Plc
(in members' voluntary liquidation)
(2) ISS Brentwood Plc
(3) ISS (UK) Ltd.
(4) Jahanger Ahmed, Simon Cox, David Openshaw
Mr A Steinfeld QC and Miss E Weaver (instructed by Travers Smith Braithwaite) for the Second to Fourth Respondents
Mr A Gledhill (instructed by CMS Cameron McKenna) for the First Respondent
Hearing dates: 7, 8, 9, 10 and 14 April 2003
Crown Copyright ©
Mr Justice Peter Smith:
FACTUAL CHRONOLOGY UP TO OCTOBER 2000
No problem, good luck. A good price. As you know I've given Waldemar a clear run"
Congratulations on RCO. As you know I've now given you a clear run.
You needn't have actually paid up. We were also talking to the company but would not pay 280p – neither need you! But thanks for a small profit!! See you soon. Michael"
"If we do not receive additional acceptance which will allow us to squeeze out the minority shareholders before 6th October, the two operating subsidiaries of RCO holdings should be sold to ISS UK and RCO Holdings should afterwards either be liquidated or an extraordinary dividend should be distributed"
EVENTS AFTER SEPTEMBER 2000
"We write to confirm the understanding between us that neither us nor any other member of the ISS Group is prepared to finance the development of the companies in RCO Group nor allow them to enjoy any synergies with the ISS Group unless they are wholly owned subsidiaries of the ISS Group."
"do you want me to research rights of minority shareholders in voluntary liquidation".
THE PETITIONER'S EVIDENCE
BREACHES OF FIDUCIARY DUTY
"It is trite law, I had thought, that if directors do acts, as they do every day, especially in private companies, which, perhaps because there is no quorum, or because their appointment was defective, or because sometimes there are no directors properly appointed at all, or because they are actuated by improper motives, … and then find that everything has been so to speak done wrongly done … such directors can, by making a full and frank disclosure and calling together the general body of the shareholders, obtain absolution and forgiveness of their sins; and provided the acts are not ultra vires the company as a whole everything will go on as if it had been done all right from the beginning."
As he said it is done every day and if the majority will not give and approve the directors must pay for it. He referred to the well known case of Regal (Hastings) Ltd. –v- Gulliver  2 AC 134.
SALE AT UNDER VALUE
"37. The Directors were aware or ought to have been aware that synergies would be unlocked once the RCO companies were developed within a wholly owned subsidiary of ISS Group. The directors were aware or ought to have been aware from the documentation on which they relied at the meeting of 24th November 2000 that the synergies that would be unlocked for the benefit of the ISS Group alone were in the region of £1.8 M to £3 M annually. The directors are aware or ought to have been aware that the value to ISS Group of acquiring these synergies exceeded market value for the Assets to a purchaser unable to unlock those synergies.
38. Alternatively the directors were aware or ought to have been aware that there was a real value to the ISS Group in avoiding the risk of competing for the assets in the open market. The directors were therefore aware or ought to have been aware that the assets could be sold for a price that reflected that value to the purchaser.
39. The directors ought to have sold the assets for a price that reflected the value to the purchaser of the synergies referred to at paragraph 37 above or the value of avoiding the risk of competing in the open market referred to at paragraph 38 above, as this was the best price reasonably obtainable in the circumstances.
40. The Directors did not achieve the best price reasonably obtainable for the assets and therefore did not sell the assets for the permissible reasons set out at paragraph 29 above. Accordingly the directors acted improperly, alternatively negligently, and thereby breached their fiduciary duties to the Company".
"The ISS Group by causing the sale of RCO's assets to the ISS Group removed from Rock its interest in the trading assets of RCO via its 2.48% shareholding in RCO. It thus removed Rock's ability to sell that shareholding with an interest in the underlying assets to a third party. It also denied Rock the opportunity for commercial negotiation on the terms it would sell its shares to a purchaser wishing to acquire a 100% interest in the assets of RCO and enable it properly to access the full synergies which it had estimated to be worth £1.8 M to £3.8 M per annum."
Whether ISS had valued the synergies at that level is a matter to which I shall return to in this Judgment.
"I have talked to Charles Stanley (Rock's brokers) several times during the last couple of weeks to urge Kiwi and Gambier to accept the offer but they seem committed to keep their ownership stake in RCO …furthermore I have sought to contact Rapid Reef Holdings (presumably owned by Ashcroft) to convince them to accept the offer. Again Charles Stanley's response had been that they had been instructed to take no actions and relay no direct contact ".
"MR JUSTICE PETER SMITH: I have some questions for you. Given your discovering today of the Rapid Reef shareholding, do you accept that the figures that you put in your report in relation to the value of the Rock shareholding on its own are no longer sustainable?
A: Yes. I think they should apply to the two shareholdings.
MR JUSTICE PETER SMITH: Given that, if we look at a situation in November 2000 when RCO is de-listed and you are talking about a 2.4 per cent shareholding in a de-listed company, is it realistic to believe that ISS, given the presence of the Rapid Reef shares in the background, would be willing to pay anything more than par to acquire Rock shares alone?
MR JUSTICE PETER SMITH: You confirmed to Mr Potts that if the negotiations do not work, as indeed you confirmed to Mr Steinfeld, your other proposed courses of action are unattractive, attractive and least attractive. If Lord Ashcroft does not tango, that means that ISS has no option, there is nothing for them to do that is attractive that will actually achieve a better value for the shares than what they did?
A: That is correct."