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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 >> Willmont & Anor v Shlosberg  EWHC 2446 (Ch) (09 October 2017)
Cite as:  EWHC 2446 (Ch)
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IN THE MATTER OF WEBINVEST LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF MIKHAIL SHLOSBERG (A BANKRUPT)
Strand, London, WC2A 2LL
B e f o r e :
| JEREMY MARK WILLMONT AND MICHAEL FINCH (AS JOINT LIQUIDATORS OF WEBINVEST LIMITED)
JEREMY MARK WILLMONT AND EMMA SAYERS (AS JOINT TRUSTEES IN BANKRUPTCY OF MIKHAIL SHLOSBERG)
|- and -
Philip Marshall QC and James Mather (instructed by Enyo Law LLP) for the Respondent
Hearing date: 3 October 2017
Crown Copyright ©
MR JUSTICE ARNOLD :
|The principal parties||3|
|The Avonwick Loan||4-8|
|The Globoid Arbitration||9-10|
|The Original Avonwick Proceedings||11-18|
|The Freezing Order||19-20|
|Bankruptcy of Mr Shlosberg and winding up of Webinvest||21-23|
|The Conspiracy Claim||24-34|
|Discharge from bankruptcy||35|
|The Privilege Application||36-40|
|The Possession Proceedings||41-43|
|The Edelweiss Claim||44-45|
|The starting point: common officer holders||46-50|
|Beneficial pursuit of the insolvency proceedings in which the material is obtained||57-75|
|Unearthing of dishonesty or other malpractice||76-81|
|A note of caution||82-83|
The principal parties
The Avonwick Loan
Globoid and Webinvest default
The Globoid Arbitration
The Original Avonwick Proceedings
The Freezing Order
"28. … The materials disclosed in relation to the settlement agreement are obscure and incomplete, but even on the best case advanced by the defendants it seems that the effective proceeds of a settlement of the Webinvest claim against Globoid in the sum of US$172 million, have been transferred to Castle, and not to Webinvest (the owner of the relevant contractual rights against Globoid), in circumstances where Castle proposes to pay on to Webinvest only half that amount to make it available to recovery by the claimant. No good explanation has been given on why the whole amount of the proceeds of sale should have been diverted to Castle rather than simply going to Webinvest (as owner of the relevant rights being compromised) and then being available for the claimant to execute against ….
29. Furthermore, on a less optimistic and generous interpretation of the various documents, contrary to the submissions of the defendants, it appears that there is a real risk that even half of the proceeds of the settlement sum of US$172 million which the defendants say will be available for Webinvest (and hence for the claimant) will in reality not be paid to Webinvest at all, leaving the claimant with nothing against which to execute the Judgment that it has obtained."
Bankruptcy of Mr Shlosberg and winding up of Webinvest
The Conspiracy Claim
i) Webinvest agreed to transfer its rights against Globoid in respect of the Globoid Loan and Globoid Arbitration to Castle under the terms of an assignment agreement.
ii) Castle and Globoid then agreed to settle the Globoid Arbitration under the terms of a settlement deed in return for Globoid transferring a number of shares in Vimetco to Castle ("the Vimetco Shares").
iii) Vi Holding agreed to purchase the Vimetco Shares from Castle under the terms of a share purchase agreement ("the SPA") for US$172 million. This is despite the fact that the market value of the Vimetco Shares was in the region of US$12,071,659.
iv) In return for the assignment of rights against Globoid from Webinvest, Castle agreed (a) to make a set off under the Castle Loan in the amount of US$12,071,659 (being the alleged market value of the Vimetco Shares) and (b) to transfer to Webinvest the amount (or make a set-off under the Castle Loan and to discharge Webinvest's debt for the amount) equal to one half of each payment received from Vi Holding for the Vimetco Shares under the SPA. In light of the rights of set-off afforded to Castle, there is no obligation on the part of Castle to pass any money it receives from Vi Holding to Webinvest. In other words, the effective proceeds from the settlement of the Globoid Arbitration would not be available to satisfy Avonwick's claims against Webinvest.
v) In addition, Castle and Vi Holding entered into a deed of pledge ("the Deed of Pledge") pursuant to which Vi Holding was granted security over the same Vimetco Shares that it was under an obligation to purchase. The "Events of Default" under the Deed of Pledge appear to have been deliberately designed and structured as a "poison pill" so that in the event Webinvest (or a liquidator or creditor of Webinvest) were to take any steps to pursue Castle, Vi Holding would no longer be obliged to pay the US$172 million.
vi) Accordingly, the effect of the Settlement Agreements has been to strip away the value of Webinvest's principal asset, the Globoid Loan, leaving Webinvest as an empty shell and thwarting Avonwick's right to obtain satisfaction of its judgment against Avonwick. Whilst, prior to the entry into the Settlement Agreements, Webinvest had a valuable asset in the form of rights to repayment from Globoid, the effect of the Settlement Agreements is that it has been stripped of this asset and left with no assets of any value with which to meet the claims of its creditors.
Discharge from bankruptcy
The Privilege Application
i) litigation in the county court regarding an attack on Mr Shlosberg's cat;
ii) the statutory demands served by Avonwick on Mr Shlosberg and Webinvest and the subsequent applications by Mr Shlosberg and Webinvest to set aside the statutory demand against Mr Shlosberg and to restrain Avonwick from presenting a winding-up petition against Webinvest; and
iii) the Original Avonwick Proceedings.
The Possession Proceedings
The Edelweiss Claim
The starting point: common office-holders
"… It is not unusual for the same liquidators to be appointed to related companies, even though the dealings between them may throw up a conflict of interest. It avoids the expense of having different liquidators investigate the same transactions. The attitude of the court has been that any conflicts of interest can be dealt with by the court (on the application of the liquidators) when they arise: see Re Arrows Ltd  BCC 12; Re Maxwell Communications Corp plc  BCC 372."
"18. … conflicts between competing duties are regularly encountered in the liquidations of associated companies where there are intercompany dealings which have to be unscrambled. Of itself the competition between those competing duties does not disqualify a liquidator from acting, or properly found any application for his removal. [He cited the passage from Parmalat quoted above].
19. In the instant case there was evident good sense in appointing the same liquidators to [the two companies] so that there could be a pooling of the resources to investigate both sides of the relevant transactions by reference to all the papers, such as they were. It may be anticipated any conflict which arises when ultimate decisions have to be made can be addressed in the way indicated by Lord Hoffman, and more recently by Newey J in Re York Gas Ltd (in liq.)  EWHC 2275 (Ch),  BCC 447."
"The powers conferred by section 268 are powers directed to enabling the court to help a liquidator discover the truth of the circumstances connected with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible and, I think, with as little expense as possible and with as much expedition as possible, to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all of its various aspects, including, of course, the getting in of any assets of the company available in the liquidation."
Beneficial pursuit of the insolvency proceedings in which the material is obtained
"With a group structure, where the parent company of a group goes into liquidation, it is often the case that the liquidators of the parent company find that the de facto control of subsidiaries rests with directors of the subsidiaries who were appointed by the previous directors or shareholders of the parent company, in effect, and those directors may well be hostile to the liquidators. In such circumstances it is common form for the liquidators to remove the previous directors and appoint as directors representatives of the liquidators' firm. Alternatively the subsidiaries are put into liquidation with liquidators from the liquidators' firm. In the usual case, such as I have mentioned, in my view it would be fully open to the liquidators of the parent company to make documents obtained under sec. 561 available to the directors or liquidators of the subsidiaries to assist them in getting in assets or defending assets for the ultimate benefit not merely of the subsidiary, but also of the parent company itself. That, as it seems to me, is common practice. Of course there are possible conflicts of interest. It is unnecessary to go into them in detail, but one of the more obvious is that in an insolvency situation the subsidiary will have its own creditors whose claims will have to be met. Sometimes the creditors will include the parent company or the subsidiary next up the line. Sometimes the interest of the parent company or subsidiary next up the line will merely be an interest as shareholder which ranks behind the creditors of the subsidiary. But these sort of potential conflicts do not in practice give rise to any serious difficulty because they are well-known to the experienced insolvency practitioners."
"In some cases, disclosure will clearly be justified because, to adopt the words of Millett J. in In re Barlow Clowes Gilt Managers Ltd.  Ch. 208, 217G, 'the use proposed to be made of the material is to assist the beneficial winding up of the company;' an instance would be where a parent company in compulsory liquidation has solvent subsidiaries which are not in liquidation at all but are under the control of directors nominated by the liquidators of the parent company and it is desired to disclose transcripts to the directors of the subsidiary so that the subsidiary can bring proceedings for the ultimate benefit, indirectly, of the winding up of the parent company. But the mere fact that the transcript is wanted for use in proceedings, whether civil or criminal, is not enough."
Unearthing of dishonesty or other malpractice
"It is plain to my mind - and not least from the Cork Report - that part of the mischief in the old law before the Insolvency Act 1985 was the apparent inability of the law to deal adequately with dishonesty or malpractice on the part of bankrupts or company directors… That was a matter of public concern, and there is a public interest in putting it right. As steps to that end, Parliament has, by the Act of 1986, greatly extended the investigative powers available to office-holders, with the assistance of the court, and has expressly placed the officers of the company, and others listed in section 235(3), under a duty to assist the office-holder."
A note of caution
"A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where–
(a) the document has been read to or by the court, or referred to, at a hearing which has been held in public;?
(b) the court gives permission; or?
(c) the party who disclosed the document and the person to whom the document belongs agree."
"If … the purpose of the review of documents disclosed in litigation was to advise on that litigation, but when undertaken the review showed that other proceedings would be possible or would be further informed, then (i) the review would not have been for a collateral purpose, (ii) a further step would be a use for a collateral purpose, but (iii) the use of the document for the purpose of seeking permission or agreement to take that further step would be impliedly permitted."
i) any material that might be Privileged Material has been removed from, and is not placed on, any systems to which Mr Willmont and Dechert may have access;
ii) any such material is provided to Moon Beever, who review it in consultation with Ms Sayers, with assistance from independent counsel where appropriate;
iii) material which upon review Moon Beever consider either (a) not Privileged Material or (b) not relevant to Webinvest's liquidation, is provided to Mr Willmont and Dechert; and,
iv) material which Moon Beever identify as Privileged Material and relevant to Webinvest's liquidation is kept segregated from other material held by the Applicants, and in particular is withheld from Mr Willmont and Dechert.