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Summary of Representations Made at the Hearing on 21 May 2007 at
Throughout this summary, so far as possible, the parties have been described using the descriptions given to them at Court by the Barristers, as follows:-
Rotherham United FC Limited: Old Co (i.e. Rotherham United up to the point where Mr Coleman and Mr Maccio became the owners of the Club)
C. F. Booth Limited: Booth
SUMMARY OF REPRESENTATIONS MADE BY THE DEFENDANT'S BARRISTER
(I.E. THE BOOTHS' BARRISTER)
This is the Booths' Application for:-
1. The Statement of Case to be struck out.
2. And / or for Summary Judgment to be entered in favour of Booth.
3. For an Order for Security for Costs.
Background
Until 31 December 2004 Booth held 86% shareholding in RUFC Limited (Old Co). Booth guaranteed the overdraft facility with National Westminster Bank which was in excess of £3 million at the end of 2004. For many years Booth wanted to sell shares.
On 24 November 2005 Millers 05 Limited was incorporated. In 2005 Booth was approached by Millers 05 who wanted to purchase his shares. On 23 December 2004 the Millers 05 Agreement was entered into between Booth and Millers 05 Limited whereby Millers 05 agreed to buy the Booth shares for £1, Booth would discharge the overdraft and in return old co would transfer some properties to Booth.
Properties:-
1. Millmoor Ground.
2. Training Ground.
3.
4. Changing Room facilities at Hooton Lodge.
The Car Park was at all material times owned by Booth. Hooton Lodge was owned by Hooton Lodge Limited, a 100% subsidiary of Booth. Booth entered into a £660,000.00 loan facility agreement to provide short-term funding of Old Co.
Mr Ken Booth Senior was Chairman of Old Co and on 30 December 2004 he resigned. On 31 December 2004 all the Directors of Millers 05 were appointed Directors of Old Co.
On 31 December 2004 Old Co held a Board Meeting to decide whether to enter into the transactions. At that Board Meeting all the Old Co transactions were approved as follows: the transfer of Booth shares to Millers 05, the repayment by Booth of the overdraft debt on 4 January 2005, the transfer of the Old Co properties from Old Co to Booth, the Lease back arrangements of those properties from Booth to Old Co and the loan facility agreement.
Old Co did not prosper and on 22 March 2006 Mr Dennis Coleman and Mr Dino Maccio took over Old Co.
On 31 March 2006 the Claimant was incorporated as Changing Finish Limited and Mr Coleman and Mr Maccio became Directors of Old Co on that date. Old Co was insolvent and a CVA followed under which there was a sale of business and assets of Old Co to the Claimant. Booth agreed to licence the assignment of the Leases to the Claimant at a premium and to support the CVA. On 9 May 2006 the CVA was approved and all Leases, including the changing room lease were assigned with Booth's consent. The Claimant then paid rent plus premium instalments charged as consideration for the assignment of the leases.
In or around October 2006 Booth was approached by the Claimant for a Rent Holiday. Booth declined. Claimant failed to pay the 30 November rent instalment and also failed to pay the 1 December premium instalment. On 28 December 2006 Booth commenced Possession Proceedings seeking Orders for Possession in relation to the
Rotherham United's Case
The Booth Barrister said that the Club's case is as follows:-
1. That the Millers 05 Agreement is a transaction defrauding creditors within the meaning of Section 423 of the Insolvency Act 1986 in that the Millers 05 Agreement was a transaction at an undervalue [in other words the transfers of the freehold properties - Millmoor Ground, Tivoli Nightclub, Training Ground - from the Club (Old Co) to Booth and the Family Package Agreement in favour of Booth in return for Booth paying off the overdraft and transferring his shares amounted to a transaction at an undervalue i.e. Booth allegedly paid less to the Club for these transfers and Family Package than should have been the case] or
2. That it is a sham agreement - and that under the inherent jurisdiction of the Court it should be set aside.
The Claimant says that all the leases entered into and all the assignments of those leases should be set aside and that the Millmoor Ground should be re-vested in the Claimant.
The Booth Barrister then referred to the following valuations:-
GVA Grimley valuation for Booth - 20 December 2004
A market valuation of the three properties - Millmoor Football Ground, the Training Ground and the Tivoli Nightclub was prepared for Booth on 20 December 2004 and gave a total valuation of these properties of £1,050,000.00.
Brownill Vickers and Platts valuation for Neil Freeman dated 29 April 2004
This was a market valuation prepared for Neil Freeman and it valued the Millmoor Ground, Tivoli Nightclub, the Training Ground and Hooton Lodge Farm at £3,650,000.00 (three million six hundred and fifty thousand pounds).
With the car park at Millmoor Ground included the Brownill Vickers valuation was £4,450,000.00 (four million four hundred and fifty thousand pounds).
There is no separate valuation of Hooton Lodge farm to assist us. It is therefore not possible to say how much of the £3,650,000.00 is comprised of the value of Hooton Lodge Farm. For insurance purposes Merryweathers reported to C F Booth that Hooton Lodge as a whole should be insured for reinstatement purposes for £600,000.00. This is the best we can do to show you that Hooton Lodge is a very substantial premise.
[By way of summary the GVA Grimley valuation at £1,050,000.00 did not include the value of Hooton Lodge Farm. The Brownill Vickers and Platts valuation of £3,650,000.00 did include the value of Hooton Lodge Farm. There is no separate valuation of Hooton Lodge Farm.]
Millers 05 Agreement - 23 December 2004
Under this agreement the seller was C F Booth Limited and the buyer was Millers 05 Limited. Under paragraph 3.2 the consideration for the purchase of the shares was £1.00. There were Conditions Precedent - "the seller shall procure that the property transactions and inter-company transactions shall be completed prior to completion to the reasonable satisfaction of the buyer". The Club will say that Booth was required to procure Old Co into the property transactions. Booth will say that procure can only mean that Booth would try to do its best to enter into the transactions and cannot possibly mean that Booth would procure Old Co to do something.
Booth gave Old Co £3.025 million by paying off the NatWest debt. In return, Old Co transferred to Booth the Old Co properties for £1.8 million. This was a considerable set off against the debt due to Booth from Old Co because Booth paid the NatWest overdraft. Booth will say that they also wanted £250,000.00 worth of tax losses and tickets to matches: "the Family Package": valued at £100,000.00. Therefore in total Old Co is to give Booth £2,150,000.00 (made up of £1.8 million for the Old Co properties, £250,000.00 tax losses and £100,000.00 family package). Booth will say they decided to write off the shortfall between £3.025 million and £2.15 million.
The Booth Barrister said that the Club will say that the family package is worth in excess of £2 million. (The Supporters Trust understands that the family package is for 79 years. It is part of the Club's case that the family package was substantially undervalued).
Board Meeting of Old Co on 31 December 2004
The Booth Barrister referred to the Board Minutes of the meeting held on 31 December 2004 and said that the Board of Old Co were obviously satisfied after proper consideration and that they passed Resolutions approving of all the property transfers, the loan agreement of £660,000.00 from Booth, the Family Package. The Board of Old Co recorded in the Minutes that £1.8 million consideration for the property transfers was to be offset against the overdraft and that the properties were to be leased back to Old Co by Booth.
The Family Package Agreement was dated 31 December 2004 and made between Old Co, Booth and Millers 05. This was described by the Booth Barrister as a long and complicated agreement. [Details of the contents of the Family Package Agreement were not given and the Club Barrister has not yet made representations on the Family Package Agreement].
Booth provided a six months interest free loan by way of five instalments of £132,000.00 to Old Co. The Booth Barrister said that without Booth the CVA would have failed.
The Booth's Case as to why it believes that the Club's case should be struck out
1. The Booth Barrister said that the Claimant i.e. the Club, does not have the standing i.e. does not have the legal right, to bring these Proceedings. The Booth case on this point is that the right to make a Claim has not been effectively assigned (i.e. passed from Old Co to New Co) or is incapable of being assigned as a matter of law.
2. Booth believes there is a fundamental flaw in the Club's case. : The Club is asking the Court for a Declaration that the Millers 05 Agreement is a transaction defrauding creditors or that it is a sham. Consequent on those Declarations the Club is asking the Court for an Order setting aside the Millers 05 Agreement. Booth believes that the Club's case is flawed because Booth says that the Old Co properties were not transferred pursuant to the Millers 05 Agreement.
3. Booth says that the Club's Section 423 Claim is entirely misconceived.
4. Booth says that the sham case is misconceived as it is based on a misapprehension as to what the law is.
The Booth Barrister then made reference to the provisions in section 423 Insolvency Act 1986 which enable the Court, where a person has entered into a transaction at an undervalue with the purpose of putting assets beyond the reach or claims of creditors or of prejudicing victims of the transaction, to make orders restoring the status quo.
The Booth Barrister then made detailed technical legal submissions to the Judge as to her view of the meaning and interpretation of the wording of this section and related provisions. (The Club Barrister made it clear that he will also be making legal submissions on the interpretation of the Law)
The Booth Barrister then said that:-
It is the Claimant's (Club's) case that the victim of the Millers 05 Agreement was Old Co because Old Co gave to Booth its freehold properties for no consideration or insufficient consideration. [i.e. Booth effectively (allegedly) got the freehold properties for nothing or did not pay enough for them]
The Booth Barrister said that the Section 423 Claim is misconceived because on her interpretation of the law Old Co cannot be regarded as a victim (of the alleged transaction at an undervalue i.e. the Millers 05 Agreement) and cannot establish that Old Co had the requisite purpose of putting assets beyond reach. She also said that the Old Co transactions were approved by Millers 05 who stood to suffer most if the Old Co properties were transferred at an undervalue to an unconnected third party - Booth.
The Booth Barrister said that Old Co's auditors, Ernst & Young, said that the Old Co transactions [i.e. the transfer by Old Co to Booth of its freehold properties and the payment of the NatWest overdraft by Booth] would return Old Co to balance sheet solvency and that the transactions would therefore be in the best interests of Old Co. At this stage the Club Barrister objected and said that the Booth Barrister was in no position to say that the transactions were in the best interests of Old Co. He said that all she was able to say was precisely what Ernst & Young said which was simply that the transactions would return Old Co to balance sheet solvency. The Booth Barrister accepted the objection.
The Booth Barrister said that if Old Co was regarded as a victim under Section 423 it would be difficult to see how RUFC would benefit because the Section 423 Claim would be treated as a Class Action on behalf of every victim i.e. all the Creditors under the CVA. She said that if the Court sets aside the Millers 05 Agreement an indemnity is then due from Old Co to Booth in relation to the sum paid by Booth in settlement of the NatWest overdraft. [The Club's case is that it would benefit from the Orders it seeks. The Club Barrister is yet to make his representations on this point].
SUMMARY OF REPRESENTATIONS MADE BY THE CLAIMANT'S BARRISTER
(I.E. THE CLUB'S BARRISTER)
· The Club Barrister referred the Judge to the Threshold Hurdle for a Strikeout Application and said that for the Judge to strike the Club's Application out he would have to be satisfied that there are no reasonable grounds for allowing the Claim to proceed.
· The Club Barrister said that the two contractors under the Millers 05 Agreement were Booth and Millers 05. He said that the substance of the Millers 05 Agreement necessarily involved Old Co itself. He said that in fact all that Old Co amounts to at the time of the Millers 05 Agreement is a puppet for either Booth and / or Millers 05.
· The Club Barrister said that there was a restricted value in the open market for the three properties (Millmoor Ground, Training Ground, Tivoli Nightclub) but that Booth was in a very different position because of the adjacent land owned. The Club Barrister said that what Booth was acquiring was worth an awful lot more than £1,050,000.00. He said that the land to the South East is occupied by Booth Scrap Metal Merchants. He said that the Ground and Training Ground might have a more significant value to Booths than an open market purchaser who would have to purchase subject to the existence of adjoining owners. He said that Booth was not in the same position as any prospective purchaser because Booth owns the adjoining land. He referred to the development potential of the ground and the adjoining land.
· The Club Barrister said that there was an issue of fact which could not possibly be resolved at this stage - as to whether £1.8 million is significantly less than the real value of the properties.
· The Club Barrister said that in the Millers 05 Agreement £1.8 million is put in as the value of the properties.
· The Club Barrister stressed that his representations were being made in response to a Strikeout Application and he urged the Judge not to be drawn into the trap of approaching the matter like a Trial. He pointed out that the Booth Barrister had opened the matter at length and that although a lot of the background information she had given was very helpful she had opened as though her Application was a Trial.
· The Club Barrister said that the Club does have the legal right to take these Proceedings because under the Asset Sale Agreement (made between Old Co and New Co i.e. Mr Coleman and Mr Maccio as Changing Finish Limited which later changed its name to Rotherham United FC Limited) Old Co's rights of legal action passed to New Co and Booth was aware of this right.
· The Club Barrister said that in late December 2004 the Company was in severe financial difficulties and that putting it in the black [by Booth paying off the NatWest overdraft and the Club transferring the properties to Booth] does not mean that it is in the best interests of the Company.
· The Club Barrister suggested that the Directors either did not understand the Millers 05 Agreement or they were under a misapprehension.
The Sham Case
The Booth Barrister made technical legal representations on the meaning of Sham.
The Club Barrister has yet to make his representations on this point.
[The Club Barrister will continue his representations at the next Hearing. He made it clear that he will develop various aspects of the Club's case at the next Hearing. The Club's case is that the Club would certainly benefit from the Orders it seeks]
THE JUDGE indicated at about 4.15pm that it was an appropriate time to adjourn the case. At this stage the Booth Barrister asked the Judge if he would deal with Booth's Application for Security for Costs. She said that as there was to be a further Hearing there would be exposure to further costs and that already her Client was exposed to costs of £40,000.00. [It was not clear whether this was an estimate of the Booth's costs so far or an estimate of the total costs of both parties so far.] The Judge said that he did not think it appropriate to deal with Security for Costs at this stage because that issue involves consideration of the merits of the case and at this stage the Judge had not heard full representations from both parties.
