Re CTRAK Ltd, TBL Ltd, Telecheck Holdings Ltd, Televest Ltd, and Compuguide Ltd 1993 Companies (Winding Up) Jur. No. 551–556

• Jurisdiction: Bermuda
• Judgment Date: 25 February 1994
• Date: 25 February 1994
• Docket Number: Companies (Winding-Up) Numbers 551, 552, 553, 554 and 556 of 1993
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Ground, J

Companies (Winding-Up) Numbers 551, 552, 553, 554 and 556 of 1993

CTRAK Ltd.

TBL Ltd.

Telecheck Holdings Ltd.

Televest Ltd.

and

Compuguide Ltd.

Mr. J. Hall and Mr. Telemaque for the applicants; and

Mr. A. Dunch and Mr. Howcroft for the respondents.

Re Highfield Commodities Ltd.UNK [1984] 3 All ER 884

Re Union Accident Insurance Co. LtdUNK [1972] 1 All ER 1105

Browne v La TrinidadELR (1887) 37 Ch D 1

Companies Act 1981 s. 170

Companies (Winding Up) Rules, rule 23(1)

Motion to discharge the ex parte appointment of provisional liquidators — Consolidation of five winding — Up petitions — Undertakings in damages by the joint provisional liquidators — Admissibility of the report of the joint provisional liquidators

RULING

Introduction

This matter is now the consolidation of five winding-up petitions. It came before me on motions to discharge the ex parte appointment of provisional liquidators. It was hard fought, extending over the best part of last week, and requiring the consideration of a considerable body of affidavit evidence, which had been reduced into four numbered bundles.

As there was some dispute, I should clarify who the applicants are. Three individuals, Richard Burns, Thomas Burns and Christopher Donnachie (who are directors of, and together constitute 60% shareholders in, each of the companies) apply by motion in the case of each company for the discharge of the joint provisional liquidators (‘the JPLs’) on the grounds that no sufficient cause or urgency has been shown for the making of the appointments. In the case of Televest only, the company also applies, and in that case it is plain that it is the company as constituted by its Board“of Directors, exercising its residual right, after the appointment of provisional liquidators, to oppose the petition. in the case of Televest there arc also additional grounds advanced for the discharge of the provisional liquidators, namely that the individuals are inappropriate and their appointment not authorised by the company. I am, throughout this written decision, going to refer collectively to the two Burns brothers and Mr. Donnachie as ‘the applicants.’ I do this for convenience, and in doing so it should not be taken that 1 have overlookctl the fact that the company, Televest, is also an applicant in respect of its own affairs.

The respondents to the motions are the petitioning creditors of CTRAK; the petitioning contributories of TRL; TBL, by its provisional liquidators, as the petitioning creditor in respect of Telecheck Holdings Ltd. (‘THL’); CTRAK, by its provisional liquidators, as the petitioning creditor in respect of Compuguide; and Televest itself.

The notices of motion also seek other relief, namely that the petitions be struck out, but as I understand it that aspect has been stood over by agreement to come one with the hearing of the petitions.

There is also another, related issue before me, concerning undertakings ordered by the Chief Justice on 29th December 1993 and 12th January 1994. The JPLs apply to clarify or amend them, while the applicants and Televest apply to strike out the petitions and terminate the appointments of the JPLs if the undertakings are not given. That issue is obviously dependent upon whether or not I discharge the JPLs on the main applications, and I will therefore deal with it after I have dealt with that principal question.

Background History

I am going to give a brief background history, but in doing so I should stress that this does not represent concluded findings of fact, but is simply an explanatory narrative based on the evidence presently before the Court.

In or about 1985 the applicants wished to establish a business providing various financial services, the principal of which was the purchasing of accounts receivable from merchants at a discount, and this eventually led to the introduction of a local credit card operation. In order to accomplish this the applicants originally established (initially under different names, but nothing turns on that) CTRAX and TBL. In respect of the credit cards TBL issued the card, and provided billing and collection services, while CTRAK made payment to the merchants who accepted it.

In order to fund this venture the companies entered into a relationship with Sarnia Mutual Investments Limited (‘Sarnia’), a Guernsey company. Sarnia was itself a member of a group of companies (‘the Dominion Croup’), another member of which was a UK Company, Dominion International Properties Plc (‘DIP’). It will often be convenient to refer to these two companies on an “and/or” basis, and I have adopted the formula ‘Sarnia/DlP’ when I need to do this.

On 15th August 1986 CTRAK entered into a loan facility agreement with Sarnia, under which funding of up to $l0M was to be advanced by Sarnia. The agreement made it plain that each advance was on request and in the discretion of the lender, and it is clear that Sarnia were not obligated to provide $l0M credit, and this is now accepted by the applicants. Pursuant to this agreement Sarnia, and later DIP, advanced money to CTRAK, and in 1987 the earlier advances by Sarnia were assigned to DIP. Sarnia also guaranteed an overdraft facility on CTRAK's bank account with Bermuda Commercial Bank in a sum not to exceed $1M, and backed it with an hypothecated deposit, while Sarnia's bankers, National Westminster Bank Plc, separately guaranteed another, different account in the same sum. It appears that another member of the Dominion Croup gave a counter-guarantee to National Westminster, but it is not clear whether Sarnia did also. In addition Sarnia became 40% shareholders in CTRAK and TBL (and also in the related entity Compuguide). For the purposes of this hearing the shareholding in TBL is the most important, and this was acquired pursuant to a sales agreement, between the applicants and Sarnia, of 16th April 1987. A 40% shareholding is, of course, the maximum permitted to a foreign entity.

By September 1989 Sarnia/DIP were having difficulties meeting the cash calls under the facility letter, and the last advance made by them appears to have been in January 1990. Administrators were subsequently appointed to manage the affairs of DIP by the English High Court on 22nd January 1990, while Sarnia went into voluntary liquidation in Guernsey, pursuant to a shareholders resolution of 26th October 1990.

Around this time the applicants decided to obtain alternative funding by soliciting investment from the public, and they established a new company to be the vehicle for receiving the funds, Televest Limited (‘Televest’). Whether this was done as a result of Sarnia/DIP's difficulties, or whether it preceded them, is a matter which may be in dispute and I will not touch upon it. Suffice it to say that this alternative vehicle was established in 1989, and was initially wholly owned by TBL Limited, who was, by an agency agreement of 1st March 1989, appointed Televest's agents for collecting the receivables it purchased. Televest also appears to have purchased the then outstanding receivables from CTBAK by an agreement of 3rd April 1989. Later it appears to have been decided that a new company, Telecheck Holdings Limited (‘THL’), should be established to assume TBL's billing and collection functions, and by an agreement of 1st October 1992 the assets of TBL were transferred to THL. The applicants raise a dispute as to the meaning of this document and the intent behind it, but on its face it purports to transfer to THL ‘the whole of the business undertaking property rights assets liabilities and obligations of the vendor [ie of TBL] …’ Pursuant to the agreement THL undertook an obligation (as part of the consideration) to ‘assume pay satisfy discharge fulfill and indemnify the vendor against all debts liabilities contracts and engagements whatsoever and wheresoever in connection with the said business as existing at the transfer date.’ What the applicants seem to be saying is that in effect they sought, by paying for the net assets of TBL at a valuation, to isolate this new enterprise from the Sarnia/DIP debts, and that the agreement is erroneous when it makes provision for the assumption by THL of the liabilities of the former enterprise. That however is a matter for the hearing, as is the question whether, if that was indeed what they did, such a transfer could stand. At this stage, however, 1 think that I must have regard to the clear terms of the transfer document, the authenticity of which is not in dispute.

Eventually Sarnia/DIP sought to recover their advances. The amount of money advanced directly by them to CTBAK is said by the petitioning creditors to be US $1,291,500, plus interest of $717,028, while the company's own figures (as provided by their accountants, Callaghan Nawrocki) put the loan at $1,250,000 and the interest at $402,213. Mr. Thomas Burns accepts, in his affidavit of 24th December 1993, that the figure of $1,291,500 is roughly correct.

In addition to that there are now liabilities under the two guarantees. Sarnia's guarantee has already been called by the Bermuda Commercial Bank and set off against the $1,1 11,470 standing on their deposit account. As to the National Westminster guarantee, when the petitions were filed that was in the process of being called, but at that stage it was too early to say where that liability would ultimately fall in the Dominion Group. Even if that latter sum is disregarded until the liability has crystallised, it can be seen that Sarnia/DIP are very substantial creditors of CTRAK indeed.

There has, since 1990, been a continuing dialogue between the liquidators/administrators of Sarnia/DIP and the applicants. The liquidators say it was a rather one sided dialogue, and are plainly of the view that the applicants were temporising, and not responding properly to their requests for information. Eventually the...