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Case study: JMW obtained a substantial judgment on behalf of two shareholders
We have recently obtained a substantial judgment (over £1.5million plus costs) on behalf of two shareholders who owned a group of companies.
Our clients owned a business that manufactured corporate branded umbrellas. They had the opportunity in 2007 to acquire an umbrella frame manufacturer, which had obvious synergies with their existing business and would help to achieve a competitive edge in the production of finished umbrellas. The intended corporate structure was that our clients would own 100% of a holding company which was to acquire 100% of the umbrella frame manufacturer (a limited company). Their existing company was not part of that structure but did give guarantees in respect of the newly acquired companies’ obligations.
Our clients completed the purchase of the frame manufacturer (via the holding company) in the summer of 2007. They were appointed (by themselves) to the boards of the frame manufacturer and the holding company as the only two directors of each company. However, due to an error, the issued share capital (a single share) of the holding company was not in fact transferred to our clients. Instead, the share remained with the wife of a consultant engaged by our clients who had acted as an agent in the course of the acquisition. The consultant was also retained post-acquisition but a dispute arose with regard to the extent of his contribution and whether he was justifying his substantial fees and benefits.
The actions of the consultant and his wife that followed were described by the judge at trial as “commercial guerrilla warfare”.
In February 2008, the consultant and his wife, acting together, arranged for the holding company to pass resolutions to remove our clients from the board of the holding company and to procure their removal from the subsidiary umbrella frame manufacturer. Resolutions were also passed to appoint business associates of the consultant, with no prior knowledge of either of these companies, to be new directors to the boards of both companies.
The new directors failed to take any actions in respect of the companies and the provider of the invoice discounting facility for the trading company decided very swiftly to appoint administrators to protect its position. This caused the loss to our clients of the entire value of the newly acquired business. Our clients also lost the future enhanced earnings of the combined business they had intended to create through a merger of the activities of their existing business and the newly-acquired frame manufacturer.
Substantial losses were also caused to their pre-existing umbrella business because it had ceased to purchase frames from other suppliers and struggled to be as competitive. Most significantly, it had been necessary for our clients to arrange for their original company to give substantial guarantees in respect of part of the consideration for the purchase of the frame manufacturer and in relation to the rent obligations of the frame manufacturer. Demands were later made under those guarantees which forced our clients’ original business into administration later in 2008.
Our clients brought a claim against the consultant and his wife in the High Court (Chancery Division) in London. Issues of liability were tried in late 2009 with judgment on those issues being given in our clients’ favour in early 2010. The trial of quantum and causation issues took place in December 2011 after a number of adjournments that were procured by the defendants.
The court found that our clients were the beneficial owners of the entirety of the umbrella frame manufacturing company and its holding company. In addition, the consultant’s wife, in passing the resolutions, acted in breach of trust. The judge also found that the consultant and his wife conspired to injure our clients.
How JMW helped
The value of the damages awarded reflects the net asset values of our clients’ existing and newly-acquired businesses, a sum based upon the lost opportunity to achieve an enhanced level of financial performance of the two businesses in the future and a further amount being the personal loss of income of our clients. There were complex issues of share valuation and specialist forensic accountants were engaged by us to assist our clients in quantifying the value of their claim.
After the trial of liability issues, we obtained freezing injunctions to prevent dissipation of assets by the consultant and/or his wife and to limit their expenditure pending the determination of issues of quantum. Since the conclusion of the quantum trial, we have obtained further freezing injunctions in order to aid enforcement, to make sure that the assets out of which the damages will be settled are not put beyond our clients’ reach.
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Partner and Head of Department
Commercial Litigation/Corporate Recovery and Insolvency