21 November 2013

[2013] EWHC 3612 (Comm)

Commercial Court, Queen's Bench Division (Hamblen J)

Appointment of a receiver to bring protective claims against shareholder and former directors of a company by a potential creditor under an indemnity

BAT sought the appointment of a receiver in order to compel the defendant, Windward, to issue proceedings against its former directors and a sole shareholder who had benefited from allegedly excessive and unlawful dividends.  At the root of the proceedings was a dispute over who was responsible for the costs of cleaning up two rivers in the USA which had been contaminated by chemicals used in the paper industry.  BAT had acquired a division of a US company that had operated a culpable paper factory.  This company was later demerged to become part of Windward.  Various indemnities were obtained regarding potential liability for clean-up costs during both transactions.  Before the court Windward denied liability but conceded that BAT had at least a good arguable case that it was indemnified by Windward against liability for clean-up costs, which totalled over US$75 million.

BAT claimed that Windward was not trading when in 2008 and 2009 it paid large dividends to its sole shareholder, Sequana, a French company.  BAT submitted that these dividends were unlawful under the Companies Act 2006 and/or the directors were in breach of their duties in authorising them.  Were French law to apply an unjust enrichment claim against Sequana, the limitation period would be five years.

Hamblen J found that Windward’s claims against its former directors and shareholder had a real prospect of success, and that BAT had established there was a real risk, if the claims were found to be governed by French law, of them imminently becoming time-barred.  Windward submitted that it was actively considering the issuing of proceedings and the appointment of a receiver would interfere with this process.  This was rejected by Hamblen J who placed considerable weight on the fact that the appointment of a receiver in the specific circumstances of the case would not be onerous, because Windward was not a trading company and the receiver’s role would be limited solely to the issuing of protective proceedings.  He observed that were Windward to undertake to issue such proceedings before the expiry of the French limitation period, an order of the court would not be necessary, but in the absence of such an undertaking it was just and equitable to appoint a receiver.

The court would appoint a receiver to issue a protective claim on behalf of a company over allegedly unlawful dividend payments when there was a risk of the claim becoming time-barred and the claimant had a good arguable case that the company was liable to it for a substantial indemnity.