Court Details Day 12 Farepak Directors trial – 15 June 2012

Chancery Division – Judges daily cause list

 

 

COURT 26

Before MR JUSTICE PETER SMITH

Friday, 15 June 2012

At 10 o’clock

GENERAL LIST

Part Heard

584 of 2011 In the matter of European Home Retail plc and in the matter of Farepak Food & Gifts Ltd

 

 

Court Details Day 11 Farepak Directors Trial 14 June 2012

Chancery Division – Judges daily Cause list Thursday, 14 June 2012

 

 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION COURT 26

 

 Before MR JUSTICE PETER SMITH

 

Thursday, 14 June 2012

 

 

Not Before half past 10

 

GENERAL LIST

 

Part Heard 584 of 2011 In the matter of European Home Retail plc and in the matter of Farepak Food & Gifts Ltd

Farepak Directors Trial Day 10 – 12 June 2012

Unfairpak would like to advise that all Defendants are innocent unless proven otherwise.

Mr Justice Peter Smith’s Clerk has confirmed to Unfairpak that Mr Peter Johnson of Park is giving evidence today.  We insert herewith passages from the Skeleton Argument for the Secretary of State in relation to Mr Johnson’s evidence relating to the purchase of multi-retailer vouchers.

261. Moreover, although FFG did at a meeting on 15 June 2006 attempt, unsuccessfully, to negotiate improved terms with Grass Roots, there is no evidence to suggest that as at 5 June there was any suggestion from either side that the requirement for upfront payment (which had been taken as read throughout the pre-contractual negotiations) might be open for renegotiation. Indeed, given that there was a binding contract in place, it is hard to see what FFG could in June 2006 have offered Grass Roots as a quid pro quo for Grass Roots permitting a variation of that contract which would have meant it offering credit to FFG on vouchers supplied, or on what basis FFG might have thought there was any prospect of such a variation.

262. The assertion by Mr Rollason that “as it turned out, the ultimate offer from Park was for deferred payment for its multi-retailer vouchers, i.e. exactly the same terms as Choice had provided221 is no answer to the point; the Park deal proposed much later in the year was part of a wider rescue plan involving (amongst other things) a buyout of the assets of FFG, and not an arm’s length commercial deal for the supply of vouchers.

263. The evidence of Peter Johnson of Park is telling in this regard. Park was FFG’s main competitor and a provider of multi-retailer vouchers in its own right. Mr Johnson, who has been a director of Park for over 40 years, says in his evidence:

“As far as I am aware, at the time there was nobody else in the market who offered the terms which Farepak previously enjoyed with Choice (i.e. payment on redemption of the vouchers) and I believe that the prospects of anyone offering replacement vouchers on the same terms were nil. We certainly would not have done so.”

 

Passages taken from Mr Nicholas Gilodi-Johnson’s Skeleton Argument detailing Park II which was rejected by HBOS on 10 October 2006.

1 September 2006 onwards……

142. The bank was ready to appoint receivers with a pre-pack sale to Findel but Findel lowered its offer price and it fell through.

143. This led to what has been referred to as ‘Park II’. The precise details of ‘Park II’ changed over time, but, in essence, by the end of September 2006 it involved

(1) A £3m loan from the Johnson family trusts, subordinated to HBOS;

(2) £1.875m of IWOOT loan notes and £3.1m of earn-out payments to be converted to a loan of £4.975m;

(3) Park to provide a loan of £3.5m (in the form of deferred payment terms (£3m) and an additional £500,000);

(4) Park to acquire FFG for £6m; and

(5) Kitbag to be sold for £15m.

144. On 7 September 2006 a further request had been made to HBOS by FFG to set up a trust account. This was refused the following day. This again was inevitable.

EHR board meeting on 19 September 2006

145. Mr Rollason reported that HBOS had been pursuing a pre-pack solution with Findel up until late on 1 September 2006 but that at the last minute Findel had reduced their offer. HBOS had then decided that their loss on the Findel deal was too large and as a consequence they had expressed an interest in Park II. He set out the then basis on which Park II was proceeding. This offered a real prospect of a solvent solution.

EHR board meeting on 4 October 2006

146. By now Findel had come back on the scene. The purpose of the meeting was to consider giving HBOS permission to speak to Findel and Deutsche Bank to explore the possibility of a sale of the business. The board agreed on the understanding that HBOS had to have regard in any solution to maximising funds to all creditors, and in particular FFG creditors.

147. On 10 October 2006 HBOS telephoned Mr Rollason to say that they would not support Park II and that they wanted him to work alongside PwC to complete a sale of parts of the business to Findel. The board of EHR met on 12 October 2006 and resolved to request HBOS to apoint administrative receivers to EHR.  Partners in PwC were formally appointed on 13 October 2006.

Court Details Farepak Directors Day 10 – 13 June 2012

Cause list Wednesday, 13 June 2012

Updated: 12 June 2012 13.24 (refresh your browser for the latest version)

The following list is subject to change until 4.30pm. Any alterations after this time will be telephoned or emailed direct to the parties or their legal representatives.

IN THE HIGH COURT OF JUSTICE

 

CHANCERY DIVISION

 

 

COURT 26

Before MR JUSTICE PETER SMITH

Wednesday, 13 June 2012

At half past 10

GENERAL LIST

Part Heard

584 of 2011 In the matter of European Home Retail plc and in the matter of Farepak Food & Gifts Ltd

Court Details Farepak Directors Trial Day 9 12 June 2012

Cause list Tuesday, 12 June 2012

Updated: 11 June 2012 13.05 (refresh your browser for the latest version)

The following list is subject to change until 4.30pm. Any alterations after this time will be telephoned or emailed direct to the parties or their legal representatives.

IN THE HIGH COURT OF JUSTICE

 

CHANCERY DIVISION

 

 

COURT 26

Before MR JUSTICE PETER SMITH

Tuesday, 12 June 2012

At 2 o’clock

GENERAL LIST

Part Heard

584 of 2011 In the matter of European Home Retail plc and in the matter of Farepak Food & Gifts Ltd

 

Directors’ Duties in the matter of Uno plc and World of Leather plc [2004]

Unfairpak can confirm that this case has been referred to in the Defendant’s Skeleton Arguments.

 

Directors’ Duties In the matter of Uno plc and World of Leather plc [2004].

 

In this directors’ disqualification case it was accepted by the defendant directors that they were aware that the Group of Companies was in financial difficulties; that they continued to take deposits from cash paying customers; that they failed to segregate those deposits and that they knew that there was a risk that if the Group went into formal insolvency before customers received delivery then the customers would be unsecured creditors and would not receive the goods ordered or the refund of their deposits.

 

The Court agreed, however, with the submission made on behalf of the defendant director that their conduct did not amount to unfit conduct warranting a Disqualification Order. The reason for that was that the Secretary of State had overlooked the all important concession that, at all material times, the defendant directors had reasonable grounds for believing that insolvent liquidation could be avoided.

 

The Judge found that the defendant directors could not be criticised for their conduct. His detailed summary of the directors’ actions in the case showed that:-

 

1. They constantly reviewed the Company’s options.

 

2. They regularly received and considered updated financial infor mation.

 

3. They regularly took professional advice from solicitors and accountancy experts.

 

4. They kept their major creditors and suppliers fully informed of the actions they were taking.

 

5. They had gone out of their way to try and secure a solution which had reasonable prospects of succeeding and which, if achieved, would have satisfied all of the Group’s creditors not least its cash paying customers; and

 

6. They minuted key decisions taken and the reasons for them.

Collapse of Choice & Consequences of same to Farepak

UNFAIRPAK MUST POINT OUT THAT ALL DEFENDANTS MENTIONED ARE INNOCENT UNLESS PROVEN OTHERWISE.

Taken from Skeleton Argument – THE SECRETARY OF STATE FOR BUSINESS INNOVATION AND SKILLS

 

Collapse of Choice and the consequences thereof

 

176. On 30 January 2006 it became clear that the £12.1m payment due to be made to Choice that day could not be honoured,  and the CHAPS payment order was cancelled.

 On 31 January 2006 FFG paid Choice only some £6.5m of its £12.1m liability.  Choice went into administration the same day, “as a direct result of two major customers failing to pay their January accounts“, according to the joint administrators.


177. The fact that Choice had not been paid in full by FFG was known to Mr Rollason and Mr Fowler contemporaneously, and each of them was involved in discussions with Choice on 31 January.

177.1. Mr Gilodi-Johnson was told by Mr Hicks on Monday 30 January that the £12.1m payment had not been made, and went on to discuss the matter with both Mr Fowler and Mr Rollason shortly afterwards.

177.2. Mr Johns was informed of the administration of Choice by Mr Gilodi-Johnson on 1 February.113

177.3. Sir Clive Thompson learned of the collapse of Choice in a conversation with Mr Rollason on 1 February.114

177.4. Mr Munn’s evidence is that he first learned of the collapse of Choice upon reading an EHR board memorandum of 2 February from Mr Rollason, dealt with further below (the “2 February Memo”).

177.5. The evidence does not suggest that Mr Gillis knew of the collapse of Choice before receiving the 2 February Memo, which he discussed at the time with Mr Munn.116

178. Once the payment to Choice was missed and Choice collapsed, the Defendants knew or should have known that this was because of a lack of funding at the time. They should also have known that there was (at the least) a very high risk that payment terms would change in relation to any substitute supplier of vouchers and they should have been demanding a clear report as to what the effect of the collapse of Choice would mean. The directors should have monitored the position, including requiring appropriate financial modelling. Had they done so, the funding gap identified in forecasts by April 2006 would have come to light significantly earlier. An informed process leading to a decision as to whether to continue trading, and if so on the basis of what plans, could accordingly have been explored a lot sooner.

 

Farepak Food & Gifts £30,000 “giveaway”!!! You had to be “in it” to “win it”

This was the competition that Farepak Food & Gifts Limited ran the year they went into administration.  Unfairpak would be interested to hear if anyone ever did win a prize!

 

Don’t miss out on our £30,000 giveaway…
A game of two halves! From now until 10th November 2006 there is £30,000 of Gift Vouchers to be won!
Enclosed in the special ‘Money Match’ envelope sent with your catalogue is the left half of your voucher. Keep it in a safe place because every month – just by keeping up-to-date with your payments – you’ll automatically be sent a right half in your monthly statements and, if they match up, you will win Gift Vouchers of your choice from our extensive 2006 voucher range to spend in big name high street stores!
To view full terms & conditions and latest news, you will need to login to your Agent account on the left of the screen.
Make sure to keep the left half of the voucher in a safe place because without it, you can’t win!
Here’s what you could win:
Each month from January to September 2006
FIRST PRIZE – £1,000 Gift Vouchers
100 RUNNER’S UP PRIZES – £10 Gift Voucher
OCTOBER 2006 GRAND PRIZE
GRAND PRIZE – £10,000 Gift Vouchers!
TWO SECOND PRIZES – £1,000 Gift Vouchers
To automatically receive a Money Match voucher-half in your monthly statement(s), you must keep up-to-date with the payments specified in the previous month’s statement.

Remember, you have to…
BE IN IT TO WIN IT!

Allegations made by Secretary of State for Business Innovation and Skills

Taken from Skeleton Argument – THE SECRETARY OF STATE FOR BUSINESS INNOVATION AND SKILLS

Unfairpak would like to point out that these are allegations only and all persons named are innocent unless proven otherwise!!!!

5. The allegations of unfit conduct are, in very broad form, as follows:

5.1. Causing or permitting EHR to trade at the unreasonable risk of its creditors for the period from November 2005 (all defendants other than Mr Fowler) to the collapse in October 2006 and for the period from January 2005 to the collapse in October 2006 (Mr Fowler, who only became a director of FFG and EHR in January 2006) and, in the same periods, failing to ensure that that the FFG board was functioning adequately;

5.2. Causing or permitting FFG to trade at the unreasonable risk of its creditors for the period from November 2005 (Mr Rollason and Mr Gilodi-Johnson) to the collapse in October 2006 and for the period from January 2005 to the collapse in October 2006 (Mr Fowler, who only became a director of FFG and EHR in January 2006);

5.3. From 14 November 2005 (Mr Rollason and Mr Gilodi-Johnson) and from 1 January 2006 (Mr Fowler) seeking to mislead, alternatively failing to take adequate steps to inform, the boards of each of FFG and EHR of the developing financial situation in relation to a forecast inability of EHR to put FFG in funds to pay its major supplier at the end of January 2006;

5.4. In February 2006, failing to give any or any adequate consideration to (a) matters set out in a letter of representation provided to the auditors of FFG; (b) whether the financial statements for FFG for the period ending 28 April 2005 gave a true and fair view including by reference to any material post balance sheet events and (c) whether FFG’s auditors should have been informed of an inability of FFG to pay £5.6m due to its major supplier at the end of January 2006 and/or the collapse of such major supplier thereafter (Mr Rollason and Mr Fowler) and, in the case of Mr Rollason, permitting financial statements for FFG for the April 2005 year end to state that they had been approved by the board of FFG when the board had not met and had not approved the same;

5.5. From February 2006, failing to take adequate steps to inform the boards of EHR and FFG of the developing financial situation (Mr Rollason, Mr Fowler and Mr Gilodi-Johnson);

5.6. Seeking to mislead investigators appointed under s447 of the Companies Act 1985 as to the reasons for the failure of FFG, and its financial inability, to pay its major supplier at the end of January 2006 (Mr Rollason and Mr Fowler).

Farepak Directors Trial Day 8 – 1 June 2012

Unfairpak unfortunately have nothing to report as to today’s proceedings.

Court went into recess today at 4.30 p.m. as it is the end of Term and it shall reconvene on Tuesday, 12 June 2012 at 10.30 a.m.

The Insolvency Service on behalf of the Secretary of State [Vince Cable] are still giving evidence and shall continue to do so on 12 June 2012.

Unfairpak have ascertained however, that the defendants have split into different groups due to the fact that although the Secretary of State is seeking to have them disqualified alleging “unfit conduct”, some defendants have more importance placed on them than others and accordingly face more serious allegations.  We cannot elaborate further at this stage.