The recent judgment of HHJ Richard Williams, sitting as a High Court Judge, in Loveridge v Povey & Ors [2024] EWHC 329 (Ch) deals with what he described as a bitter dispute over the Loveridge family business. The business concerned was the operation of caravan parks in Worcestershire, Warwickshire and Shropshire, in part through five companies, and in part through three partnerships at will. The companies made use of interest-free inter-company loans repayable on demand
Some knowledge of the members of the Loveridge family is needed in order to understand the background to the judgment. At the top of the family tree were Ivy Loveridge and her husband Alldey. Michael Loveridge was their son, as was his brother, Audey. In April 2019 Audey and his wife, Melinda, separated. Melinda petitioned for divorce and made an application for financial relief under the Matrimonial Causes Act 1973. Around the same time Audey transferred his shareholding in one of the family companies, Breton Park Residential Homes Ltd: 50% to Michael and 50% to Ivy. On 13 April 2022 Alldey died. As a result Ivy became sole director of Bewdley Carvan Sales Ltd and Kingsford Caravan Park Ltd and the majority shareholder of both: 1/3rd in her personal capacity and 1/3rd as the personal representative of Alldey’s estate. The removal of Michael as a director of certain companies and an unfair prejudice petition issued by him also formed part of the background to the administration under consideration by the court, the immediate need for which arose as a result of concern as to the future of certain of the family companies, and one in particular.
In April 2022 Kingsford Caravan Park Ltd applied on its own behalf and on behalf of Bewdley Caravan Sales Ltd for an administration order in respect of Breton Park Residential Homes Ltd. In her witness statement in support of the application, Ivy Loveridge explained:
“As a result of the family proceedings, there is a risk that control of Breton…will pass to Audey and/or his estranged wife. The Applicant and Bewdley…are not prepared to leave significant debts outstanding where this is a real possibility, nor continue to provide security and guarantees for RBS for [Breton’s] outstanding loan to RBS. It is for this reason that the Applicant and Bewdley… have requested repayment of the outstanding debts…”
On 27 July 2022 an administration order was made in respect of Breton, and joint administrators were appointed.
In the meantime, orders had been made in Melinda’s financial remedy proceedings enabling Michael to intervene under s. 37 Matrimonial Causes Act (which deals with avoidance of transactions intended to prevent or reduce financial relief), but he failed to comply with court directions so was debarred from participation. This became important for reasons explained later.
On 5 May 2022 an order was made staying Melinda’s financial remedy proceedings until the conclusion of the Breton administration proceedings.
On 16 September 2022 the administrators made their proposals. They noted the existence of assets, largely in the form of freehold land and buildings, which had been professionally valued at around £3.9-£4.4 million; a secured liability to RBS of £1.6 million; preferential liability of some £1,500 to HMRC; unsecured claims totalling some £1.25 million, which included the claims of Kingsford and Bewdley and a disputed claim by Michael of £156,000 for management fees. The administrators proposed that, notwithstanding the fact that Breton was balance-sheet solvent, in the absence of sufficient working capital to discharge the company’s debts, the business and assets of the company should be sold to produce a better result for creditors than would be achieved in liquidation.
On 8 October 2022 the administrators’ proposals were approved without modification by the deemed consent procedure provided for under s. 246ZF Insolvency Act 1986. In April 2022, they began marketing Breton’s business and assets, which resulted in five offers ranging from £3.3-£5.75 million, the highest offer being made by Michael.
On 18 July 2023, the administrators applied for a second extension of the administration for a year. Ivy opposed on the basis that an extension was unnecessary, as Breton could be rescued as a going concern without the need for any extension. She had put forward a refinancing proposal: a special purpose vehicle, MIAD Group Limited, would grant Breton a secured loan facility of £3.95 million which would allow Breton’s creditors to be paid in full, the surplus to be used as working capital. On 22 August 2023 Kingsford lent £4 million to MIAD for onward lending to Breton.
Before the judge were applications:
(1) for a further extension of the administration;
(2) to direct the administrators to abandon the proposed company rescue and proceed instead by way of a sale of its business and assets;
(3) for an interim injunction restraining Ivy and MIAD from paying away the £4 million pending determination of Michael’s unfair prejudice petition;
(4) to join Melinda to applications (2) and (3).
Although there had been controversy in the past about extending the administration, all parties agreed to a further extension, and an order was made.
Michael and Ivy consented to Melinda being joined as a respondent to the directions application but objected to her being joined as a respondent to the injunction application. The judge joined her for the purpose of both.
As to the directions sought, the administrators were neutral, submitting simply that their role was to perform their statutory functions pursuant to the proposals approved by the creditors or as directed by the court. Ivy and Melinda opposed the application.
Most of the judgment on the directions application concentrates on the position of Michael. He opposed it on a number of bases, arguing:
(1) The statutory requirement for the administrators to seek to rescue Breton as a going concern was qualified: any rescue scheme had to be reasonably practicable.
(2) When a company was balance-sheet solvent, as Breton was, the administrators had to have regard to the interests of the company’s members when deciding how to act (Re Hat & Mitre plc). The administrators had not taken members’ interests into account; the members were entitled to serious consideration and fair treatment in circumstances in which Breton’s present creditors were to be fully repaid.
(3) Parliament cannot have intended para 3 Sch B1 Insolvency Act to mean that administrators had to prefer a company rescue whatever the downside for the company’s members.
(4) Whilst the court will give due deference to the commercial decisions of administrators, the standard of review is no more than Wednesbury unreasonableness (Davey v Money).
The judge accepted that the administrators were statutorily mandated to perform their functions to rescue Breton as a going concern without the realisation of its assets unless they thought that that was not reasonably practicable or the para 3(1)(b) objective would achieve a better result for creditors. He considered the use of terms such as “clearly perverse” or “irrationality” in the case law on challenges to office-holders’ decisions to be no more than “a reminder of (i) the wide latitude given to administrators when exercising commercial judgments and (ii) a warning to judges that, when exercising what is ultimately a supervisory jurisdiction, they are not entitled to substitute their own views.” The court could, however, and should intervene “if satisfied that no reasonable administrator could have thought that it was reasonably practicable to rescue Breton as a going concern in all the circumstances.”
After careful consideration of the Hat & Mitre judgment, the judge concluded that the court did have jurisdiction to intervene, if persuaded that no reasonable administrator could have thought that it was reasonably practicable to rescue Breton as a going concern when having regard to the interests of the members as a whole in circumstances where Breton was balance-sheet solvent and the creditors would be paid in full. He nonetheless declined to do so. His reasoning went, among other things, to Michael’s lack of standing resulting from the order made in the family proceedings. The judge held it would be “contrary to the fair administration of justice” to allow Michael to argue that his interests as a member of Breton would be harmed by the proposed rescue in circumstances in which he had absented himself from the financial remedy proceedings so was no longer in a position to argue, as he had intended, that he had a beneficial interest in the Breton shares. He had been specifically warned of the potential wider implications of failing to engage with those proceedings. “[T]the reality is,” the judge said, “that Michael is pursuing the Insolvency Application without any legitimate interest as a member for doing so, but rather in an attempt to pursue his interest as a prospective purchaser of the site.”
Even if he was wrong about Michael’s standing, he further held Michael’s position should not prevail for the following reasons:
“I am not persuaded that the Administrators’ decisions to (i) pursue the rescue of Breton as a going concern over a sale of its business and assets to Michael, and (ii) return the Company to the management of Ivy are decisions that no reasonable administrator could have reached in all the circumstances and having regard to the interests of the members as a whole. Breton has been, and when returned to the management of Ivy is likely to continue to be for the reasonably foreseeable future, a profitable business. Ivy, Audey and Melinda (the likely beneficiaries of the surplus arising on any sale of the business and assets to Michael) have all expressed the view that maintaining Breton as a going concern is more valuable than the short-term monetary gain arising from an immediate realisation. Michael has failed to establish that the Administrators’ decisions here lack commercial justification or do not withstand logical analysis.
“Nor am I persuaded that any risk of harm to Michael’s membership interests as a result of returning Breton to the control of Ivy would be unfair within the meaning of Paragraph 74 of Schedule B1 in circumstances where – i. the Administrators are seeking in good faith to carry out their functions to achieve the primary statutory objective of rescuing Breton as a going concern, which is justifiable by reference to the interests of the members as a whole; and ii. there would be adequate remedies available to Michael in the event that he were to suffer harm as a result of Ivy then running Breton in her own interests and contrary to Michael’s interests as a member.”
The injunction application also failed. Among the matters the judge relied on were Arden LJ’s observation in Pringle v Callard that an interim injunction ought to be refused “where the remedy sought at the end of the day is a buyout and where the matters complained of on an interim basis can be taken into account in the process of the valuation of the shares for the buyout,” as was the case here. Furthermore, a monetary award (by way of appropriate upward adjustment(s) to the buy-out figure for Michael’s shares) would be an adequate remedy for the relief sought under Michael’s unfair prejudice petition.
This was a complex case, highly fact-specific. It serves, however, to highlight two issues that sometimes bedevil insolvency cases.
The first is the issue of standing. A party applying in insolvency proceedings, especially to challenge an office-holder’s conduct, needs to consider carefully the capacity in which he/she is acting and its implications for his/her standing. The decision in this case takes its place in a long line of authority (cf most recently, in the Court of Appeal, Lock v Stanley and Edengate Homes (Butley Hall) Ltd).
The second is the complex and often unexpected consequences of interaction between insolvency and family proceedings. These arise most frequently in the personal insolvency realm, but family law often affects the affairs of family-run businesses – not just when they are insolvent, but when they are operating profitably. This insolvency was complicated by the existence of an unfair prejudice petition, a complication that has real implications, even if such a petition does not involve the office-holder as a party. The administrators in this case plainly faced, and will, no doubt, continue to face, challenges arising out of the Loveridge family dynamics. On the basis of this judgment, however they appear to be dealing with them rather well so far.