Fnac Darty wins £115 million Comet appeal

Overview

The Court of Appeal has overturned a £115 million judgment against Darty Holdings. The Court ruled that the decision to enter into the impugned transaction was actually made by Comet’s board’s on the approval of the transaction and was not influenced by a desire to prefer. This was contrary to the High Court’s ruling that the decision was made by one of the company’s directors on the execution of the purchase agreement.

Background

Kesa Electricals entered into an agreement to sell Comet to OpCapita on 9 November 2011. One term of the SPA was that £115 million of intra-group debt owed by Comet to KIL (the group treasury company) would be repaid by Comet as part of completion. Comet’s board approved the completion agreement, including the repayment of the £115 million debt to KIL, on 3 February 2012.

Later, Comet’s liquidator brought an application for relief against Darty, KIL’s successor, and the High Court ruled that Comet’s repayment of the £115 million debt to KIL was a preference. We summarised the High Court’s decision HERE.

One of the issues before the High Court was whether the operative decision to give a preference for the purposes of section 239 of the Insolvency Act 1986 was the entry into of the SPA on 9 November 2011, or the board’s approval of the completion agreement on 3 February 2012. The Court accepted that the board’s February 2012 decision was not influenced by a desire to prefer, but found that the relevant decision was the decision made by one of Comet’s directors to enter into the SPA on 9 November 2011. That decision, the Court ruled, was deemed to have been made on behalf of Comet and was influenced by a desire to prefer. Darty appealed.

The Court’s Decision

Lord Justice Lewison, writing for the Court of Appeal, stated that the key issue on the appeal was when Comet decided to repay the £115 million. When a decision to repay a debt was made is a question of fact to be determined in the particular circumstances of each case. A contractual obligation to make the repayment is neither a necessary nor a sufficient condition.

The Court concluded that there was no evidence to support the finding that the the "real" or "substantive" decision was made by the director when he entered into the purchase agreement. Significantly, there was no evidence that the director was authorised to make the decision to repay the £115 million on behalf of Comet. To the contrary, the decision was conditional on board approval, which was given in February 2012. The board’s February 2012 decision was the operative decision, and it was accepted that this decision was not influenced by a desire to prefer. As a result, the Court allowed the appeal.

Conclusion

The Court of Appeal emphasised that the question of when and whether a decision to prefer was made is a question of fact to be determined in the particular circumstances of each case. However, it did provide some guidance on how it may rule in situations where a decision is subject to board approval or some other condition precedent. In those situations, it is unlikely that the Court will find that the decision was made until the condition has been satisfied.

Judges: Lord Justice Lewison, Lord Justice Newey and Lady Justice Elisabeth Laing

Counsel: Tom Smith KC and Henry Phillips of South Square (instructed by Sidley Austin LLP, whose team was led by Matthew Shankland and included Alastair Hopwood, Samantha Cumming, David Smith and Jonathan Tomlin) for the Appellant Darty Holdings SAS

Andreas Gledhill KC of Blackstone Chambers and Tiran Nersessian of 4 Stone Buildings (instructed by Jones Day) for the Respondent Geoffrey Carton-Kelly (as additional liquidator of CGL Realisations Limited)