Westpac
and Yarrows Group management have fended off claims by former owners of a
Rotorua bakery claiming $6.5 million compensation for losses following Yarrows’
2011 receivership.
Short of working capital to finance expansion
in New Zealand and into Australia, baking conglomerate Yarrows Group was put
into receivership in May 2011. Yarrows
had negotiated heads of agreement in early 2011 with Japanese company Sumitomo
for funding in return for a half share in the Group. Nothing came of the deal following an
acrimonious split within the Yarrow board of directors. Director Paul Yarrow fell out with fellow
directors and trustees of his father’s charitable trust over his exercising
greater management control. Sumitomo
dropped out. Owed $55.2 million, Yarrows’
banker Westpac appointed BDO Spicers as receivers. Mr Finnigan, Yarrows finance director was to
describe BDO’s performance as “dismal”.
He alleged the receivers’ decision to break up Yarrows and sell the parts
piecemeal resulted in recoveries considerably lower that the amount Sumitomo
had been prepared to pay.
Caught in downstrean eddies were Mr Trevor Boss
and Mr Jean-Philippe Jacquet, former managers and owners of Rotorua bakery,
Gilles Bakery Ltd. For some time, Gilles
had baked bread under contract to Yarrows.
The Court of Appeal was told Yarrows purchased
a 75 per cent stake in Gilles in 2001, paying cash. Five years later, Yarrows bought out the
remaining 25 per cent stake but payment this time was in fully paid redeemable
preference shares issued to family interests associated with Messrs Boss and
Jacquet. While Gilles then became a
fully-owned subsidiary of Yarrows, Messrs Boss and Jacquet remained as
directors of Gilles to better protect their interests as preference
shareholders. Gilles was caught up in
the 2011 receivership as a Yarrow subsidiary, with losses to preference
shareholders. There was evidence that
Messrs Boss and Jacquet attempted to buy back their bakery from the receivers
but were out-bid by Mr John Yarrow, Paul Yarrow’s younger brother.
Through Gilles, Messrs Boss and Jacquet sued
alleging losses of $2.42 million caused by the actions of Yarrow and $4.12 million caused by Westpac. Both claims were dismissed.
It was alleged Yarrows as shareholder
interfered with the management of Gilles to such an extent that it was a de
facto director of Gilles and as such was in breach of a director’s duties to
act in good faith and in the best interests of the company. The main complaint concerned documentation
surrounding Group refinancing. In early
2008 Yarrows renegotiated loan facilities with Westpac, increasing the bank’s
level of security to $60 million.
Gilles’ directors were required to complete documentation giving security
over Gilles’ assets and having the company guarantee Group borrowing. Boss and Jacquet were to later allege that
Group management “cracked the whip” and “demanded and insisted” that they sign such
that they simply acted under instructions, meaning Yarrow was the real director
of Gilles. Signing had the effect of
seriously reducing Gilles’ assets available to meet claims by Gilles’
redeemable preference shareholders, a scenario which came into play on
receivership.
The Court of Appeal said the refinancing was a
straightforward commercial transaction.
Documentation signed by Messrs Boss and Jacquet did not support their
allegations. As directors of Gilles they
signed resolutions stating the refinancing was in the best interests of the
company and of the Group. They knew how
the transaction would “water down” the security available to redeemable preference
shareholders. They had signed
acknowledgements that lawyers for the company were acting on behalf of Yarrows
as a group and that the directors should seek independent legal advice in
respect of their separate interests as redeemable preference shareholders of
Yarrows’ subsidiary Gilles.
The court ruled that Yarrows’ actions in forwarding
documentation for signature did not amount to “an instruction”. Directors exercise their own independent
judgment in deciding whether to sign or not.
Yarrows was not a de facto director of Gilles.
The court dismissed claims that Westpac had
acted dishonestly, allegedly joining with Yarrows to prejudice Gilles
redeemable preference shareholders.
Gilles Bakery
v. Gillespie – Court of Appeal (25.03.15)
15.024