The UK’s high court has ordered Fnac Darty, the French electricals chain, to pay £89mn plus interest and costs to the liquidator of Comet relating to an intercompany loan made before the UK retailer went bust.
The judgment is the latest act in a legal and regulatory dispute that has raged for a decade and involved some of the biggest names in the UK’s restructuring and insolvency industry.
Justice Sarah Falk said Comet was insolvent before its then-owner, Kesa Electricals, sold it as a going concern to a group of investors including OpCapita, Greybull Capital and Elliott Advisors for a token £2 in February 2012.
She ruled that Simon Enoch, Kesa’s general counsel at the time, and others “had a desire to ensure repayment” of a £115mn intercompany loan when they agreed the terms of the sale in November 2011 “and had in contemplation the possibility of an insolvent liquidation of Comet”.
“Whether or not they formed the view that Comet was solvent at the point of disposal, they undoubtedly knew that there was a risk of an insolvency process,” she said, adding that the decision to repay the facility was made by Kesa on Comet’s behalf at the time the sale agreement was struck.
The repayment of the loan was financed by the special purpose vehicle that acquired Comet, which then took a charge over all the assets in the business to protect its own interests in the event of insolvency.
Towards the end of 2012, Comet did become insolvent with the loss of more than 7,000 jobs. The earlier repayment of the intercompany loan meant that Kesa avoided becoming an unsecured creditor.
Following the sale, Kesa changed its name to that of its more successful French operation, Darty, though it kept its listing in London.
Fnac Darty said in a statement that it “has vigorously challenged from the beginning the merits of the claim” and would seek to appeal against the judgment. It was not informed about the matter of the intercompany loan when it acquired Kesa in 2016, it has said. The legal proceedings were issued by Geoff Carton-Kelly, Comet’s additional liquidator, in 2018.
Michael Walters, the former company secretary of Comet and a critic of the sale and the subsequent administration, said he was “very pleased that [Carton-Kelly] has pursued the interests of Comet’s unsecured creditors” and that the judge’s ruling “confirmed my concerns about the way that the disposal of Comet was structured”.
“It is regrettable that it has taken 10 years to reach this position,” he added, referring to the shortcomings of the original Comet administration, which was handled by Deloitte.
Its work was strongly criticised by the Institute of Chartered Accountants in England and Wales, which said in a 2018 report that the firm and its partners Neville Kahn and Christopher Farrington had not been independent or objective in respect of Comet because of their relationship with the consortium that had acquired it.
The ruling, if upheld, means that the three investors that acquired Comet could receive a further distribution. Despite putting up just £2 in equity, they are believed to have recouped more than £100mn from the acquisition of Comet including loan repayments and interest before its insolvency and about £63mn in distributions following the administration and liquidation.
However, the liquidator’s last progress report in October 2021 stated that their £140mn claim would not be repaid in full even if the legal action against Fnac Darty was successful. The outcome for unsecured creditors is entirely dependent on the action.
The investors will also not face any legal claims in regard to their own conduct following a confidential settlement agreement struck with Carton-Kelly in 2018.