Former 'Rich List' resident treated investors unfairly, court rules

Thursday 25 February 2021

The Royal Court has found that one of Jersey’s former richest residents treated investors in his company unfairly while securing "maximum advantage for himself", following a weeks-long legal showdown held in an island hotel.

The court case was the culmination of a long row between Australian entrepreneur Graham Tuckwell, and a trio of private equity backers, who claimed they should have received a share of his $600m business sale, while he said he didn’t owe a penny.

Heard by the Deputy Bailiff, Robert MacRae, and Jurats Anthony Olsen and Robert Christensen, the case took place over four weeks between October and November at Hotel Cristina with 14 witnesses giving evidence.

The case probed the a relationship breakdown between Mr Tuckwell, who appeared on Jersey's Rich List in 2017, and seven plaintiffs split in three groups, who together held around a third of the stake in a Jersey-based business, ETFS Capital Limited, whose assets he sold in transactions totalling around $600m.

Pictured: The trio of backers argued the proceeds of the $600million sale should have been shared.

The trio argued before Jersey’s Royal Court that the proceeds should have been shared, and that they had been prejudiced by the fact the business of the company had changed “beyond recognition” since the sale, which meant they no longer wished to be shareholders.

The three groups wanted their shares to be bought by the company, or by Mr Tuckwell, “at a fair value with no discount, calculated by reference to their minority shareholding." They argued that any purchase should be based on the company’s value around the date it was sold in May 2018. 

In the alternative, they also sought a winding up of the company with the surplus distributed pro-rata amongst the shareholders.

Mr Tuckwell countered that all seven plaintiffs in the case knew of the risks of purchasing minority shares in a private company. He said he had offered to purchase their shares “at a fair value supported by independent expert evidence” and that they should not be able to claim any relief.

The entrepreneur also argued that one of the plaintiffs, a private equity firm, was attempting to regain rights they had given away when converting their preferred shares into ordinary ones in 2009.  

Pictured: The case was heard by the Deputy Bailiff, Robert MacRae, and Jurats Anthony Olsen and Robert Christensen.

The recently-published judgment also shows how cracks in the relationship between backers and Mr Tuckwell manifested themselves at a 2019 board meeting, with Mr Tuckwell described as having become “irate at the number of questions being asked” to the extent that he “ultimately muted their lines so that they could no longer be heard.” The act was described as “grossly inappropriate” by the Court.

The Plaintiffs had also raised issues with Mr Tuckwell’s decision to move from Jersey to Australia in 2019, raising concerns that it put him in breach of his service agreement, and could lead the company to be found Australian tax resident. 

Mr Tuckwell made the point that no tax experts had been called to assess whether that was a risk now or in future.

The Court agreed that Mr Tuckwell’s relocation didn’t have any adverse impacts for investors, but did describe it as “reckless”, saying that he “should have taken, and should have ensured the Company took, proper advice well before the move and should have taken steps, such as resigning from the Board, to avoid those risks before he left Jersey and not on arrival in Australia.”

Pictured: The Royal Court said Mr Tuckwell's decision to leave Jersey without taking steps to avoid prejudice to the company was "reckless".

The Court concluded that the plaintiffs were not entitled to a “non-discounted valuation” as they were ordinary minority shareholders in a private company.

Instead, they agreed with Noel Matthews, an expert who gave evidence on behalf of the plaintiffs and suggested that their shares should be valued as a single block of 35%. 

The Court said the shares should be valued at their “equitable value”, taking into account the identity of the parties and the fact that Mr Tuckwell would benefit as a consequence of the transaction. 

The Court noted it could be said that “any discount to the valuation of the Plaintiffs’ shares has the effect of benefitting the majority shareholder who has unfairly prejudiced the minority” but said it needed to decide “what is a fair price” for Mr Tuckwell and the company for the shares.

The Court concluded the “fair approach” would be to value the shares at a discount of 20% to their pro-rata value.

The Court said it could have ordered the Company to be wound up on the “just and equitable basis” having found that there had been a breach of duty and financial prejudice following the adoption of a new investment policy. 

However, it noted the case was different from most cases where a court exercises such jurisdiction.

Pictured: The Court said Mr Tuckwell had pursued “a scheme designed to drive the plaintiffs out of the company at the lowest possible price”.

The Court said Mr Tuckwell had pursued “a scheme designed to drive the plaintiffs out of the company at the lowest possible price” by misleading them about the pro-rata distribution of the proceeds of sale and repeatedly postponing discussions about those.

Mr Tuckwell also removed the Independent Directors who had made it clear they wanted all shareholders to be treated fairly and “unilaterally” changed the business of the company.

He then offered to buy the plaintiffs’ shares through a flawed process which led to “a discount against pro-rata value of the plaintiffs’ shares that was far too low”.

“The scheme pursued by Mr Tuckwell has led to financial prejudice to the Plaintiffs,” the Court wrote in its judgment. 

“In this case it consists of the fact that the Plaintiffs are now, in accordance with Mr Tuckwell’s wishes, locked in to a private Company with shares that are much less marketable than they were, owing to the new business which Mr Tuckwell has deliberately pursued, without regard to the interests of shareholders apart from himself; and by virtue of the offer that he has made to purchase the Plaintiffs’ shares which on any view is far too low, and has been pitched at that level in order to punish FTV and to secure maximum advantage for himself.”

The Court eventually ordered that Mr Tuckwell, or the company, should purchase the plaintiffs’ shares at their Net Asset Value on Friday 13 November 2020, minus a 20% discount to reflect their minority interests as shareholders.

If that doesn’t happen before 30 April 2021, Mr Tuckwell will be liable to pay interest to the plaintiffs at a rate set by the Court.