BL-2022-002117 - [2025] EWHC 2794 (Ch)

In mid-2013, a new senior management team was appointed to the Company, with a view to a subsequent management buy-out which would enable Peter Marples to exit the business. Quayle Munro were appointed in February 2015 as corporate finance advisors to support a management buyout process and by April 2015 an Information Memorandum had been produced.

That Information Memorandum described the Company as requiring “Minimal capital investment” and being “highly cash generative”. It also showed that the Company’s gross profit margin in the 2015 financial year was on track to be 60%, and that its actual gross profit margin in the previous financial year had stood at 49%.

In July 2015 the Company signed a memorandum of understanding with Inflexion Private Equity Partners LLP. The Claimants say that the proposed sale would have led to the shareholders of the Parent Company receiving £50 million. Due diligence led to the Company commissioning an external review, which in turn led to a mock SFA funding audit carried out by Baker Tilly. The report of that exercise (“the Baker Tilly report”) identified what Baker Tilly considered were inaccurate data in the Company’s records and flagged a risk that the Company was submitting inaccurate data to the SFA. At some point, the Company shared the Baker Tilly report with their regular contacts at the SFA.

On 19 August 2015, two to three weeks prior to the Inflexion deal closure, the Company consulted the SFA about the proposed change of control. On 21 August 2015 Ms Kirsty Evans replied by email quoting clause 5.10 and identifying the standard factors the SFA would consider in deciding whether to exercise is clause 5.10 right to terminate the funding agreement:

“Before deciding whether to exercise the right to terminate the SFA will consider certain factors including:

• Confirmation that the legal entity will not change

• Financial Health of 3AAA – latest financial statements – Profit and Loss Account, Balance Sheet, commentary and breakdowns, in year position (management accounts) and forecast for next year trading)

• Any arrangements relating to the financing of the business – we need to be clear on the basis for the Inflexion investment and how it will work - for example are they investing the “money” in 3AAA as equity or will it appear as capital with loan documents to the financing house etc?

• Change in Directors-names and dates of birth of any new directors

• Continuity of staffing arrangements, particular senior management and capacity to deliver

• Review of any information held by the Agency or in the public domain regarding the new owners that affect our decision”.

The Company responded on 24 August with information on each of the standard factors.

The SFA had a standard letter (and it was referred to internally as such) to be used during the change of control process which informed the provider that the change of control was noted, and which repeated the SFA’s reservation of rights to terminate the contract in clause 5.10. Ms Evans sent the standard letter to the Company on 27 August 2015:

Ms Forton’s email of 21 August gave an indicative timeline for a response of “up to 14 days” from receipt of the information it required. In fact she responded within three days.

The Claimants emphasise the standard process, and the approval given for the Inflexion transaction, by way of contradistinction to the change of control process for the Trilantic acquisition. They also point out that the SFA never raised any objections to any change of control notification other than the Trilantic Acquisition. In each case, the SFA conducted the checks it wished and then sent the standard letter reserving its rights. This occurred for 11 other provider changes of control between 2014 and 2018 (10 between 2016 and 2018).

Sir Peter Lauener did not know about the SFA’s decision on the Inflexion deal at the time. Mr Mapp recorded on 6 April 2016 that he had showed Sir Peter the SFA’s decision letter on the Inflexion deal and Sir Peter was visibly shocked. In oral evidence, Sir Peter disputed that this was the correct interpretation of Mr Mapp’s email and claimed to have a different recollection of this conversation, as relating to rumours of some other sale more recent than Inflexion. There was no other sale and no suggestion in the papers of rumours of another sale other than Inflexion. This was an example of Sir Peter seeking to reinterpret documents to say something which they did not.

In the event, however, the Company did not proceed with the Inflexion deal.