Hampson Industries and an investor consortium led by industrialist David Grove have started their High Court clash over the sale of an ailing engineering firm last year.
Erlson Precision Holdings, a firm owned by David Grove and a group of other investors, claimed it agreed to pay £3.1 million to buy Hampson Precision Automotive (HPA) on the basis of “fraudulent misrepresentations” – and is now asking a judge to untangle the deal.
The court case pits big names in the West Midland manufacturing world against each other – the London Stock Exchange-listed Hampson Industries and former Hill & Smith chairman David Grove as well as his fellow director at Grove Industries Les Litwinowicz, also one of the investors.
Erlson says it didn’t get what it bargained for in June last year when it agreed to buy the entire share capital of HPA, a company which specialises in making turbochargers and other components for the motor industry.
Just two weeks later, on July 6, Erlson protested that it had been lured into the deal by “fraudulent misrepresentations” and has since been fighting to get HPA off its hands.
Now the bitter corporate dispute has made its way to the High Court in London, where HPA’s former parent company Hampson Industries “vehemently denies” the fraud accusations and insists none of its executives did anything wrong.
Gregory Mitchell QC, for Erlson – which is claiming substantial damages as well as the right to rescind the share purchase – said it was his primary case that Hampson Industries “made representations as to HPA’s relationship with customers and forecast sales which it knew to be false”.
The barrister claimed Hampson’s then chief executive, Kim Ward, had known by the end of April last year that HPA’s second most important customer – Cummins – “had given notice of termination”.
And he accused Mr Ward of “deliberately suppressing that information because he knew that it was likely to stop the proposed deal dead in its tracks”.
Mr Mitchell claimed Mr Ward “knew only too well the disastrous effect such termination would have” on HPA’s business, and said that Erlson asserted its right to rescind the shares purchase “almost immediately upon discovering the truth”.
He told the court that, instead of revealing the impending loss of Cummins’ business, Mr Ward “deliberately swept it under the carpet so that the sale to Erlson would proceed”.
Mr Mitchell said that, once Erlson decided to rescind the share purchase, it could have “washed its hands of any further responsibility for HPA”, in which case the company “would have had to enter insolvency proceedings immediately”.
However, that would have resulted, among other things, in the loss of 150 jobs at a difficult time in the labour market so, instead of abandoning the shares in HPA, Erlson had “acted responsibly” by deciding to run the company as best it could pending the outcome of the High Court dispute.
Accusing Hampson of “wrongfully refusing to take back the shares”, Mr Mitchell said Erlson also wants compensation for “wasted transaction costs”, the time and expense of continuing to run HPA and “for its loss of opportunity of making a different acquisition”.
However, Charles Hollander QC, for Hampson, said Erlson had carried out its own detailed due diligence investigations into HPA before going through with the deal and Hampson Industries had given “no warranties” as to future financial performance of its subsidiary or its relationships with its customers.
Although HPA was “not a core business” of the Hampson group, the barrister said it “had achieved some progress” and was “beginning to recover” by June 2009 when it was decided to sell it.
All information given to Erlson before the sale was “provided honestly”, said Mr Hollander, who added that Hampson and Mr Ward, along with two other “reputable and experienced” executives being accused by Erlson, “vehemently deny all the allegations of fraud”.
The barrister said the “measure of success” enjoyed by HPA since the share sale undermined Erlson’s case.
Cummins, he told the court, still appears to be doing business with HPA and there are signs that sales to it will Increase in the future.
In the period between the share sale and December 31 last year, he said the indications were that the previously loss-making HPA had “generated net cash of over £1.1 million” and had reduced its net indebtedness from £3.1 million to £1.1 million.
The hearing, before Mr Justice Field, is expected to last up to two weeks.