Commercial judge removes diligence warrant in dispute between subsidiaries of offshore plc over insolvency risk

About this case:

• Citation:
  [2025] CSOH 68
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Cubie

James Fisher Offshore Ltd, the respondent to the petition raised by Mermaid Subsea Services UK Ltd, argued that its updated 2024 accounts and commitments made by its parent company had ameliorated the petitioner’s concerns about its financial position. The petitioner contended that the changes in the financial position had not substantially removed the risk, and the position of the respondent remained precarious.

The petition was heard by Lord Cubie in the Outer House of the Court of Session, with the Dean of Faculty, Dunlop KC, appearing for the petitioner and Howie KC for the respondent.

Renege on a commitment

The petitioner was part of a group of companies with James Fisher and Sons Ltd as the parent company, and the respondent was a subsidiary part of the same group. Due to concerns about the solvency and stability of the respondent, the petitioner sought a warrant to prevent the sale of its assets in Scotland while its claim in the English courts was proceeding. On 19 June 2025, a Lord Ordinary on an ex parte motion granted warrant to do diligence on the dependence based on the averments in the petition.

It was submitted by the petitioner that the warrant should remain in place, as although some of the concerns expressed about the solvency of the respondent had been addressed, there was still a real and substantial risk of insolvency defeating any claim by the petitioner in the English proceedings. Based on the accounts lodged, there was still a worrying deficit, with the company’s debts exceeding £37.3 million. While the parent company said it would support the respondent, that support fell short of what the petitioner sought, and it was open to it to withdraw that support.

The respondent submitted that the petition was unreasonable and unwarranted. The company had replaced its revolving credit facility with a more stable and cheaper means of financing, and the parent company had restricted the debts due to it by the respondent to remove financial pressure. It was wholly unreasonable to consider that the parent company, a publicly listed company accountable to the stock exchange, would renege on a commitment which appeared in its published accounts and endanger its reputation.

In a brief response, the petitioner accepted that there had been a change in the financial landscape since the petition, but it was not material enough to remove the risk. Subsidiaries failed all the time, and while the directors of a public limited company might factor in reputational risk but that need not be determinative. The respondent’s parent company were painting themselves as a benevolent actor but had failed to explain what was objectionable about a parent company guarantee.

Sufficient financial resources

In his judgment, Lord Cubie began by noting the change in circumstances: “The petition was granted on the basis of the petitioner’s submissions on 19 June informed by the 2023 accounts; the respondent’s ability to continue as a going concern depended upon financial support from other companies within the Group, which itself faced material uncertainty over its ability to continue as a going concern. The more up to date accounts were now available and form the basis for this decision. In March 2025, the annual accounts of the group for the year to 31 December 2024 were published. I observe that this was before the motion for diligence was made.”

He added: “The 2024 accounts of the respondent reflect an increase in turnover and in gross profit. There has been a restructuring of the cost base and the loss for the year before tax had reduced from £9.9 million to £7.3 million. The accounts asserted that historic proof performing contacts were being completed. The directors foresee a return to profitability within the 2-5 year period. They conclude that there are sufficient financial resources to continue to trade for the 12-month period.”

Considering whether or not a substantial risk remained, Lord Cubie said of past cases: “I observe that in Gaelic Seafoods v Ewos (2009) the pursuer was insolvent and the liquidator proposed to continue with the action for the benefit of creditors who were otherwise protected from exposure to expenses. In Caterpillar v John Holt & Co (2013), counsel advised the judge expressly that the directors were unwilling to put up any funds or further funds with a view to assisting the company. The wider picture in each of these cases was a cause for concern. The circumstances in this case do not give rise to the same concern.”

He concluded: “The parent company have earmarked funds specifically to support subsidiaries. There are £20 million reserves, currently at £25 million, a facility available well in advance of these proceedings There is reputational damage risk to a publicly limited company in failing to fulfil a commitment to support subsidiaries publicly made. The petitioner has to demonstrate a real and substantial risk. While recognising the uncertainties which were clearly expressed by the Dean, there is not, as presently advised, the kind of real and substantial risk which would justify the warrant to arrest.”

Lord Cubie therefore granted the respondent’s motion and recalled the order of June 2025.