Former Charterhouse director loses appeal

Former Charterhouse Capital Partners director Geoffrey Arbuthnott has lost his long running legal battle with the firm after his appeal was thrown out by the Court of Appeal.

The original case stemmed from Arbuthnott's retirement from Charterhouse in 2008, with the 2014 trial focusing on the 2011 buyout of the shareholding in Charterhouse by the current management.

Arbuthnott had alleged that the firm's shareholders had tried to force him to sell his stake in the company for £1.5 million in November 2011, and had argued that his 8.91 percent stake was worth over £40 million.

Last year a judge in the Chancery Division of London's High Court had rejected his claims, arguing that “there had been no oral agreement and no unfair prejudice”.

Charterhouse had argued that it had been looking to address what it viewed as a growing misalignment between the firm's shareholders – which included a number of retired members – and the active investment managers.

In the original hearing, Charterhouse defeated Arbuthnott following the six-week trial that ended in May 2014 but Arbuthnott had applied to the Court of Appeal for permission to appeal its decision.

Following the appeal's dismissal yesterday, Charterhouse put out the following statement: “We are pleased that the appeal has been decided so comprehensively in our favour, but remain disappointed that we had to go through this process at all.”

“It is important to remember that this case stems from a transaction which was designed to maintain the permanent alignment of interests between Charterhouse's investors and the investment team.”

A source familiar with the company described the latest ruling as “a swift, unequivocal and comprehensive legal win for Charterhouse” and added that the fast conclusion of the case, which lasted just three weeks, indicated the strength of its position. 

 The Appeal judge described the original judgement as “substantial and impressive” and “comprehensive and meticulous” and noted that in the original ruling “there was no evidence of bad faith or improper motive by any of the respondent shareholders or directors.”

Referring to the latest appeal, the Judge concluded that there was “no reason to assume that a reasonable shareholder could not have come to the conclusion which the shareholders (other than Mr Arbuthnott) in this case reached.”

“None of the witnesses, all of whom were sophisticated and with relevant knowledge, suggested that… the offer price was outside the range which they considered reasonable.”

The judge added: “I reject any suggestion that the remuneration model or the failure to distribute profit to Mr Arbuthnott as a shareholder was at any relevant time illegitimate or invalid or can properly be attacked by Mr Arbuthnott as being unfairly prejudicial to him.”

The appeal's rejection will bring a sense of closure to Charterhouse after a turbulent year in which the legal battle put what had always been a very private company firmly in the public spotlight.

It also comes on the back of some strong performance.

Last week, PEI reported that the firm had held an initial close of €1 billion for its tenth fund, Charterhouse Capital Partners X.

That fund came to market in January when the firm published its private placement memorandum, and is targeting a total of €3 billion for the pan-European vehicle.

The group has realised €3.5 billion since January 2014 and its ninth fund, Charterhouse Capital Partners IX, is currently valued at 1.8 x, with a 30 percent IRR as of March 2015 according to a source familiar with the group.

The initial four exits from the 2008-vintage vehicle have delivered an average realised return of 3.3x, PEI reported last week.