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RECENT CASES |
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Directors’ duties in share sale transactions See CLM ¶1742 Progress Property Co Ltd v Cornus Moore & Another [2008] EWHC 2577 (Ch) Where a company sells its shareholding in another company to a third party, the seller company’s directors will firstly need to approve the sale and the sale price. Directors may be subject to claims for breach of their fiduciary duties or the duty to exercise care, skill and diligence on the ground that the share sale constitutes a transaction at an undervalue and that the directors acted beyond their powers by approving it. To determine whether a claim for breach of duty can be established in these situations, the court will have regard to the intention of the directors and also the attitude of the company’s shareholders to the share sale. In this case, TUK Ltd agreed to sell its majority shareholding in one of its group companies to a third party. A claim was brought against a director of TUK Ltd on the ground that the sale was at an undervalue. The court, dismissing the claim, held that the director in question had not intended to sell the shares at an undervalue, so it was not an unlawful distribution. In any event, the shareholders of the seller company had approved the transaction, so they could not claim for breach of duty. Directors’ actual and ostensible authority See CLM ¶2350+ Magical Marking Ltd and another v Holly and others [2008] EWHC 2428 (Ch) For the purposes of considering whether a director was acting within his ostensible authority, it is possible for the representation about the scope of his authority to be made by the director in question. In this case, a director (who had fallen out with his fellow director and was leaving the company) instructed an IT consultant to accompany him to the company’s premises and copy the entire contents of the company’s business records and databases. The third party argued that he should not be liable to the company for infringing its copyright and database rights or the director’s subsequent misuse of the confidential information because he was following the director’s instructions, which he considered had been given with the director’s actual and ostensible authority. The court rejected this argument stating that: » the use of powers for improper purposes could never be within a director’s actual authority; » the director’s implied actual authority had been expressly terminated when his operational responsibilities came to an end and staff were informed that he had been asked not to attend the premises; and » although it was possible for a representation as to a director’s ostensible authority to come from the director himself, in this case, nobody had made an unequivocal representation that the director had the authority of the company to engage the consultant, and the company had never held the director out as having the authority to commit the company to contracts or to make representations about the scope of his authority. The court also found that the abnormal circumstances of the case should have aroused the third party’s suspicions as to whether the transaction with him would bind the company. Just and equitable ground for winding up See CLM ¶7602+ Re Abacrombie & Co Limited [2008] EWHC 2520 (Ch) When considering a petition to wind a company up on the just and equitable ground, the court may investigate the company’s business arrangements and assess their commercial benefits and effects on creditors. A&Co Ltd provided bankruptcy advice to debtors and assisted them in becoming bankrupt. A significant part of its business involved the determination of a debtor’s beneficial interest in his residential property, and arranging for it to be purchased by the debtor’s spouse or partner at a reduced price. Around 70-90% of the proceeds of sale would then be paid to A&Co Ltd as fees. The effect of this arrangement, according to the court, was to deprive the debtor’s estate of funds, reducing the distributions that could be made to his creditors. The court held that this arrangement lacked any commercial benefit to the debtors. In addition, it was detrimental to the debtors’ creditors and undermined the bankruptcy process. Therefore, in the circumstances it was just and equitable to wind A&Co Ltd up. |
