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In a recent case, the Court considered the damages payable by a company which failed to issue shares under a valid warrant. Since there was an available market for the shares (they were listed on AIM), the measure of damages was the purchase price of the shares on the date they should have been delivered to the warrant holder less the contract price. Whether the warrant holder would have sold the shares upon delivery (and the profit or loss he would have made on that sale) was irrelevant. Since the warrant did not stipulate how quickly the shares should be issued following an exercise of the warrant, the delivery date was held to be the last date for delivery which would still qualify as delivery in a reasonable time. As is usual, the warrant allowed for adjustments so that the warrant holder was not “disadvantaged” by a consolidation, sub-division, capitalisation, rights or other issue. In this case, there had been several intervening share and warrant issues. Most of these were to employees and investors, although there had been one rights issue. The Court held that, in the absence of any specific wording to the contrary, the normal comparison was between the effect of an adjustable event on the economic value of the warrants and its effect on the economic value of the shareholdings of existing shareholders. It would not be correct to compare the position of the warrant holder before and after the event. Thus the warrant holder was not entitled to an adjustment on the basis that the share and warrant issues resulted in the dilution of his holding because the holdings of all shares were diluted by those events. The warrant holder was also not entitled to an adjustment because shares had been issued at a discount from the normal purchase price to employees and investors because these issues were not made to shareholders as such but for consideration which was provided by them in other capacities. The only event which could have resulted in adjustment was the rights issue, although on the facts no adjustment was found to be necessary. |
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Damages for failure to issue shares under warrants See CLM: ¶1902 |
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Oxus Gold plc v Oxus Resources Corporation [2007] EWHC 770 (Comm) |
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RECENT CASES |
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The court can order a company's directors to pay damages to the company for breaches of duty owed to it by way of relief from unfair prejudice, even where the petitioning shareholder would not benefit from the payment as a shareholder. GF AB was a 22% shareholder in a joint venture company, BP Ltd. As part of the joint venture, GF AB agreed to advance a substantial amount of loan capital to BP Ltd. GF AB claimed to have been unfairly prejudiced by BP Ltd's directors' conduct of the company, and claimed relief accordingly. However, BP Ltd was insolvent and so the usual order to buy out the petitioner's shares at a fair price was not appropriate, nor were any of the four orders suggested in the legislation. The petitioner asked the court to order the directors to pay damages to the company, or to allow it to continue its derivative action against the directors for breach of duty (an action which had been adjourned pending the outcome of the unfair prejudice application. It would not have been appropriate to order fresh civil proceedings on the company's behalf to be commenced, as they would have been out of time). If the court made such an order, the petitioner would not benefit as a shareholder because the damages would not be enough to restore BP Ltd's solvency, but it would put GF AB in a better position in BP Ltd's insolvency as a creditor. The Court looked at the purpose of the relevant provisions, which was to provide a means of relief to shareholders who were unfairly prejudiced by the management of their companies. It held that in cases such as this one, where the terms of a joint venture required the shareholder to provide working capital in the form of loans as well as to invest in the company's shares, it would be inconsistent with this purpose to preclude the shareholder from obtaining relief because he would only benefit from it as a creditor and not as a shareholder. This Privy Council case concerned a company incorporated in Jersey. The Companies (Jersey) Law 1991 provisions relating to unfair prejudice are substantially the same as the Companies Act 1985 provisions (ss 459, 461 CA 1985). Privy Council decisions constitute persuasive, rather than binding, authority for the courts in England and Wales. |
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Unfair prejudice remedies available to a shareholder/loan creditor See CLM: ¶2117, ¶2128
See CLM: ¶5569+ |
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Gamlestaden Fastigheter AB v Baltic Partners Limited and others [2007] UKPC 26 |
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The Court of Appeal has decided that a TUPE transfer could occur after a share sale if control of the target's business passes to the buyer. The mere fact of control, which follows from the relationship between parent and subsidiary, is not sufficient: what must transfer is control of the business in the sense of how its day to day activities are run. In this case, there was evidence that the buyer had taken control of the business after the share sale. Therefore, the Employment Tribunal was entitled to conclude, as it had, that a TUPE transfer had occurred. This decision upholds the original Employment Tribunal decision and overturns the Employment Appeal Tribunal’s decision (see Company Law Memo 2006 Newsletter Issue 3) in which it concluded that the original Tribunal had erroneously pierced the corporate veil. The Court of Appeal found that the issue of whether the corporate veil had been pierced only arises if the Tribunal had incorrectly attributed the target's activities, as a matter of law, to the buyer. Instead, what the Tribunal had correctly done was analyse the evidence and decide, as a matter of fact, that the target's activities were being carried on by the buyer. |
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TUPE and share sales See CLM: ¶5686, ¶5771+ |
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Millam v The Print Factory (London) 1991 Ltd [2007] EWCA Civ 322 |