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RECENT CASES |
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Method of share valuation See CLM: ¶1852+ |
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Doughty Hanson & Co Ltd v Roe [2007] EWHC 2212 (Ch) |
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This case concerned a share transfer provision in the articles of a company. It required that the price to be paid was either the price offered by the would-be seller of the shares, or the price decided upon by an independent valuer. An accountancy firm was instructed to provide a valuation, but was alleged to have departed from its instructions. However, the court decided that the valuation had been reached by a fair process. It was not open to the parties to challenge the mechanisms used in the calculation because the point of instructing a valuer is to achieve certainty in a reasonably quick and inexpensive manner. The court would not encourage unnecessary analysis of how the result was achieved (Morgan Sindall plc v Sawston Farms (Cambs) Ltd (1990) 1 EGLR 90). |
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Insurance giant’s directors disqualified and convicted of conspiracy to defraud See CLM: ¶2577, ¶3012 |
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Three directors of Independent Insurance Co Ltd and Independent Insurance Group plc (together, “Independent Insurance”) have been sentenced for their part in the collapse of the insurance giant. The charges against them were for conspiracy to defraud, or alternatively for the Companies Act offence of defrauding creditors. The prosecution’s case focused on two particular frauds: » withholding claims data from the actuaries. The actuaries were engaged to advise on the reserves that Independent Insurance should have had available to pay valid claims. By failing to make all of the necessary claims data available to them, the actuaries were not able to make an accurate assessment; and » failing to disclose all of the contracts with the reinsurers. By disclosing only the contracts that were beneficial to Independent Insurance, the 2000 accounts recorded a profit instead of a loss. Although these actions did not actually cause Independent Insurance to collapse, they concealed the truth about its financial position (to the tune of at least £200 million) and enabled it to carry on trading unprofitably. Independent Insurance went into liquidation in 2001. Over 1,000 employees lost their jobs, and many also lost their savings which were tied up in the company share schemes. Shareholders also lost their investments. Policy holders with the company were left with outstanding claims, in respect of which the Financial Services Authority has paid a total of £357 million out of its compensation scheme. Michael Bright, former chief executive officer, was sentenced to 7 years in jail on both counts of conspiracy to defraud and disqualified from being a director for 12 years. Dennis Lomas, former finance director, was sentenced to 4 years’ imprisonment (also on both counts) and disqualified for 10 years. Philip Condon, former deputy managing director, was sentenced to 3 years in jail on one count of conspiracy to defraud and disqualified for 10 years. Having returned verdicts on the conspiracy to defraud charges, the jury was not required to do so in respect of the counts of defrauding creditors. Conspiracy to defraud is a common law criminal offence. It may be abolished, depending on the results of a forthcoming review of the effectiveness of the Fraud Act 2006, which has been in force since January 2007. An outline of this legislation can be found in Company Law Memo 2006 Newsletter Issue 9. The Companies Act offence of defrauding creditors is now in s 993 CA 2006, but the applicable reference in this case is s 458 CA 1985. Where a director is convicted of an indictable offence relating to his company, the court has a discretion to disqualify him for up to 15 years (s 2 CDDA 1986). |
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Director personally liable for litigation costs See CLM: ¶7156 |
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Chantrey Vellacott v The Convergence Group Plc, Convergence Group International SA, Robinson and Robinson [2007] EWHC 1774 (Ch) |
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A firm of chartered accountants sued two client companies (which were connected) for non-payment of its fees. The company in turn issued a counterclaim for professional negligence against the firm. During an adjournment of the trial, the directors put the companies into administration. The applicant then applied to add the two directors as defendants on the grounds that the two directors had controlled and funded the litigation. The judge held that the counterclaim for professional negligence was not well based and should not have been brought. The companies were ordered to pay the firm’s costs on the indemnity basis. In addition, one of the directors (who the court found to be an evasive and untruthful witness and who had controlled and managed the counterclaim throughout) was made personally liable, jointly and severally, for those costs. As the company was in administration, it seems unlikely that the company itself would have been able to pay any substantial part of the costs bill. Normally, directors are not personally liable for the debts of their company. In this case, it seems that the director in question had, by his conduct, gone so far as to make himself a party to the litigation in a personal capacity, with rather severe financial penalties for doing so. Jointly and severally liable means that the person is liable for his own share of the sum and also liable for the other parties’ share, if the other parties cannot pay. An indemnity costs order is more severe than the normal costs order (on the “standard basis”). It requires the paying party to reimburse the other party for his actual costs, rather than those which the court deems to be proportionate and reasonable. |
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Payments that were both preferences and transactions at an undervalue See CLM: ¶7811+, ¶7819+ |
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Re HHO Licensing Ltd (In Liquidation); Clements (Liquidator Of HHO Licensing Ltd) v Henry Hadaway Organisation Ltd (2007) Ch D (Companies Ct) 10/10/2007 |
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The liquidator of HL Ltd sought to set aside various transactions made by HL Ltd to HHO Ltd, with which it was connected. The key person in both companies had transferred money from HL Ltd to HHO Ltd under the guise of charging for administrative services. The liquidator alleged that these payments were grossly in excess of the value of the services provided. It was held that the key person had failed to justify the charges for administrative services and that they were worth “significantly less” than the costs charged by HHO Ltd. The payments were therefore transactions at an undervalue (s 238 IA 1986). The intention of the key person had been to ensure that HHO Ltd was able to fund its own activities, using the money diverted from HL Ltd. The money in question was in fact owed to a third party under a licensing agreement for sound recordings. It was held that the desire to put HHO Ltd in a better position than other creditors constituted a preference (s 239 IA 1986). Therefore, the transactions in question fell into both categories of voidable transactions and could be reclaimed by the liquidator from HHO Ltd. |
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Directors’ right to inspect the accounts See CLM: ¶4197+ |
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Oxford Legal Group Ltd v Sibbasbridge Services Plc and Millar [2007] EWHC 2265 (Ch) |
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A company is obliged to keep accounting records which must be available at all times for directors and other officers to inspect (ss 221, 222 CA 1985). A director applied to court for an order compelling the company to allow him to inspect the accounts records, relying on the statutory right to inspect. The court found that this right was not enforceable by the civil courts. However, it was held that the company officers had a common law right to inspect a company’s accounts, which existed in order to enable directors to fulfil their duties properly. So, on that basis the director in question had a right to inspect the accounts, and the court made an order enabling him to do so. |
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Age discrimination in employment can be justified See CLM: ¶2446/mp |
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Bloxham v Freshfields Bruckhaus Deringer [2007] ET Case 2205086/06 |
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A former partner in a major law firm applied to the employment tribunal for damages for age discrimination. Under his firm’s old pension scheme, a partner who was under 55 at the date of closure of the scheme would only receive a discounted pension. Those who were 55 or over would receive their full entitlement. The former partner in question was 54 at the relevant time and therefore received the lesser amount. He claimed £4.5 million in damages. The tribunal held that the changes to the pension scheme were in fact intended to remove age discrimination in the firm’s pension arrangements. There had been extensive consultation beforehand. The aim was to make the scheme fairer for younger partners and more sustainable overall, which justified the policy. Therefore, the treatment was not discriminatory. In any event, the relevant parts of the Age Discrimination Regulations (SI 2006/1031) only came into force on 1 December 2006, which was after the partner had left his firm. |