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RECENT CASES |
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The court held that a shareholder had not been unfairly prejudiced by the management failing to consult him on important decisions, despite the historical quasi-partnership relationship between the parties. Mr H and Mr W were originally both active participants in a partnership dealing with motorcycle sales and maintenance. Over time, Mr H’s involvement in the business diminished and the partnership was incorporated. Mr H was a 42% shareholder of MM Ltd, but had no involvement in running it, except that he was entitled to be consulted on major decisions. However, Mr W failed to consult Mr H on important matters. Mr H presented an unfair prejudice petition, alleging that he had been excluded from management and from financial benefit. The court found that he had not been consulted as he should have been. However, his entitlement to a financial return from the company was that of an investor– i.e. it was based on the company’s profits and when the business was not doing so well he had to accept less of a financial benefit. The failure to consult was not in itself enough to constitute unfair prejudice, and so the court would not order Mr W to buy out Mr H’s shares. The court accepted that the relationship between the parties had deteriorated significantly, but stated that they had to accept their different roles. It warned that unfair prejudice would occur in the future if Mr W failed to give Mr H his fair share of the profits as an investor and/or continued to fail to consult him on important matters. Shareholders who have suffered “unfair prejudice” to their interests because of the way the company has been run can apply to the court for relief (¶2105+; s 459 CA 1985). The remedy is usually sought in cases where a company has been run as a quasi-partnership and one shareholder/director has been pushed out by the others.
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Unfair prejudice See CLM: ¶2109 |
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Hale v Waldock, Re Metropolis Motorcycles Ltd [2006] EWHC 364 (Ch) |
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Share transfer agreement - effect of stock transfer form Director’s remuneration - paid net of tax Financial assistance - release from liability See CLM: ¶1865+, ¶5630, ¶5634, ¶5638. |
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Cox v Cox [2006] EWHC 1077 (Ch) |
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A husband and wife, the shareholders and directors of a successful company, entered into an informal divorce agreement. The court held that since an informal divorce settlement was not a legally binding agreement, a stock transfer form executed pursuant to that agreement was not legally effective either because it must be assessed in the context of the agreement underlying its execution. In addition, the increase in the company’s payments to the wife as a non-executive director (which occurred concurrently with the informal divorce settlement) amounted to unlawful financial assistance, even though the acquisition of shares did not take place. The court found that this was not a gift, as claimed, since the wife only transferred the shares on the expectation that she would be paid. Further, the court held that the company’s payments of salary to the husband and wife net of tax were unlawful. The couple, as directors and constructive trustees, were liable to account to the company for the excess salary payments. However, the court stated that it was open to a company’s shareholders to unanimously release the directors from their liability, provided the release does not jeopardise the solvency of the company or cause a loss to creditors, and provided there is no sufficient public policy objection. There is no such objection underlying the prohibition on financial assistance or the requirement to pay directors a gross salary. Given the profitability of the company in question, such a release from liability was available in this case. In certain circumstances, it is unlawful for a company to provide financial assistance for the acquisition of its own shares (see ¶5557+). A company may only register a share transfer when it is presented with a proper transfer instrument, usually a stock transfer form (see ¶1888). It is unlawful for a company to pay a director remuneration free of income tax. Any such payments are treated as gross payments (see ¶2735). |
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Scheme of arrangement See CLM: ¶6512, ¶6514, ¶6523 |
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C plc and its subsidiaries faced substantial claims for asbestos-related personal injuries. The group was solvent but uncertainty as to future claims acted as a brake on the development of its business. It therefore proposed a complicated scheme of arrangement between itself and all actual and potential asbestos-related claimants. The court held: 1. There was no clear dividing line between the different types of claimant and therefore there was no need for meetings of separate classes. However, this did not mean that the relative weight of votes for or against the scheme from the different groups was irrelevant to the exercise of the court’s discretion. The results should be recorded and the court would assess the effect of the votes of different groups on the overall result. 2. A scheme of arrangement is not a contract or notice and so is not subject to the restrictions applicable to such documents (s 2(1) UCTA 1977). The scope of the court’s jurisdiction is not limited to those matters which could be done by the parties if they were individually to agree to a contract in the same terms. 3. The court has jurisdiction to sanction a scheme with provisions for future amendments, although it is only likely to exercise that jurisdiction in unusual circumstances (such as the ones in this case). Where a company proposes a scheme of arrangement with its shareholders or creditors, the scheme must be approved by the court and by a vote of the affected classes of shareholder/creditor (see ¶6500+). At the first hearing, the court will decide whether it has jurisdiction to sanction the scheme and also determine the classes of shareholder/creditor whose approval the company must obtain. It is not possible to exclude or restrict liability for death or personal injury resulting from negligence by reference to a contractual term or notice to a person (s 2(1) Unfair Contract Terms Act 1977). |
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Re Cape plc [2006] EWHC 1316(Ch) |
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Winding up in the public interest See CLM: ¶7627 |
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Re Get Me Tickets Ltd and other companies [2006] EWHC 1058 (Ch) |
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The court ordered the compulsory liquidation of a secondary ticket agent and associated companies on the ground that it was clearly in the public interest to do so. GMT Ltd was a secondary ticket agent, selling tickets to the public over the internet and telephone for concerts and similar events, without authority from the event organisers. The prices it charged for these tickets were usually far higher than the face value. The DTI received numerous complaints from the public that GMT Ltd failed to deliver tickets, or delivered them too late for the event. Customers were misled into believing that they had made a firm booking by paying for their tickets when in fact GMT Ltd had not yet obtained the tickets. In addition, GMT Ltd had not complied with accounting records requirements, had failed to account for VAT on two occasions, had not distinguished properly between the personal and business expenditure of the directors and had failed to comply with the investigation into its affairs. The conduct and affairs of companies can be investigated by the Companies Investigation Branch (¶7195+). The secretary of state can present a winding up petition against an investigated company on the basis of information obtained during the investigation (s 124A IA 1986). |
