Leaver provisions in articles or a shareholders' agreement fix the price of a departing member's shares by reference to the manner of departure. Good leaver status ordinarily produces fair value; bad leaver status the issue price. Holt v Faulks; Re LCM Wealth Management Ltd.
Partnership; expulsion; good faith. A power of expulsion conferred by a partnership deed cannot be exercised for an improper or collateral purpose, and the court will look behind the exercise of the power to the purpose for which it was in fact used. The origin of the principle that powers of expulsion are not to be used for unworthy purposes, applied by analogy to company leaver and compulsory transfer provisions in Re LCM Wealth Management Ltd. Nineteenth-century authority which remains the doctrinal source of the good faith limit on expropriatory machinery.
Unfair prejudice; quasi-partnership; articles providing for transfer of shares on cessation of office. Hoffmann J held that, on the true construction of the article, an option for the other members to buy the shares of a member who ceased to be an employee or director applied even where the dismissal was wrongful. Where the articles have made provision in advance for what is to happen on a breakdown in relations, the petitioner could have no legitimate expectation that those provisions would not be relied on, and to hold otherwise would not be to superimpose equitable considerations but to relieve him from the bargain he made. The petition was struck out. Frequently miscited by reference to Re Company (No 007623 of 1984).
Transfer of shares; restriction imposed by articles; leaver provisions. The articles obliged a member to serve a transfer notice where he should cease to be employed for whatever reason. It was held that the obligation to serve the notice arose even though the dismissal was unlawful. The width of a trigger expressed to operate irrespective of the reason for cessation is not cut down by the fact that the cessation was itself wrongful. With Re A Company (No 004377 of 1986), the answer to any argument that a compulsory transfer clause is disapplied by a wrongful dismissal.
Unfair prejudice; bad leaver provisions; expropriation at nominal value. Hildyard J held there was no jurisdiction under s.994 to displace the operation of pre-emption provisions even where the price payable was nominal and the company was said to be a quasi-partnership: that was the contract the parties made, and there were no grounds for equitable intervention on the basis that the bargain was unconscionable. But the concession is important. At [55] such provisions should be strictly interpreted, exercised in good faith and not permitted to be used for unworthy purposes, on account of the abuse which may be made of them and of the hardship of expulsion, citing Blisset v Daniel. At [56] the real issue determinative of the case is whether the departing shareholder was a bad leaver. The essential authority on both sides of a leaver dispute.
Unfair prejudice; compulsory acquisition of shares under the company's own machinery; alteration of articles. Sub nom Arbuthnott v Bonnyman. The Court of Appeal upheld the compulsory acquisition of a founder member's shareholding on a management buy-out and dismissed the petition. Machinery which is lawfully triggered and honestly operated does not become unfairly prejudicial merely because the price it produces is unattractive to the outgoing member. The starting point remains the bargain the parties made. The principal authority relied on by respondents defending a compulsory transfer, and the case any petitioner attacking leaver machinery must distinguish.
Unfair prejudice; remedy; bad leaver provisions and valuation at par. The Inner House held that it was open to a judge, having found unfair prejudice established, nonetheless to value the petitioner's shares by reference to the expropriatory bad leaver provisions in the articles, even though the respondents had not yet triggered them, where the petitioner had been found guilty of gross misconduct entitling them to do so. The fair price was accordingly the price those provisions would have produced, namely par value. The critical warning for any petitioner: establishing unfair prejudice does not guarantee a valuation which escapes the contractual machinery.
Unfair prejudice; leaver provisions; scope for departing from the contractual measure. Where the articles contained good leaver, intermediate leaver and very bad leaver provisions specifying what was to happen where a member ceased to be a director, it was held that there was no room to apply the approach in Re Lloyds Autobody Ringway Ltd. Where the parties have stipulated the consequences of cessation of office, those stipulations govern. To be read with Gray v Braid Group (Holdings) Ltd on the constraint the contract imposes on the s.996 discretion.
Unfair prejudice; bad leaver; standing; rectification of the register within a petition. The petitioner, a 30 per cent shareholder, was dismissed following disciplinary proceedings, removed as a director and treated as a bad leaver under the articles, with his shares automatically converted and transferred for nominal consideration and his name removed from the register. He impugned the disciplinary proceedings as a pre-orchestrated device to remove him and deprive him of his shares, and sought both retrospective rectification under s.125 Companies Act 2006 and relief under s.994 in a single petition. Held, dismissing the strike-out application, that the court could determine a dispute as to standing, including one involving retrospective rectification, within the petition, whether as a preliminary issue or at trial. Standing was directed to be tried first. The template for a dismissal-driven expropriation claim.