Citco Banking Corpn NV v Pusser's Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hoffmann |
| Judgment Date | 28 February 2007 |
| Neutral Citation | [2007] UKPC 13 |
| Court | Privy Council |
| Docket Number | Appeal No 55 of 2005 |
| Date | 28 February 2007 |
[2007] UKPC 13
Present at the hearing:-
Lord Hoffmann
Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Mance
Privy Council
[Delivered by Lord Hoffmann]
Pusser's Ltd ("the company") is a company incorporated in the British Virgin Islands which, previous to the events in issue in this appeal, had an authorised share capital of $4.4m divided into 4.4m class A shares of $1 each, of which 1,673,217 shares and warrants for another 248,000 had been issued. Each class A share or warrant carried one vote. At an extraordinary general meeting on 16 March 1994 the company by special resolution amended its articles of association to create 200,000 class B shares, each carrying 50 votes. It further resolved that 200,000 of the class A shares held by the chairman of the company, Mr Charles S Tobias, be converted into class B shares. The resolutions were carried by 1,125,665 votes to 183,000, the dissenting shares all being held by Citco Banking Corporation NV ("Citco"). Citco alleges that the resolutions were invalid because they were passed in the interests of Mr Tobias, to give him indisputable control, and not bona fide in the interests of the company. The judge (Benjamin J) accepted this submission but the Court of Appeal (Alleyne and Gordon JJA, Mitchell JA (Ag)) reversed his decision and held the resolutions valid. Citco appeals.
The evidence about the distribution of the shareholdings and the beneficial ownership is somewhat unclear, but a general impression may be obtained from the share register and such evidence as was given at the trial. The holdings appear to have been widely spread, mostly among individuals, described as "Business Executive", "Retired Business Executive", "Financier" and so forth, who made up 33 of the 50 registered shareholders. Mr Tobias held 62,439 shares and he and his wife held another 133,000. The company's New York attorney, Mr Lloyd de Vos, who was the only substantive witness at the trial, said that Mr Tobias also controlled the 327,245 shares registered in the name of Piccadilly Properties Ltd, which brought the total under his control to just under 28% of the issued share capital. Three companies in the Citco group were registered as together holding 256,617 shares or 13%. Only one other shareholder (Glenmore Distilleries Co) held more than 100,000 shares (114,546) and 33 shareholders were registered as each holding less than 50,000 shares or warrants.
The original business of the company appears to have been the sale of rum under the trade name "Pusser's", a name said to be a corruption of "Purser's" and to have old associations with the Royal Navy. It has however diversified into running restaurants and bars and selling other gift items with a naval flavour. Until 1993 its main area of activity was the British Virgin Islands and other tourist resorts in the Caribbean. There is no dispute that in 1994 it was in serious need of more working capital, not least because in the previous year Citco, which had lent some $800,000 to the company, brought proceedings to recover its loan. A board minute of 5 March 1993 shows that some of the directors, including Mr Tobias, had to advance money to fill the gap.
Over the following year the directors considered how they might obtain more long-term finance. A report by Mr Tobias dated 27 January 1994 accompanied the notice of the annual general meeting at Tortola on 4 March 1994. The company, he said, had made losses for four successive years ended 30 June 1992 but the year to 30 June 1993 had shown a profit of $56,000. The current year was also expected to yield a modest profit. But Mr Tobias said that the company's future lay in an expansion of its activities into the United States, starting with a retail enterprise in Annapolis. This would require both equity and loan finance. He was trying to raise equity finance by a private placement of shares with potential investors (known as an offer under Regulation D of the relevant US securities regulations) and to raise loan finance from banks.
The minutes of the annual general meeting on 4 March 1994 show that a resolution to create class B shares in the same terms as that subsequently passed at the extraordinary general meeting on 16 March was moved and passed. Mr Tobias explained why in his opinion the resolution was needed:
"1. He stated that the company was in the middle of a private placement of shares. He pointed out that he had been in contact with certain investors whom he believed would purchase shares in the company resulting in proceeds of two million dollars to the company. He pointed out that certain of the key investors in this group had stated to him that their reason for investing in the company was that they were betting on him and his strategy to make the company a significant success. They told him that they would only invest in the company if he had unquestioned control over the company.
2. He stated that the bankers to the company had told him that they had seen a marked improvement in the overall performance of the company since he had taken back responsibility for the day to day operations of the company. The bankers had told him that they would consider advancing a significant line of credit to the company provided that he remained in tight control of the company and would personally guarantee repayment of all or some of the advances by the company to the bank. The chairman stated that he was willing to personally guarantee repayment of the advances provided that he had assurance that he would remain in control of the company.
3. He stated that he and his family had more than one half million dollars loaned to the company which was due and payable. He was not willing to continue to leave the funds in the company unless he had absolute control over the company to assure that the direction of the company was one that he believed would eventually allow for the repayment of these loans. He stated that he believed that it was in the best interest of the company not to have these loans called at this time.
The chairman stated that he believed that it would be in the best interests of the company and all of its shareholders for the sale of securities in the United States under a Regulation D offering to be completed, a significant line of credit established with the bankers to the company and for his loans not to be called at the present time. He said that if the resolution was approved, he would not call the loans and would personally guarantee the repayment of moneys drawn under the significant line of credit proposed by the bankers to the company as required by the bank."
Mr Cuppy, a director, the corporation secretary and an attorney, objected that the resolution was not properly before the meeting and he and two other directors, as well as the Citco interests, voted against it. Mr Cuppy's objection was well taken. Section 89 of the BVI Companies Act Cap 285 provides that a company —
"may in general meeting, from time to time, by passing a special resolution in manner hereinafter mentioned, alter all or any of the regulations of the company contained in the articles of association…"
Section 90 prescribes the requirements of a special resolution. A resolution is deemed to be special when —
"a resolution has been passed by a majority of not less than three- fourths of such members of the company, for the time being entitled according to the regulations of the company to vote, as may be present in person or by proxy…at any general meeting of which notice specifying the intention to propose such a resolution has been duly given."
No notice of intention to amend the articles at the annual general meeting had been given and the resolution was therefore not a special resolution. In addition, the dissenting votes of Mr Cuppy and the other directors meant that less than 75% of the votes of the members present in person or by proxy were cast in favour of the resolution.
Mr Tobias said that he would consult counsel, who must have advised that the resolution had been invalid, because notice was immediately given of an extraordinary general meeting to be held on 16 March 1994, at which the resolutions passed at the annual general meeting would be ratified and confirmed. On this occasion, only 183,000 votes (belonging to Citco) were cast against and 1,125,665 were cast in favour. This was a majority of 86%. 62,439 votes were recorded as having abstained and as this was precisely the number registered in the name of Mr Tobias, it may safely be assumed that he had decided not to cast their votes.
The special resolutions certified as having passed were:
"RESOLVED that the Memorandum of Association of Pusser's Ltd be and is hereby amended by deleting paragraph 5(a) as amended and substituting therefor the following:
5(a) The capital of the company is US$4,400,000 divided into 4,200,000 Class A ordinary shares of $1.00 each and 200,000 Class B ordinary shares of $1.00 each.
RESOLVED that the Articles of Association of Pusser's Ltd be and are hereby amended as follows:
(1) By deleting paragraph 4 as amended and substituting therefor the following:
4(a) The Capital of the Company is US$4,400,000 divided into 4,200,000 Class A ordinary shares of $1.00 each and 200,000 Class B ordinary shares of £1.00 each.
4(b) The Class B ordinary shares of the Company shall automatically convert into Class A ordinary shares upon the death or permanent disability of Mr Charles Tobias.
(2) by deleting Article 7 and substituting therefor the following:
7. At any General Meeting of the Company on a show of hands every Member present in person shall have one vote and on...
To continue reading
Request your trial
-
[1] Staray Capital Ltd [2] Marlon Ray Chen Appellants v Cha, Yang (also known as Stanley) Respondent [ECSC]
...have suffered. Further, the amendment did not only apply to Mr. Cha, but equally to all shareholders of Staray. Citco Banking Corp NV v Pusser's Ltd and another [2007] UKPC 13 applied; Allen v Gold Reefs of West Africa, Limited [1900] 1 Ch 656 applied; Shuttleworth v Cox Brothers and Com......
-
Geoffrey Arbuthnott (Appellant/Petitioner) v James Gordon Bonnyman and Others
...v Cox [1927] 2 KB 9, Peters' American Delicacy Co v Heath (1939) 61 CLR 457, Greenhalgh v Aderne Cinemas Ltd [1952] Ch 286, Citco Banking Corp NV v Pusser's Ltd [2007] UKPC 13, and Assenagon Asset Management SA v Irish Bank Resolution Corpn Ltd [2012] EWHC 2090 (Ch), [2013] Bus LR 266.......
-
Geoffrey Arbuthnott (Petitioner) v James Gordon Bonnyman and Others
...the amendment was not bona fide believed by the shareholders to be in the interests of the company as a whole. 232 In Citco Banking Corporation NV v Pusser's Ltd & Anr [2007] 2 BCLC 483, the Privy Council upheld a change to the articles which entrenched the existing controller of the compan......
-
Re Dee Valley Group Plc
...on the person impugning the validity of the amendment of the articles to satisfy the court that there are grounds for doing so: Citco [2007] 2 BCLC 483 at 491; Peters' American Delicacy Co (1939) 61 CLR 457 at 482. 28 Mr Moore QC for Severn Trent relied on two cases for the proposition that......
-
Cleaning up minority shareholdings the case of Staray Capital Ltd v Cha
...a whole" (Allen v Good Reefs of West Africa Ltd [1900] 1 Ch 656). These principles were clarified in Citico Banking Corp NV v Pussers Ltd [2007] UKPC 13 and summarised in Re Charterhouse Capital Ltd [2015] EWCA Civ 53 which stated a power to amend the articles will be validly exercised if i......
-
Table of Cases
...Aus HC 166 Chatterley-Whitfield Collieries Ltd, Re [1948] 2 All ER 593, [1948] WN 367, CA 133 Citco Banking Corporation NV v Pusser’s Ltd [2007] UKPC 13, [2007] 2 BCLC 483 135 Compton, Re [1945] Ch 123, [1945] 1 All ER 198, 172 LT 158, 61 TLR 167, [1945] WN 14, CA 197, 198, 200, 201, 207, 2......
-
Through the Looking-Glass and What Alice Found There Lord Morton's Dissent in Scottish Insurance Corporation v Wilsons & Clyde Coal Company Limited [1949] AC 462
...not fair and equitable between the different classes of shareholders. Consequently, the 30 Citco Banking Corporation NV v Pusser’s Ltd [2007] UKPC 13. 31 Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9. 32 The Companies Act 2006, s 630. 33 Above, n 1, at p 512. 136 Part II –......
-
Case Note: PUSHING THE LIMITS OF JUDICIAL ASSISTANCE IN CROSS-BORDER INSOLVENCIES
...v WCP Ltd(1995) 182 CLR 432 (“Gambotto”) will suggest. By comparison, the Privy Council recently in Citco Banking Corp v Pusser’s Ltd[2007] BCC 205 reaffirmed that the court would not interfere with amendments to the articles of association which adversely affect the rights of certain share......