Reclaiming Motion Of Nigel Anthony Harden Gray And Others For Orders Pursuant To Sections 994 And 996 Of The Companies Act 2006 In Respect Of Braid Group (holdings) Limited
| Jurisdiction | Scotland |
| Judge | Lord Malcolm,Lord Brodie,Lord Menzies |
| Judgment Date | 23 August 2016 |
| Neutral Citation | [2016] CSIH 68 |
| Published date | 23 August 2016 |
| Date | 23 August 2016 |
| Court | Court of Session |
| Docket Number | P560/13 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 68
P560/13
Lord Menzies
Lord Brodie
Lord Malcolm
OPINION OF LORD MENZIES
in the Reclaiming Motion
of
NIGEL ANTHONY HARDEN GRAY and OTHERS
Petitioners and Reclaimers;
for
Orders pursuant to sections 994 and 996 of the Companies Act 2006 in respect of Braid Group (Holdings) Limited
Petitioners and Reclaimers: Sandison QC, McColl; Brodies LLP
Second, Third and Fourth Respondents: Lord Davidson of Glen Clova QC, Middleton; CMS Cameron McKenna LLP
Fifth Respondent (Jeff Prowse): Party
23 August 2016
The issues
[1] In these proceedings the petitioners and reclaimers seek orders under section 996 of the Companies Act 2006 on the ground that the affairs of Braid Group (Holdings) Limited (“BGHL”) have been conducted in a manner that was unfairly prejudicial to the interests of some of its members. The petitioners and reclaimers sought these orders having regard to eight separate factors. After hearing 24 days of evidence, the Lord Ordinary issued an opinion dated 30 October 2015. At paragraph [141] of that opinion he summarised his findings of unfairly prejudicial conduct. He rejected the petitioners’ contentions in respect of five factors, but found that the petitioners’ interests had been unfairly prejudiced by conduct as regards three factors. He therefore held that conduct unfairly prejudicial to the interests of the petitioners had been proved. No party has reclaimed against his determination on these matters.
[2] The Lord Ordinary went on to address what order he should make in terms of section 996 of the 2006 Act. Section 996(1) provides as follows:
“(1) If the Court is satisfied that a petition under this Part is well-founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of”.
[3] Having heard competing valuation evidence, the Lord Ordinary concluded that BGHL might reasonably be valued, as at the date of conclusion of the proof, at £32,000,000. On this basis, the cumulative value of the petitioners’ holdings would be in £20,614,400. However, the second to fourth respondents, supported by the fifth respondent, submitted that because of the first petitioner’s participation in bribery offences involving BGHL, he was a Bad Leaver in terms of the Articles of Association of BGHL and was entitled on disposal of his shares to be paid only whichever was the lesser of their fair value or their subscription or par value. It was contended that to give appropriate relief under section 996, an order should be made for the purchase by the company of the petitioners’ shares at par value, ie £2,444,000. The Lord Ordinary gave effect to these submissions and made an order for the purchase of the petitioners’ shares by the company for the aggregate sum of £2,444,000. That decision was given effect to by the Lord Ordinary’s interlocutor dated 13 November 2015.
[4] No issue is taken by any party as to the Lord Ordinary’s findings as to unfairly prejudicial conduct (whether as to the five factors which he rejected, or the three factors which he found established). However, the petitioners reclaim against the Lord Ordinary’s decision to ordain BGHL to purchase the shares in BGHL held by the first and second petitioners respectively for the aggregate sum of £2,444,000. The following matters were in issue in the reclaiming motion:-
1. Can the order pronounced by the Lord Ordinary properly be regarded as giving relief in respect of the matters complained of? (The petitioners and reclaimers arguing that it had the practical effect of expropriating the petitioners’ shares at an undervalue of more than £18,000,000 less than their true worth, to the benefit of the parties whom the Lord Ordinary had held had caused the affairs of BGHL to be conducted in a manner that was unfairly prejudicial to the petitioners).
2. Did the Lord Ordinary err in using as the basis for his order a value which might be brought out under certain provisions in the Articles of Association of BGHL in terms of Leaving Shareholders, when he did not hold that the pre-conditions for those provisions being effective existed and he was aware that the parties were in dispute and in the course of separate litigation on this matter?
3. Did the Bad Leaver provisions of article 6.8.2.2 of BGHL’s Articles of Association amount to an unfair and unenforceable penalty clause, and so could not properly form a model for an appropriate disposal of the petition?
[5] The petitioners and reclaimers urged that the first of these questions should be answered in the negative, and the second and third in the positive. The respondents took the opposite position.
Background
[6] Inevitably, the Lord Ordinary required to set out the background to the dispute at some length. For the restricted purposes of this reclaiming motion it is unnecessary to repeat this, but it is convenient to refer to the following excerpts from the Lord Ordinary’s opinion, which provide the context for consideration of the issues before this court.
[7] The Lord Ordinary dealt with the group structure as follows:-
“[4] BGHL was incorporated in Scotland on 22 March 2006. It is the ultimate parent of a number of companies incorporated in various countries throughout the world. Its principal subsidiary is Braid Logistics (UK) Limited (‘Braid UK’). Braid UK was incorporated in Scotland on 4 June 1971 under its former name of John S Braid & Co Limited, to carry on a shipping and warehousing business that had been conducted since the 1950s by an unincorporated body. BGHL was formed to facilitate a management buy-out of John S Braid & Co Limited following the death in 2003 of its chairman and principal shareholder, Steven Braid. BGHL and Braid UK have their head office in Glasgow.
[5] Braid UK in turn has a number of subsidiaries. For present purposes I need mention only three. The first of these is Braid Logistics Asia Pte Limited (‘Braid Asia’), a company incorporated in Singapore, in which Braid UK has a 57% shareholding. Of the remaining shares, 28% are owned by Mr Leddra and the remaining 15% by three employees of Braid Asia. The second is SARL Braid Logistics Europe (‘Braid Europe’), a company incorporated in France of which Braid UK owns 80% and Mr Bagley 20%. The third is Braid Logistics Australia Pty Limited, a company incorporated in Australia of which Braid UK owns 80% and Shane Watson 20%.
[6] BGHL also has a 30% holding of shares in a company called Pro-flex Packaging Europe Limited (‘PPEL’). 60% of PPEL’s shares are owned by Pro-flex Packaging Company Limited (‘PPCL’), a company incorporated in the British Virgin Islands, with the remaining 10% belonging to a Mr Elson Koh. Until November 2014, 60% of PPCL’s shares were owned by Mr Leddra, 15% by Mr Gray, 5% by Andrew Watson, and the remainder by Singapore employees. PPCL has a wholly-owned subsidiary, Pro-flex Packaging (UK) Limited (‘PPUK’) which was incorporated in 2009”.
[8] After summarising the group business activities, the details of the management buy-out and those members of management who participated in it, the Lord Ordinary went on to explain the shareholdings in BGHL and the weighted voting system contained in the shareholders’ agreement dated 6 December 2006 as follows:
“[11] Following months of intensive discussion, a deal with the Braid family was reached in December 2006. BGHL was formed to effect the MBO. At a later date, John S Braid & Co Ltd’s name was changed, and the various joint venture companies were brought into a group under the ultimate control of BGHL. Shareholdings in BGHL were allocated according to capital investment (including Mr Gray’s contribution of his 24% holding in John S Braid & Co Ltd) and were as follows:
Mr Gray 64.42%
Mr Leddra 15.81%
Shane Watson 5.27%
Andrew Watson 2.64%
Mr Haldane 2.64%
Mr Prowse 2.64%
Mr Bagley 2.64%
Mr Russell 2.64%
One further shareholder, Mr Stanley Fell, owns a 1.3% holding with no voting rights. He has played no part in these proceedings.
[12] A difficulty arose at an early stage regarding the 15% shareholding in PPCL which had been owned by Steven Braid and passed to Mrs Gay Braid on his death. Mrs Braid wished to sell these shares as part of the overall package of sale of the Braid family’s interest. For reasons which remain obscure to me, Mr Leddra was adamant that the two should not be linked and threatened to withdraw from the MBO if such a connection were made. In January 2006, he offered to purchase Mrs Braid’s PPCL shares for $51,000; this offer was not acceptable. By the end of 2006 the deadlock had not been broken. In order to ensure that the MBO went ahead, and without seeking Mr Leddra’s approval of what he intended to do, Mr Gray paid £52,000 out of his pension fund to Mrs Braid, and her shares were transferred to Mr Leddra for the sum of $51,000. Mr Gray considered that he ought to be reimbursed in respect of the purchase of Mrs Braid’s shares; Mr Leddra did not. This became a persistent source of friction between Mr Gray and Mr Leddra, to which I return below.
The shareholders’ agreement
[13] It will be seen from the table of shareholdings in paragraph 11 above that Mr Gray owned significantly more than 50% of the issued shares in BGHL. It was important to Mr Leddra, supported by Shane Watson and Andrew Watson, that Mr Gray did not have voting control of BGHL. A weighted voting system was therefore devised which would, in effect, give either Mr Gray or Mr Leddra a veto over critical issues such as winding up, and the power to carry a vote on less important matters with the support of other shareholders.
[14] As a consequence of the need to agree a weighted voting system, BGHL members entered into a Shareholders’ Agreement dated 6 December 2006. I shall refer in due course to other provisions in this agreement. For now, I note that immediately after completion of the MBO, for the purpose of calculating voting percentages, the...
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