Re Harmer (H. R) Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLORD JUSTICE JENKINS,LORD JUSTICE ROMER
Judgment Date17 Nov 1958
Judgment citation (vLex)[1958] EWCA Civ J1117-3

[1958] EWCA Civ J1117-3

In The Supreme Court of Judicature

Court of Appeal

Before:

Lord Justice Jenkins,

Lord Justice Romer, and

Lord Justice Willker.

In the Matter of The Companies Act, 1948
and
In the Matter of H.R. Harder Limited

MR HAROLD BROWN, Q.C., and MR J.L.E. MacMAHUS (instructed by Messrs Haslewoods, Agents for Messrs Bosley & Co., Brighton) appeared as Counsel for the Appellant.

HR MLLNER HOLLAND. Q.C., and The Hon. DENYS BUCKLEY (instructed by Messrs Henry Pumfrey & Co.) appeared as Counsel for the Respondents.

LORD JUSTICE JENKINS
1

This truly lamentable litigation concerns a company called H.R. Harmer, Ltd., and comes before us on appeal from an Order of Mr Justice Roxburgh dated the 12th May, 1958, whereby he granted relief under Section 210 of the Companies Act, 1948, at the instance of two sons of Mr H.E. Harmer, the founder of the business. The two sons are life Directors. The father, Mr Raman senior, is also a life Director and, as will later be seen, in point of voting power controls the Company. The Company carries on in succession to Mr Harmer senior a large and, one might say I think, world renowned business of philatelic auctioneering and dealing in and valuing stamps. Mr Harmer senior, upwards of eightyeight years of age, has been concerned in this class of business all his life, and according to him he commenced the business, which he later transferred to the Company, as long ago as 1894. One finds the date 1918 given in some parts of the evidence as the actual date when he set up the present business, but I think it is clear that he was in fact doing business of this kind at a much earlier date. I think he said his first dealing in stamps took place as long ago as 1886. The father, from whatever the exact date may have been, carried on this business on his own account and he was sole proprietor of it down to the year 1947 when the Company was formed to take over the business. There were three sons, of whom one, Leslie, was concerned in the business only from 1947 until 1951. The other two are Cyril and Bernard; Cyril left school in 1921 and went into the business; Bernard left school in 1931 and likewise entered the business; Leslie entered the Colonial service and left that service for the purpose of joining the Company when it was formed. According to Cyril, by 1935 the day-to-day management of the business in London was left to him. On the outbreak of war in 1939 Cyril joined the Army and he had the misfortune to be taken prisoner and was a prisoner of war for the rest of the period of hostilities. In 1940 Mr Harmer senior and his wife went to the United States of America and there the father opened a branch in New York. In June, 1940, a United States company called H.R. Harmer Inc. was incorporated to take over this business and Mr Harmer senior owned all the shares in that American corporation. He stayed in the United States until 1945, and during his absence in the United States the London business was carried on by a Mr Edwards, an old employee of the business, with the help of the son Bernard. In 1945 the father and his wife returned to England and shortly afterwards sent Bernard to take charge of the business in the United States, and Bernard has been in charge of that business ever since. His co-Director, or one of his co-Directors, in that business is a gentleman named Mr Buck, to whom further reference will be made hereafter. Cyril, on his release as a prisoner of war, returned to the business in London. In 1946 there were discussions between the father and his sons about the formation of a limited company. It is not clear from whom the initial suggestion came and I do not think it matters. The upshot of these discussions was that the Company H.R. Harmer, Ltd. was formed on the 1st July, 1947. It was formed to acquire and did acquire the English business and all the shares in the United States business. The nominal capital of the Company was £50,000 divided into 39,000 preference shares of £1, 10,000 "A" Ordinary shares of £1 and 1,000 "B" Ordinary shares of £1. The whole of the Ordinary shares, "A" and "B", and most of the Preference shares have been issued. The Preference shares conferred on the holders a right to a dividend of four per cent, and priority as to capital in a winding-up, but they did not confer any right to any surplus assets in the winding-up. The "A" Ordinary shares had the right to the residue of the divisible profits, and the "B" Ordinary shares conferred no right to participate in the profits but carried the whole of the voting power. On a winding-up the "A" and "B" shares were to rank equally for return of capital and participation in surplus assets.

2

On the 11th July, 1947, a sale agreement was entered into between the father and the Company. Under that agreement the father sold to the Company the whole of the assets of the business, including the shares in the United States Company, for the sum of £33,325, That consideration was to be satisfied by the issue to him or nominees of his of 22,325 preference shares, all the 10,000 "A" shares and all the 1,000 "B" shares. The father nominated the sons as allottees in equal shares of 6,750 of the "A" shares and 240 of the "B" shares. There was further an agreement that on his death the remaining 3,350 "A" shares and 760 "B" shares allotted to the father were to be offered to the three sons. Under the Articles of Association the father was to be Chairman of the Board of Directors and as such was entitled to a casting vote in the event of equality of votes. Further, by the Articles the father was appointed Governing Director for life but no special rights were attached to that office. He also had a service agreement appointing him Managing Director for ten years from the 31st August, 1946, at a salary of £3,000a year. That agreement expired in 1956 and was not renewed, but I understand no special powers were delegated to him in his capacity as Managing Director. Cyril was appointed a Director for life and London Executive Manager at a salary of £2,500. His post of London Executive Manager was likewise for ten years from August, 1946, and that was renewed in 1956 for a further seven years at a salary of £3,500. Bernard was likewise appointed a Director for life, and he too had a service agreement under which he was an Executive Manager at a salary of £2,250 per annum likewise for ten years from August, 1946. Leslie gave up his career in the Colonial service and was appointed a life Director and Executive Manager for a similar period of ten years from August, 1946, at a salary of £2,000. Under the arrangements made the three sons were to purchase certain Preference shares at par. Cyril was to take 5,000 of these shares, Bernard 4,000 and Leslie 2,000. I have already referred to the option given to the sons to purchase their father's shares on his death. After the formation of the Company various changes took place in the shareholdings which are not altogether easy to follow. It appears that in 1949 advice was taken as to the position in regard to estate duty and I think also income tax, and it was pointed out that the father's position of absolute control might create difficulty, and as a result the father transferred to the three sons 3,250 "A" shares, that is the balance of those shares, in equal shares, that is 1,083 "A" shares each to Cyril and Bernard, and 1,084, Including the one odd share, to Leslie, and the father transferred 270 of his "B" shares to his wife. That situation was modified when Leslie left the Company as he did in 1951. On the occasion of his leaving an agreement was entered into under which he gave up his employment and his shareholding and the benefit of the option. He was suitably compensated for these matters. His "A" shares were transferred in equal shares to the father, Cyril and Bernard and his "B" shares were transferred to the father, Cyril, Bernard and the father's wife, Mrs Harmer. At some stage Cyril and Bernard each transferred 103 of their respective holdings of "B" shares to their wives and the result of these somewhat complicated readjustments was to make the present capital situation as set out in paragraph 7 of the Petition by which Cyril's and Bernard's application to the Court was initiated, paragraph 7 is in these terms: "The present shareholding of the Company is as follows", and then there are three columns: "A" Ordinary, "B" Ordinary and preference. As to the "A" Ordinary the Chairman holds 1,028, those are the shares he took when Leslie left, Cyril 4,611, Bernard 4,361. As to the "B" Ordinary shares the Chairman holds 491, Cyril 4, Bernard is the Chairman's wife 295, Cyril's wife 103 and Bernard's wife 103. Then as to the preference shares, 11,029 are held by the Chairman, 5,291 by Cyril, 3,230 by Bernard and 150 each by Cyril's wife and Bernard's wife. That accounts for the whole of the "A" Ordinary and "B" Ordinary, and 19,850 of the Preference, shares.

3

Then paragraph 7 of the Petition goes on; "The remaining 14,153 of the issued preference shares are held by other members of the Chairman's family and by Directors and former Directors of the Company and its subsidiary Company here in after Mentioned." in those circumstances the position as regards the control of the Company, ignoring the slight differences while A Leslie was with the Company, was this. The father and his wife held respectively 491 and 296 "B" shares, making a combined holding of 786 of such shares. The two sons held 4 "B" shares each and their respective wives held 103 "B" shares each. The "B" shares, as I have said, are the only shares in the capital of the Company carrying any right to vote. On the other hand, the two sons held approximately nine-tenths to the father's one-tenth of the "A" shares which carry substantially the whole of what is now conveniently though erroneously termed the equity of the...

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