Waterside Nursery Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Falk |
| Judgment Date | 16 February 2022 |
| Neutral Citation | [2022] EWHC 327 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2021-001640 |
[2022] EWHC 327 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building, Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Mrs Justice Falk
Case No: CR-2021-001640
Ben Shaw (instructed by Burges Salmon LLP) for the Company
Hearing date: 14 February 2022
APPROVED JUDGMENT
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This judgment concerns a short point of statutory construction, relating to a matter that would ordinarily be dealt with by an ICC judge but which has been referred to a High Court judge because of a conflict between earlier decisions.
The issue relates to statutory provisions introduced by the Small Business, Enterprise and Employment Act 2015 (“SBEEA 2015”) that were intended to eliminate the use of bearer shares. In a nutshell, the question is whether the court continues to have jurisdiction to grant a suspended cancellation order under those provisions, despite the relevant time limit having expired.
I have reached the conclusion that the court does have jurisdiction.
It is convenient first to set out the relevant legal background and summarise the legislation, and then set out the salient facts before explaining my reasoning.
I am grateful for the written and oral submissions of Ben Shaw, who appeared for the applicant company, Waterside Nursery Limited (the “Company”).
Legal background and Schedule 4 SBEEA 2015
Until the enactment of SBEEA 2015 companies were entitled to issue share warrants to bearer, commonly (although strictly not quite accurately) referred to as bearer shares. Section 779(1) Companies Act 2006 (“CA 2006”) provided that a company limited by shares could, if authorised by its articles of association:
“…issue with respect to any fully paid shares a warrant (a “share warrant”) stating that the bearer of the warrant is entitled to the shares specified in it.”
Where a company did this and the warrant was issued under its seal, title to the shares would transfer by delivery of the warrant (s 779(2)). The issuing company could also make provision for the payment of dividends, typically using coupons (s 779(3)), and for voting, usually by requiring the warrant to be deposited for the duration of the relevant meeting. Holders would typically be entitled to surrender their share warrants and become registered shareholders (s 780 CA 2006). But until that occurred the company was not permitted to enter anyone on its register of members as holder of the shares, and the register could only record details of the issue of the warrant and the number of shares included in it (s 122 CA 2006).
SBEEA 2015 introduced a wide range of measures. The provisions that this judgment is concerned with were part of a set of provisions contained in Part 7 of the Act that were intended to enhance corporate transparency. Other such provisions included the introduction of the requirement to maintain a register of people exercising significant control over a company (in Part 21A CA 2006), and provisions that generally require directors to be natural persons rather than bodies corporate.
The Explanatory Notes to SBEEA 2015 contain the following statement at paragraph 64:
“At the G8 summit in Lough Erne in June 2013 the UK, alongside the rest of the G8, committed to a number of measures to enhance corporate transparency in order to tackle the misuse of companies. The Government published a discussion paper on these proposals in July 2013, and published the Government response to the views received on the discussion paper in April 2014. The measures included in Part 7 of the Act (linked to measures in Parts 8 and 9) are intended to deliver these commitments. These include the commitment to introduce a register of individuals who exercise significant control over a company; the removal and prohibition of the use of bearer shares; the prohibition of corporate directors, except in certain circumstances and measures to deter opaque arrangements involving directors and make individuals controlling directors more accountable.”
Section 84(1) SBEEA 2015 amended s 779 CA 2006 by including a new subsection (4). That prohibited the issue of new share warrants on or after the date on which s 84 came into force, which was 26 May 2015. Section 84(3) introduced Schedule 4, which contains the provisions that deal with existing share warrants. The Explanatory Notes comment (at paragraph 571) that “the new section and Schedule will together effect a full abolition of bearer shares in UK companies”.
In outline, the basic structure of Schedule 4 is to provide for a nine-month “surrender period” following the coming into force of s 84 (the “commencement date”), during which bearers of share warrants were entitled to surrender their warrants. No doubt as an incentive to do this, once the first seven months of the surrender period had expired the rights attached to the shares were suspended, and any transfer or agreement to transfer the share warrant was void. To the extent that share warrants had not been surrendered within the nine-month period, then the company was obliged to apply to the court within the following three months. The nature of the court's jurisdiction is described further below, but in summary if it was satisfied that the holder of the bearer shares had received the required notice, then not only the warrant but the shares themselves would be cancelled. If the court was not so satisfied then a two-month “grace period” was provided in which the bearer had a further right to surrender the warrant and avoid the shares being cancelled.
In more detail, paragraph 1 of Schedule 4 provided for a “right of surrender” within a “surrender period” of nine months starting on the commencement date (a period which would have which expired on 26 February 2016). The right of surrender entitled the bearer to surrender the warrant for cancellation and have their name entered as a member in the register of members.
Paragraph 2(1) contains provisions that required companies to give notice to bearers of the right of surrender and the consequences of not doing so, as soon as reasonably practicable and in any event before the expiry of one month after the commencement date. If it failed to do so then every officer committed an offence (paragraph 2(2)).
Paragraph 3 contains the provisions that suspended rights attached to the shares where warrants were not surrendered within seven months of the commencement date. It provides that any transfer or agreement to transfer the share warrant made after that time is void (paragraph 3(2)), and that all rights attached to the shares, including voting rights and any right to receive a dividend or other distribution, are suspended (paragraph 3(3)). Any distributions must be retained in a separate bank account. Under paragraph 3(6) the suspension would cease to have effect if the share warrant was subsequently surrendered “in accordance with this Schedule”. At that point sums retained in the separate account would be paid out to the bearer with any interest.
Paragraph 4 obliged the company to give a further notice to bearers of outstanding share warrants before the end of the period of eight months beginning with the commencement date, and again provided that if there was a failure to comply with that requirement then every officer committed an offence.
Paragraph 5 and 6 deal with share warrants not surrendered before the end of the surrender period. They provide as follows:
“ Expiry of right to surrender and applications for cancellation of outstanding share warrants
5(1) This paragraph applies in relation to a company which has issued a share warrant which has not been surrendered for cancellation before the end of the surrender period.
(2) The company must, as soon as reasonably practicable and in any event before the end of the period of 3 months beginning with the day after the end of the surrender period, apply to the court for an order (referred to in this Schedule as a “cancellation order”) cancelling with effect from the date of the order—
(a) the share warrant, and
(b) the shares specified in it.
(3) The company must give notice to the bearer of the share warrant of the fact that an application has been made under this paragraph before the end of the period of 14 days beginning with the day on which it is made; and the notice must include a copy of the application.
(4) If a company fails to comply with sub-paragraph ( 2) or (3) an offence is committed by every officer of the company who is in default.
(5) A company must, on making an application for a cancellation order, immediately give notice to the registrar.
(6) If a company fails to comply with sub-paragraph (5) an offence is committed by—
(a) the company, and
(b) every officer of the company who is in default.
Cancellation orders and suspended cancellation orders
6 (1) The court must make a cancellation order in respect of a share warrant if, on an application under paragraph 5, it is satisfied that—
(a) the company has given notice to the bearer of the share warrant as required by paragraphs 2 and 4, or
(b) the bearer had actual notice by other means of the matters mentioned in paragraph 2(1).
(2) If, on such an application, the court is not so satisfied, it must instead make a suspended...
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