Winpar Holdings Ltd v Ransoms Plc
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER,LORD JUSTICE OTTON,THE LORD CHIEF JUSTICE |
| Judgment Date | 01 July 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0701-28 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANF 1999/0053/3 |
| Date | 01 July 1999 |
[1999] EWCA Civ J0701-28
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LLOYD)
Royal Courts of Justice
The Strand
London
The Lord Chief Justice of England and Wales
(Lord Bingham of Cornhill)
Lord Justice Otton
and
Lord Justice Robert Walker
CHANF 1999/0053/3
IN THE MATTER OF RANSOMES PLC
AND IN THE MATTER OF THE COMPANIES ACT 1985
MR S MORTIMORE QC and MR NICHOLAS CHERRYMAN (instructed by Messrs S JBerwin & Co, London WC1X 8HB) appeared on behalf of THE APPELLANT
MR DAVID MABB (instructed by Messrs Eversheds, Suffolk IP1 1UR) appeared on behalf of THE RESPONDENT
Thursday 1 July 1999
This is an appeal with the leave of the Judge from an order of Lloyd J made on 17 December 1998. The order confirmed the cancellation of the share premium account of Ransomes plc (the Company) effected by a special resolution passed at an extraordinary general meeting of the company held on 19 November 1998. The order was made under section 137 of the Companies Act 1985 (the Act), which gives the court power to confirm a reduction of capital if satisfied that the interests of creditors are not prejudiced. Some material events have occurred since the Judge made his order and this court allowed an application by the respondent, not opposed by the appellant, to adduce further evidence as to recent events.
For over 130 years successive Companies Acts have permitted the reduction of a limited company's capital, but only subject to safeguards including sanction by the court. Since 1948 the legislation has also provided for the formation of a share premium account when a company issues shares at a premium, recognising that sums received as premium, although not strictly part of the company's capital, have a similar character and should not be regarded as profits distributable by way of dividend.
The relevant statutory provisions are now in Part V of the Act. Section 130 provides as follows,
"(1) If a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called "the share premium account".
(2) The share premium account may be applied by the company in paying up unissued shares to be allotted to members as fully paid bonus shares, or in writing off —
(a)the company's preliminary expenses; or
(b)the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company, or in providing for the premium payable on redemption of debentures of the company.
(3)Subject to this, the provisions of this Act relating to the reduction of a company's share capital apply as if the share premium account were part of its paid up share capital."
So except as provided in subsection (2), the share premium account is subject to the same regime as regulates any reduction of paid up share capital.
Section 135(1) provides as follows,
"Subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles, by special resolution reduce its share capital in any way."
Section 135(2) specifies three particular types of reduction : extinguishment or reduction of liability in respect of share capital which is not paid up, cancellation of paid-up share capital which is lost and payment-off of paid-up share capital which is in excess of the company's wants. Subsection (2) does not refer to cancellation of the share premium account but, as the Judge said, there is no doubt that it falls within the general terms of subsection (1).
Section 136 provides for a company which has resolved to reduce its share capital to apply to the court for confirmation of the reduction, and prescribes procedure for the protection of creditors which need not be set out in detail. Section 137(1) provides as follows,
"The court, if satisfied with respect to every creditor of the company who under section 136 is entitled to object to the reduction of capital that either —
(a)his consent to the reduction has been obtained; or
(b)his debt or claim has been discharged or has determined, or has been secured.
may make an order confirming the reduction on such terms and conditions as it thinks fit."
From this the court appears to have an unfettered discretion (so long as creditors are protected) but case law, starting with the decision of the House of Lords in British American Trustee and Finance Corporation v Couper [1894] AC 399, has established the principles on which the court's discretion should be exercised.
Section 138 must also be noted, especially since it is relied on in the respondent's notice. So far as material it is in the following terms,
"(1)The registrar of companies, on production to him of an order of the court confirming the reduction of a company's share capital, and the delivery to him of a copy of the order and of a minute (approved by the court) showing, with respect to the company's share capital as altered by the order —
(a)the amount of the share capital;
(b)the number of shares into which it is to be divided, and the amount of each share; and
(c)the amount (if any) at the date of the registration deemed to be paid up on each share,
shall register the order and minute (but subject to section 139).
(2)On the registration of the order and minute, and not before, the resolution for reducing share capital as confirmed by the order so registered takes effect.
(3)Notice of the registration shall be published in such manner as the court may direct.
(4)The registrar shall certify the registration of the order and minute; and the certificate —
(a)may be either signed by the registrar, or authenticated by his official seal;
(b)is conclusive evidence that all the requirements of this Act with respect to the reduction of share capital have been complied with, and that the company's share capital is as stated in the minute."
The following information about the Company is derived from its audited financial statements for the year to 30 September 1997, which were exhibited (together with an unaudited balance sheet made up to 31 October 1998) to the first affidavit of Mr Paul Hollingworth, the Company's finance director and company secretary. The 1997 accounts show that the Company was then the holding company of a multinational engineering group, based in Ipswich, and specialising in the design, manufacture and marketing of grass care machinery and specialist industrial vehicles. It had just over 3000 shareholders holding issued and fully paid share capital of the following classes:
| number | share capital £ | |
| Ordinary shares of 25p each | 138,652,022 | 34,663,053 |
| 3.85% cumulative preference shares of £1 each | 200,000 | 200,000 |
| 8.25p cumulative convertible preference shares of 12.5p each | 56,607,427 | 7,075,926 |
There were also ten non-transferable special shares of varying nominal amounts which arose on the conversion of 8.25p convertible preference shares; they are a technical complication with no direct relevance to this matter, and for practical purposes they can be ignored. References in this judgment to preference shares (without qualification) are to the 3.85% (non-convertible) preference shares.
Note 13 to the accounts listed six direct and indirect subsidiaries of the Company, of which Ransomes Investment Corporation (RIC), a direct subsidiary incorporated in one of the states of the United States of America, is the most important for present purposes. RIC acted as holding company for the group's operations in the United States and the Judge was told that it was the source of about two thirds of the group's world-wide revenue. The Company's balance sheet (together with note 21) showed a share premium account in the amount of £17, 122,880. This arose from a rights issue of ordinary shares issued at a premium in 1996.
Note 26 to the accounts recorded an event, occurring after the accounting date, which is an important part of the background to this litigation : the announcement on 10 November 1997 of agreement on the terms of recommended cash offers, made on behalf of Textron Acquisition Ltd (Acquisition) for the entire issued share capital of the Company. Acquisition is an indirect wholly-owned subsidiary of Textron Inc (Textron), the holding company of a large industrial group based in the United States.
The agreed offer (made on 24 November 1997) resulted in Acquisition becoming the owner of all the Company's ordinary shares and its convertible preference shares, but only just over half of the 200,000 preference shares. 98,597 of those shares remained in other hands, and 50,100 were held by the appellant Winpar Holdings Ltd (Winpar). Winpar is a public company incorporated in New South Wales, Australia. Mr Gordon Elkington, a director and company secretary of Winpar, has deposed that it has about 300 shareholders and shareholders' funds of about AUS$ 1.8m. Its principal activities are share trading, investment and underwriting. Winpar has since acquired a further 32,084 preference shares.
In order to enable an extraordinary general meeting (EGM) to be called at short notice under section 369 of the Act, Acquisition transferred one ordinary share in the Company to each of thirty individuals (all partners or employees of the Company's solicitors, Eversheds) and the transfers were registered on 16 November 1998. On the same day notice was given of an EGM of the Company to be held (at Ransome's Way, Ipswich on 19 November 1998 at 3 pm.) at...
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