Zavarco Plc v Ranjeet Singh Sidhu
| Jurisdiction | England & Wales |
| Judge | Lord Justice Snowden,Lord Justice Males,Lord Justice Lewison |
| Judgment Date | 22 July 2022 |
| Neutral Citation | [2022] EWCA Civ 1040 |
| Docket Number | Case No: CA-2021-000677 (formerly A3/2021/1212) |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 1040
Lord Justice Lewison
Lord Justice Males
and
Lord Justice Snowden
Case No: CA-2021-000677 (formerly A3/2021/1212)
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY TRUST AND PROBATE LIST (ChD)
Upper Tribunal Judge Jonathan Richards (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert-Jan Temmink QC and Tom Nixon (instructed by Teacher Stern LLP) for the Defendant/Appellant
Patrick Lawrence QC and Andrew Blake (instructed by Needle Partners Limited) for the Claimant/Respondent
Hearing date: 17 March 2022
Further written submissions received on 28–29 June and 1 July 2022
Approved Judgment
Remote hand-down: This judgment was handed down remotely at 10.30am on 22 July 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
This is an appeal by Mr. Ranjeet Singh Sidhu (“Mr. Sidhu”) against a decision of Upper Tribunal Judge Jonathan Richards, sitting as a High Court Judge (“the Judge”) ordering Mr. Sidhu to pay €84 million and interest of about €17.5 million to Zavarco plc (“Z plc” or “the Company”).
The case concerns the provisions of the Companies Act 2006 (the “2006 Act”) which relate to the payment for shares of a public company. In particular, it raises issues in relation to section 584 (which requires shares taken by a subscriber pursuant to an undertaking in a public company's memorandum of association to be paid up in cash); sections 593 and 594 (which prohibit a public company from allotting shares other than for cash unless certain exemptions apply); and section 606 (which gives the court a discretion to exempt a person who is liable to pay for shares from such liability).
The statutory framework
The relevant statutory framework is to be found in Chapters 5 and 6 of Part 17 of the 2006 Act. The general rule is that shares allotted by a company, and any premium on them, can be paid up in money or money's worth (section 582(1)). That general rule is, however, subject to particular additional rules for public companies (section 582(3)). Those additional rules include sections 584, 593–594 and 606 of the 2006 Act.
Section 584 appears in Chapter 5 and provides,
“584. Shares taken by a subscriber to the memorandum of a public company in pursuance of an undertaking of his in the memorandum, and any premium on the shares, must be paid up in cash.”
Section 593 appears in Chapter 6 and provides,
“(1) A public company must not allot shares as fully or partly paid up (as to their nominal value or any premium on them) otherwise than in cash unless—
(a) the consideration for the allotment has been independently valued in accordance with the provisions of this Chapter,
(b) the valuer's report has been made to the company during the six months immediately preceding the allotment of the shares, and
(c) a copy of the report has been sent to the proposed allottee.
…
(3) If a company allots shares in contravention of subsection (1) and either—
(a) the allottee has not received the valuer's report required to be sent to him, or
(b) there has been some other contravention of the requirements of this section or section 596 that the allottee knew or ought to have known amounted to a contravention,
the allottee is liable to pay the company an amount equal to the aggregate of the nominal value of the shares and the whole of any premium (or, if the case so requires, so much of that aggregate as is treated as paid up by the consideration), with interest at the appropriate rate.
(4) This section has effect subject to—
section 594 (exception to valuation requirement: arrangement with another company) …
Section 594 provides,
“(1) Section 593 (valuation of non-cash consideration) does not apply to the allotment of shares by a company (“company A”) in connection with an arrangement to which this section applies.
(2) This section applies to an arrangement for the allotment of shares in company A on terms that the whole or part of the consideration for the shares allotted is to be provided by—
(a) the transfer to that company …
of all or some of the shares, or of all or some of the shares of a particular class, in another company (“company B”).
(3) It is immaterial whether the arrangement provides for the issue to company A of shares, or shares of any particular class, in company B.
(4) This section applies to an arrangement only if under the arrangement it is open to all the holders of the shares in company B (or, where the arrangement applies only to shares of a particular class, to all the holders of shares of that class) to take part in the arrangement.
…
(6) In this section—
(a) “arrangement” means any agreement, scheme or arrangement (including an arrangement sanctioned in accordance with—
(i) Part 26 …, or
(ii) section 110 of the Insolvency Act 1986 …), and
(b) “company”, except in reference to company A, includes any body corporate.”
Section 606 appears in Chapter 6 and provides,
“(1) A person who—
(a) is liable to a company under any provision of this Chapter in relation to payment in respect of any shares in the company, or
(b) is liable to a company by virtue of an undertaking given to it in, or in connection with, payment for any shares in the company,
may apply to the court to be exempted in whole or in part from the liability.
(2) In the case of a liability within subsection (1)(a), the court may exempt the applicant from the liability only if and to the extent that it appears to the court just and equitable to do so having regard to—
(a) whether the applicant has paid, or is liable to pay, any amount in respect of—
(i) any other liability arising in relation to those shares under any provision of this Chapter or Chapter 5, or
(ii) any liability arising by virtue of any undertaking given in or in connection with payment for those shares;
(b) whether any person other than the applicant has paid or is likely to pay, whether in pursuance of any order of the court or otherwise, any such amount;
(c) whether the applicant or any other person—
(i) has performed in whole or in part, or is likely so to perform any such undertaking, or
(ii) has done or is likely to do any other thing in payment or part payment for the shares.
(3) In the case of a liability within subsection (1)(b), the court may exempt the applicant from the liability only if and to the extent that it appears to the court just and equitable to do so having regard to
(a) whether the applicant has paid or is liable to pay any amount in respect of liability arising in relation to the shares under any provision of this Chapter or Chapter 5;
(b) whether any person other than the applicant has paid or is likely to pay, whether in pursuance of any order of the court or otherwise, any such amount.
(4) In determining whether it should exempt the applicant in whole or in part from any liability, the court must have regard to the following overriding principles—
(a) that a company that has allotted shares should receive money or money's worth at least equal in value to the aggregate of the nominal value of those shares and the whole of any premium or, if the case so requires, so much of that aggregate as is treated as paid up;
(b) subject to this, that where such a company would, if the court did not grant the exemption, have more than one remedy against a particular person, it should be for the company to decide which remedy it should remain entitled to pursue.”
Factual background
The factual background is set out in some detail in the judgment: [2021] EWHC 1526 (Ch) (“the Judgment”). For the purposes of the appeal, the relevant facts can be more shortly stated.
The underlying commercial background concerned three Malaysian companies which the Judge referred to as Zavarco Berhad (previously known as Vasseti Berhad) (“ZB”), V Telecoms Berhad (“VTEL”), and a company known as Open Fibre Sdn Berhad (“OFSB”).
VTEL was a telecommunications company that had, by the mid-2000s, obtained licences to build and operate telecommunications infrastructure in Malaysia. It was controlled by Mr. Sidhu and a Mr. Shailen Gajera (also known as Shailen Popatlal) (“Mr. Gajera”). Mr. Gajera is a financial adviser in Malaysia who, as the Judge found, had sought to conceal his interests in VTEL by the use of nominee shareholdings.
Until late 2010, 91% of the shares in VTEL were owned by OFSB. The Judgment contains a detailed review of the evidence as to the true beneficial ownership of OFSB. Ultimately, the Judge found that both Mr. Sidhu and Mr. Gajera had a beneficial interest in shares in OFSB, together with some other unidentified third party stakeholders.
In late 2010, OFSB transferred its shareholding in VTEL to ZB in return for the issue of A Ordinary Shares of Malaysian Ringgit (“RM”) 100 each in ZB, which became the holding company of VTEL. The Judge found that at the time of the subsequent incorporation of the Company on 29 June 2011, the registered holders of the ordinary shares of RM 1 each and A ordinary shares of RM 100 each in ZB were as follows,
i) Mr. Sidhu held 9,999,999 ordinary shares;
ii) Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir (“Mr. Nasir”), a Malaysian businessman, held 4 million ordinary shares;
iii) Dato M Harisharan Pal Singh (“Mr. Singh”), a friend of Mr. Sidhu, held 1 million ordinary shares as nominee for Mr. Sidhu;
iv) A retired army general held a single ordinary share as nominee for Mr. Sidhu; and
v) OFSB held 3,960,000 A ordinary shares.
There were, in addition, an unknown number (but thought to be about 40 million) of preference shares of ZB in issue. The Judge was unable to make any...
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