Zavarco UK Plc v Ranjeet Singh Sidhu
| Jurisdiction | England & Wales |
| Judge | Jonathan Richards |
| Judgment Date | 14 June 2021 |
| Neutral Citation | [2021] EWHC 1526 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2017-001692 |
| Date | 14 June 2021 |
[2021] EWHC 1526 (Ch)
JUDGE Jonathan Richards
Sitting as a Deputy Judge of the High Court
Case No: HC-2017-001692
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY TRUST AND PROBATE LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
Patrick Lawrence QC and Peter Morcos (instructed by Needle Partners Limited) for the Claimant
Robert-Jan Temmink QC and Tom Nixon (instructed by Teacher Stern LLP) for the Defendant
Hearing date: 12 to 19 May 2021
Draft judgment circulated: 7 June 2021
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.
This dispute concerns the rule, set out in s584 of the Companies Act 2006 (the “2006 Act”), that shares taken by a subscriber to the memorandum of a public limited company (“plc”) must be paid up in cash. It also concerns the more general prohibition, in s593 of the 2006 Act, against plcs issuing shares for non-cash consideration, unless an exception applies. The issues, in a nutshell, are whether an exception to the requirements of either or both of s584 and s593 applies and, if not, what consequences should flow from the undisputed fact that certain shares in the Claimant (which I refer to as “Z plc”) were not paid up in cash.
STATUTORY PROVISIONS
Section 584 of the 2006 Act provides:
Public companies: shares taken by subscribers of memorandum
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 584, therefore, is concerned with the position of a subscriber to a plc's memorandum. Section 593 sets out requirements applicable to “allotments” more generally in the following terms (so far as material):
593 Public company: valuation of non-cash consideration for shares
(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. ….
It was common ground, in this case, that no independent valuation complying with the terms of s593 was produced and therefore I do not reproduce the requirements applicable to such a report. Section 593(3) sets out consequences that are to apply where shares are issued in breach of the requirement of s593(1):
(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.
Section 594 sets out an exception to the requirements of s593 and provides, so far as material, as follows:
594 Exception to valuation requirement: arrangement with another company
(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”).
…
(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 26A (arrangements and reconstructions), or
(ii) section 110 of the Insolvency Act 1986 (c 45) or Article 96 of the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI 19)) (liquidator in winding up accepting shares as consideration for sale of company property)), and
(b) “company”, except in reference to company A, includes any body corporate.
I will consider the applicability or otherwise of this provision later on in this judgment, but for the time being make the following general observations:
i) The definition of “arrangement” is inclusive. It includes the schemes under part 26 of the Act and under s110 of the Insolvency Act 1986 that will be familiar to company law and insolvency practitioners, but it is not limited to such schemes.
ii) Since, by s594(6)(b), Company B can be a “body corporate”, as well as a “company”, it follows that the conditions of s594 can be met even if Company B is incorporated outside the UK.
Section 606 gives the court discretion to grant relief to any person with an obligation to pay for a company's shares in the following terms, so far as material:
606 Power of court to grant relief
(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.
BACKGROUND AND OVERVIEW OF THE PARTIES' POSITIONS Formation of OFSB and ZB
A material part of the case of the Defendant (to whom I will refer as “RSS”) depended on assertions as to various transactions relating to shares of two Malaysian companies: Zavarco Berhad 1 (“ZB”) and Open Fibre Sdn Berhad (“OFSB”). Many of RSS's factual assertions were disputed and, to the extent necessary, I will make findings on those issues later in this judgment. This section sets out findings of undisputed fact relating to these three companies.
OFSB was incorporated in 2007. Its initial subscriber shares were registered in the name of Roslina Ibrahim and Ku Hasniza. It was, in legal form, a “Sdn Berhad”, a company incorporated under the law of Malaysia with separate legal
personality analogous to a private limited company in the UK. On 5 August 2009, OFSB issued 99,998 ordinary shares of Malaysian Ringgit (“RM”) 1.00 each to RSS, at that time representing almost the entirety of its issued share capital. At or around this time, RSS also became a director of OFSB. The details of the arrangements and, in particular, RSS's assertion that he became the beneficial owner of 50% of the shares in OFSB with Shailen Popatlal, also known as Shailen Gajera (“SG”) are disputed. However, both parties agree that, at a high level of generality, RSS initially became involved because OFSB and V Telecoms Berhad...To continue reading
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Zavarco Plc v Ranjeet Singh Sidhu
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