Leaver provisions in articles or a shareholders' agreement fix the price of a departing member's shares by reference to the manner of departure. Good leaver status ordinarily produces fair value; bad leaver status the issue price. Holt v Faulks; Re LCM Wealth Management Ltd.
Partnership; expulsion; good faith. Articles of partnership allowed the holders of two-thirds of the shares to expel any partner by notice. Held: the power could be exercised without a previous meeting and without any cause being assigned, but it must be exercised with good faith and not against the truth and honour of the contract. Such a power exists for the benefit of the whole partnership, not of the partners holding two-thirds of the shares. It could not be exercised merely to enable the continuing partners to appropriate the expelled partner's share at a fixed value less than the true value. Cited by analogy in Re LCM Wealth Management Ltd for the court's concern that powers of expulsion are not used for improper purposes. [Summary checked against a practitioner text, not the judgment.]
Transfer of shares; leaver provisions; shareholders' agreement and articles. Clause 6.7 of a shareholders' agreement required an executive director, on termination of his employment 'for whatever reason', to transfer his entire share interest pro rata to the subscribers or otherwise in accordance with the articles. The claimants' service contracts were unlawfully terminated. Kim Lewison QC held that the words 'for whatever reason' covered both lawful and unlawful termination: the clause had come into operation. Its effect was that an outgoing executive director was obliged to sell his entire share interest to the subscribers pro rata through the mechanism of art 29, so the claimants were required to serve transfer notices under that article. [Summary checked against a practitioner text, not the judgment.]
Unfair prejudice; remedy; bad leaver provisions and valuation at par. The Extra Division held that it was open to a judge, having found unfair prejudice established, to value the petitioner's shares by reference to the expropriatory bad leaver provisions in the articles, even though the respondents had not yet triggered them, where the petitioner had been found guilty of gross misconduct entitling them to do so. The fair price was accordingly the price those provisions would have produced, namely par value. [Summary checked against a practitioner text, not the judgment.]
Unfair prejudice; leaver provisions; scope for departing from the contractual measure. The petition failed: none of the petitioners had been subjected to unfair prejudice [181]. The court asks first whether the conduct complained of is authorised by the rules the parties agreed or by the general law and, if it is, whether equity should prevent reliance on strict rights [144]. The relationship was commercial, on comprehensive terms subject to an entire agreement clause: no equity arose [147]-[148], [174]. The company was entitled to exclude and suspend the first petitioner [175]. The approach in Re Lloyds Autobody Ringway Ltd had no application: the articles made detailed provision for the sale and purchase of shares when a member left as a good, intermediate or very bad leaver, leaving no room to find that a failure to buy his shares at a fair price was unfairly prejudicial [151], [177]. It was fair and just to hold the petitioners to the legal agreements [183].
Cites
References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.