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In reviewing the then authorities Vaughan Williams J in Re Kingston Cotton Mill Co (No 2) said at [1896] 1 Ch, p347: In no one of [the cases cited] can I find that directors were held liable unless the payments were made with actual knowledge that the funds of the company were being misappropriated or with knowledge of... |
Although this case went to the Court of Appeal, this aspect of the decision was not quarrelled with (see [1896] 2 Ch 279). Ratio |
I agree with both those passages. Ratio |
In this case there are concurrent findings that the sale of YMS1 to Moorgarth was a genuine commercial sale. Ratio |
The contrary was not pleaded or put to Mr Moore in cross-examination. Ratio |
I would dismiss this appeal. RPC |
The facts briefly revisited FAC |
Although the deputy judge refrained from making any findings about the true value of the YMS freeholds, he set out a good deal of information about valuations in the latter part of his judgment (paras 78 and following, dealing with a tax indemnity claim). FAC |
Crucially, he recorded, at para 80, that the figure of 11.83m in the DTZ valuation of September 2003 explicitly refrained from considering or taking account of the covenant strength of YMS and the state of repair of the property. FAC |
The valuation disregarding those matters was no doubt prepared on that basis on instructions, and it seems almost certain that if those matters had been taken into account, it would have been much lower. FAC |
One retrospective valuation produced a figure of just under 8m, and in 2006 Mr Farr, instructed by Tradegro, produced a figure of 5.85m (the deputy judge described this as sitting at an extreme end of pessimism). FAC |
In October 2003 YMS1s liabilities to Nationwide and Tradegro totalled about 7.6m, according to the minutes of the PPC board meeting on 20 October 2003 (Mummery LJ, para 6, says approaching 8m). FAC |
So a figure approaching 8m for the true value of the YMS freeholds was the break-even point for whether or not YMS1 had any positive value, in the absence of large-scale financial support from elsewhere in the Tradegro group so as to enable YMS to perform its extensive repairing obligations. FAC |
In the absence of such financial support the disrepair was a black hole making the DTZ figure of 11.83m unsupportable, and the non-existence of a counter-indemnity from PPC was totally irrelevant. FAC |
So long as PPC owned the YMS freeholds, it owned property which had been overvalued (on instructions) by about 4m. FAC |
On this analysis the sale negotiated between Mr Price and Mr Moore, two experienced businessmen, was not at a gross undervalue, and perhaps not at an undervalue at all. FAC |
But the dismissal of this appeal means that these matters will not be the subject of any further adjudication by the court. FAC |
I gratefully adopt the statement of the facts contained in Lord Walkers judgment, and I agree with his reasoning and conclusions. Ratio |
I write only to underline aspects of the facts which make this, in my view, both an odd case and one in which the suggestion that the relevant transaction should be re-categorised as an illegitimate distribution of capital at common law is particularly artificial and unappealing. Ratio |
The question is whether the agreement dated 20 October 2003 involved a return of capital by PPC to its shareholder TUK through TUKs subsidiary Moorgarth (it being common ground that no relevant distinction exists in this context between TUK and Moorgarth). Ratio |
PPC submits that the value of its freehold properties was some 11.83 million, from which fell to be deducted some 8 million for creditors, leaving a net value on the face of it in the region of 4 million. Ratio |
PPC further submits that Moorgarth and so Tradegro were aware of these facts through Mr Cornus Moore, then a director of TUK, PPC and Moorgarth. Ratio |
The appeal comes before us on the hypothesis that these submissions can be made good, although they are in issue. Ratio |
As explained by the deputy judge, Mr David Donaldson QC, in his judgment dated 15 October 2008, the reason for a net purchase price of only 63,225.72 appears from a Summary of principal commercial terms and from minutes for a board meeting of PPC held on 20 October 2003 to approve the sale. Ratio |
The summary was prepared before the idea of stripping YMS1 and YMS2 out of PPC had emerged. Ratio |
It indicated that a deed of indemnity was being discussed between TUK and YMS and that there was broad agreement that PPC should provide TUK with a (back-to-back) counter-indemnity. Ratio |
The minutes were prepared after it had been decided that YMS1 and YMS2 should be stripped out of PPC, to explain the basis of the agreement by which this was achieved. Ratio |
Clause 2.2 of the minutes, drafted by solicitors, reads: It was further noted that the Company had previously agreed to counter indemnify [TUK] in respect of TUKs indemnity to Your More Store Ltd. (YMS) in relation to the repairing obligations referred to in paragraph 2.1 and it was a precondition of the Sale that TUK ... |
Copies of deeds under which TUK had agreed to indemnify YMS in respect of those repairing obligations were produced to the meeting and its contents noted. Ratio |
Consistently with this, the agreement itself recites (clause 4.1.4) that on completion: the Purchaser shall hand over to the Seller: (a) a certified copy of a deed of indemnity executed by [TUK] and Tradegro Limited in favour of [YMS]; and (b) a deed in favour of the Seller executed by [TUK] and Tradegro Limited under ... |
The stated indemnity by TUK to YMS would have ensured that YMS did not suffer loss through having entered into the full repairing and insuring (FRI) leases in order to assist YMS2 to raise money, while PPCs counter-indemnity to TUK ensured that PPC as owner of YMS1, and through it of YMS2, did not benefit from YMSs wil... |
The indemnity and counter-indemnity were valued at around 4 million. Ratio |
When YMS1 and YMS2 were stripped out of PPC, PPCs counter-indemnity could either have been maintained in place, in which case the amount payable for YMS1 would have had to be around 4 million, or the counter-indemnity could have been released, in which case TUK/Moorgarth would be entitled to credit for its value (aroun... |
The latter course was chosen, which explains why the actual net payment to be made under the agreement dated 20 October 2003 was only 63,225.72. Ratio |
The illogicality, noted perceptively by the deputy judge, is that the credit for release of the counter- indemnity, which in fact was a credit due between TUK/Moorgarth and PPC, was expressed as if it reduced the value of YMS1, with which it had nothing in reality to do. Ratio |
At trial PPC accepted that Mr Moore genuinely believed in the existence of TUKs indemnity to YMS and of PPCs counter-indemnity to TUK. Ratio |
But it was by the time of trial conceded by TUK/Moorgarth that they could not establish the existence of either TUKs indemnity or PPCs counter-indemnity. Ratio |
I confess to some surprise at this concession, and also at the absence of any suggestion of an estoppel, based in particular on the minutes to which I have referred. Ratio |
But the concession must be accepted, and PPC seeks to build on it by arguing that, although Mr Moore in fact believed in the existence of both the indemnity and the counter-indemnity, he should have appreciated that they did not exist. Ratio |
This is not an attractive submission, in circumstances where the judge disbelieved Mr Price when he denied any knowledge of and agreement to the minutes of 20 October 2003. Ratio |
The judge thus found, in effect, that Mr Price was willing for the transaction to go ahead on a basis which he knew to be incorrect. Ratio |
There appear to be two possible explanations for this attitude. Ratio |
One is that Mr Price took it because he thought that the whole transaction, including the sale of PPC to his own company, would not have gone ahead on any other basis. Ratio |
(In parenthesis, I note that Mr Collings did not controvert Mr McGhees answer during oral submissions, to the effect that, had the transactions relating to PPC and YMS1 not proceeded on the basis that the indemnity and counter-indemnity already existed as TUK/Moorgarth believed, TUK/Moorgarth could have insisted on the... |
However, Mr Collings for PPC submits that this is irrelevant. Ratio |
The Court must look only at PPC and its position as a separate legal entity. Ratio |
On this basis, the question now before the Court is one of characterisation. Ratio |
Did the agreement between PPC and Moorgarth involve a distribution of PPCs capital to TUK through Moorgarth? This is a question of substance (or of examining the essence of the agreement, as the New Zealand Court of Appeal put it in Jenkins v Harbour View Courts Ltd. [1966] 1 NZLR 1). Ratio |
It is not necessarily answered by the way in which the parties have expressed themselves. Ratio |
Like Lord Walker, I would not go so far as Mr McGhee QC for Moorgarth in his submission that the ultimate test is always one of the directors (subjective) motives in effecting the transaction. Ratio |
The courts will not second-guess companies with regard to the appropriateness or wisdom of the terms of any transaction (see e.g. re Halt Garage (1964) Ltd. [1982] 3 AER 1016. Ratio |
But there may come a point at which, looking at all the relevant factors, an agreement cannot be regarded as involving in substance anything other than a return or distribution of capital, whatever the label attached to it by its parties. Ratio |
I do not regard Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 as inconsistent with this. Ratio |
The facts in that case made it possible to speak of knowledge and intention to sell at an undervalue, but that does not mean that such knowledge or intention are always necessary factors. Ratio |
In the present case, it is however unnecessary in my view to go further into such areas. Ratio |
Here, the expressed justification for the payment to PPC of only 63,225.72 consisted in PPCs stated liability to TUK under the counter-indemnity stated to have been given by PPC to TUK. Ratio |
It was illogical to treat that liability as reducing the value of YMS1. Ratio |
The court can and must look at the substance of what happened. Ratio |
The amount payable by Moorgarth to PPC was reduced by reference to an independent liability supposed to exist against a somewhat complicated commercial background in which Mr Moore believed PPC to have such liability to TUK under a counter-indemnity. Ratio |
The fact that Mr Price, PPCs managing director, did not believe this can be put aside as irrelevant. Ratio |
He was not a director of TUK or Moorgarth and Mr Collings QC for PPC stated explicitly that PPCs case depends upon attributing to both Moorgarth and PPC the knowledge (about the absence of any indemnity or counter-indemnity) which it is said that Mr Moore had or should have had as a director of both companies. Ratio |
That, he said, was what made the agreement between PPC and Moorgarth one under which PPC was distributing assets at an undervalue. Ratio |
Thus, he accepted that a shareholder (like TUK/Moorgarth) might agree to buy, at what it believed to be a fair price, even though the company selling knew or ought to know that the asset being sold was under-valued on the sale. Ratio |
I will proceed on this basis, namely that it is essential, at least in circumstances such as the present, to attribute to both seller and buyer at least notice of the circumstances involving the alleged undervalue. Ratio |
I need not examine whether it is correct as a general proposition that a companys rights to challenge a transaction as involving a disposition at an under-value necessarily depend upon establishing knowledge or notice of such circumstances by both parties to the transaction, or that they depend upon establishing fault ... |
The argument before us did not examine any such general proposition. Ratio |
On the facts found by the judge, I am unable to accept PPCs case that the agreement between PPC and Moorgarth can or should be treated as involving an element of distribution of capital. Ratio |
First, even putting aside the telling points made in the last two paragraphs of Lord Walkers judgment regarding the probable weakness of YMSs covenant, I cannot see how as a matter of substance it can be said that YMS1 was sold at an under-value. Ratio |
The reason why only 63,225.72 was paid by Moorgarth was unrelated to any view that YMS1 had a net value less than about 4 million. Ratio |
The reason was that PPC (not YMS1) was seen as having independent counter-indemnity obligations to TUK, which fell to reduce (in effect by agreed set-off) any net sum otherwise payable by Moorgarth to PPC on account of the value of YMS1. Ratio |
In so far as PPCs obligations to TUK were seen or presented as reducing the value of YMS1, that was, as the deputy judge said, illogical. Ratio |
The court must look at the real position, not at the parties illogical presentation of the position in an agreement which, read in context, makes clear what was actually happening and motivating the parties. Ratio |
Second, with regard to the value attached as between PPC and Moorgarth to the release of PPCs supposed counter-indemnity, directors can make mistakes about the nature or extent of liabilities attaching to their companies, and can accept or settle supposed liabilities, even though they ought to have known or could have ... |
Their acceptance or settlement of such supposed liabilities remains just that, even though it may have been ill-advised or unwise. Ratio |
It does not axiomatically fall to be re-categorised as a distribution of capital, even if it is in relation to a shareholder. Ratio |
Accordingly, if one assumes that Mr Moore as a director ought to have known that PPC had not in fact entered into the counter-indemnity which he believed had been entered into, it does not follow that the release of the supposed counter-indemnity should be regarded as a distribution of capital. Ratio |
This point alone is in my view sufficient to answer PPCs present case. Ratio |
Third, the way PPC has chosen to put its case depends, as I have said, upon the knowledge which it is said that Mr Moore ought to have acquired, being treated as knowledge that he ought to have had as a director of TUK/Moorgarth. Ratio |
I would not, as presently advised, accept this. Ratio |
As a director of TUK and Moorgarth, Mr Moore achieved all that was in their interests. Ratio |
He achieved a recognition and recital of the existence of the indemnity and counter-indemnity in which he believed, and on that basis a credit in the region of 4 million, reducing the net payment to PPC for YMS1 and YMS2 to 63,225.72. Ratio |
If the agreement of 20 October 2003 stands, Mr Moore therefore achieved for TUK and Moorgarth what it was, from the time when the FRI leases were executed, always understood that they would receive. Ratio |
Only if the agreement fails, might it sensibly be said that he was in breach of duty to TUK and Moorgarth. Ratio |
But it is circular to start with an assumption which depends upon the agreement failing. Ratio |
Viewing the position overall, PPCs current case depends upon re- categorising an understandable commercial agreement, involving on its face the giving of value for the release of a counter-indemnity, which Moorgarth genuinely believed to exist and the acknowledgement of which was made a pre-condition to the agreement, ... |
The case is very far from any previous case in which any such exercise has ever been undertaken, and I see no basis for any such re-categorisation. Ratio |
We have read the judgments of Lord Walker and Lord Mance and we agree that, for the reasons they give, this appeal should be dismissed. RPC |
The essential question in this case is whether, on the assumed facts, the sale by the appellant to the respondent of the whole issued share capital of a wholly owned subsidiary of the appellant was in truth an unlawful distribution of capital dressed up as a sale. Ratio |
I agree with Lord Walker and Lord Mance that, for the reasons they give, it was not. Ratio |
It follows that I agree that the appeal should be dismissed. RPC |
The issue in this appeal is whether the conditions of entitlement to state pension credit prescribed by regulation 2 of the State Pension Credit Regulations 2002 (SI 2002/1792) (the 2002 Regulations) are compatible with EU law. Ratio |
Regulation 2 is not easy to summarise in a few words, but its general effect is to restrict entitlement to state pension credit to those who have a right to reside in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland (the Common Travel Area). Ratio |
The question is whether this is compatible with article 3(1) of Council Regulation (EC) No 1408/71 (Regulation 1408/71). Ratio |
Regulation 1408/71 was replaced on 1 May 2010 by Regulation (EC) No 883/2004, which need not be examined as all the relevant events preceded that date. Ratio |
Article 2(1) of Regulation 1408/71 provides that the Regulation applies to employed persons or self-employed persons who are or have been subject to the social security legislation of a Member State as well as to members of their families. STA |
Article 3(1) provides, in respect of those to whom the Regulation applies, for equality of treatment in the application of social security schemes. STA |
They are to be entitled to the same benefits under the legislation of any Member State of the kind to which Regulation 1408/71 applies as the nationals of that State. STA |
The general effect of the 2002 Regulations, on the other hand, is as stated above. STA |
Entitlement to state pension credit depends on whether the person concerned has a right to reside in the United Kingdom or elsewhere in the Common Travel Area. STA |
The problem arises because regulation 2(2) of the 2002 Regulations affects nationals of different Member States in different ways. Ratio |
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