Hill & Anor v Mullis & Peake (A Firm)

Financial assistance by a private company for the acquisition of shares is lawful under Companies Act 1985, section 155(2), where the company’s net assets are not thereby reduced, or any reduction is covered by distributable profits. The relevant question is the net realisable value of the assets immediately before the assistance is given. The time when an inter-company debt is payable does not determine its value. Valuation is principally an accounting question, and an appellate court will not interfere with a trial judge’s evaluation of competing expert evidence absent an error of law. A professional adviser is not negligent merely because legal advice leaves a client to assess a disclosed legal risk.

The appellants sold their hotel business and adjacent property to a company financed partly by a bank loan and partly by a loan from the appellants. The hotel company transferred the hotel to the purchaser’s company, giving rise to an allegation that unlawful financial assistance had been provided contrary to section 151(1) of the Companies Act 1985.

Cresswell J dismissed the professional-negligence claims. The appellants challenged the finding that the transaction fell within the private-company exception in section 155(2), and challenged the findings concerning the legal advice given by their solicitor. The central issue was whether the purchaser company’s debt had sufficient net realisable value for the statutory exception to apply.

1. Appeal dismissed. Stuart-Smith LJ delivered the principal judgment; Hobhouse LJ and Buxton LJ agreed.
2. Section 155(2) required the assets and liabilities to be valued at the time when the financial assistance was given. The relevant issue was the net realisable value of the debt owed by HLM to HEL. The statutory declaration’s reference to payment by inter-company transfers over the ensuing twelve months did not determine the value of that debt or equate time of payment with realisable value.
3. The valuation was essentially an accounting question. The judge was entitled to prefer the evidence of Mr Moss and Mr Sidwell, whose assessment rested on the business being a going concern, expected to make profits and operating in a buoyant market. There was no error of law in accepting that no provision, or no provision reducing the debt below £211,939, was required. The transaction therefore satisfied section 155(2).
4. The finding that Mr Mullis accurately reported counsel’s advice was open to the judge on the evidence and probabilities. The Court of Appeal would not interfere, particularly when important parts of the oral evidence were unavailable.
5. The court did not need to decide reliance or recoverability of loss. Stuart-Smith LJ nevertheless indicated that, even if the transaction had been unlawful, advice accurately conveying conflicting legal views and leaving the client to decide whether to proceed would not necessarily constitute negligence.

The order was: appeal dismissed, with the specified legal-aid and costs directions.

• High Court, Queen’s Bench Division: Cresswell J dismissed the appellants’ professional-negligence claims on 6 December 1996.
• Court of Appeal (Civil Division): the appeal was dismissed.