Thakrar v Thakrar & Ors

A company cannot be required to purchase its own shares outside the statutory framework governing such purchases. A court order under the unfair-prejudice jurisdiction does not itself impose contractual liability on a company which was not party to the purchase agreement. Nor can the statutory requirement for prior approval by special resolution be displaced by the informal unanimous consent of the shareholders. In considering relief, the court must have regard to the interests of creditors and the company’s ability to fund the purchase from distributable profits. Where directors’ conduct has delayed a challenge to orders that prejudice an insolvent company, time may be extended to protect creditors’ interests.

The applications arose from unfair-prejudice proceedings concerning Ciro Citterio Menswear plc. The first group concerned permission to amend notices and permission to appeal against orders requiring, or said to require, the company and individual shareholders to purchase Kirit Thakrar’s shares. The company subsequently entered administration, and its joint administrators challenged the company’s alleged liability and related enforcement orders.

A second application concerned permission to appeal an order of Mr Justice Pumfrey relating to the treatment as administration expenses of costs arising from unsuccessful litigation by the administrators. The central issues included whether the company was bound by the January agreement, whether statutory requirements for a company’s purchase of its own shares had been satisfied, and whether delay should bar the administrators’ applications.

1. Permission and applications. Permission to amend the company’s notices was granted in relation to the interim-payment order. Permission to appeal was granted against the order declaring the company liable to purchase the shares and against the subsequent enforcement orders. The delay was excused because the company had been controlled by directors whose interests conflicted with those of its creditors, and the administrators acted within a reasonable period after obtaining directions.
2. Company’s alleged liability. The orders of 20 January and 27 July 2000 did not themselves impose liability on the company. Any liability had to arise from the January agreement, construed in the light of the Companies Act 1985. The order of 27 July 2000 therefore did not make the company liable merely because it required specific performance of the agreement.
3. Statutory restrictions. The general prohibition on a company acquiring its own shares and the prohibition on financial assistance were subject to limited statutory exceptions. A company purchase required compliance with the provisions governing purchase contracts, including prior approval by special resolution and the availability of distributable profits. A payment by the company towards sums owed by individual shareholders would at least prima facie constitute prohibited financial assistance.
4. Unanimous shareholder consent. The better view, following In re Peak (Kings Lynn) Ltd [1998] 1 BCLC 193, as approved by this Court in Wright v Atlas Wright (Europe) Ltd [1999] 2 BCLC 301, was that the statutory requirement for a special resolution could not be overridden by informal unanimous shareholder consent. The declaration of 13 December 2000 was therefore plainly arguable as erroneous.
5. Creditors and administration. Relief under the unfair-prejudice jurisdiction could not properly require a public company to purchase its own shares without regard to creditors’ interests or without distributable profits sufficient to fund the purchase. The Court also granted permission to appeal the related costs order concerning litigation expenses in the administration.
6. Disposition. The appeals in 2000/3026 and 2000/3367 were dismissed by consent only as between the individual shareholders and Kirit Thakrar. The proposed wider stay was refused. The two appeals concerning the company’s liability were directed to be heard together with the permission appeal raising the same issue. Lord Justice Robert Walker agreed with the orders and directions proposed by Lord Justice Chadwick.

• High Court (Chancery Division, Birmingham District Registry). His Honour Judge Boggis QC made orders concerning the purchase of shares, valuation, payments and enforcement, including orders dated 20 January, 27 July, 5 September, 17 October and 13 December 2000 and subsequent orders.
• High Court. Mr Anthony Mann QC dismissed the administrators’ application concerning property allegedly acquired with misapplied company funds. Mr Justice Pumfrey made the order dated 8 May 2002 concerning administration expenses and costs.
• Court of Appeal (Civil Division). The Court granted or refused permission on the applications as described, dismissed appeals 2000/3026 and 2000/3367 by consent only between specified parties, and gave directions for the remaining appeals.