Wake-Walker & Anor v AKG Group Ltd. & Ors

The Court of Appeal dismissed the appellants' challenge to a deputy High Court judge's decision. The central legal question was the construction of clause 12 of a shareholders' agreement which provided a compulsory buy-out mechanism on an "Insolvency Event" or "Change of Control".

The court held that clause 12 constitutes a single, composite scheme for compulsory acquisition and that a valid offer notice under clause 12.4 must be on terms that permit completion in accordance with clauses 12.7 and 12.8. In particular, clause 12.8 requires payment of the total consideration on completion; an offer that provided for deferred payment in instalments was therefore not a valid offer under clause 12.4. The judge's conclusion that the claimants had not served a valid offer notice was upheld.

The court also upheld the judge's conclusion that presentation of a winding-up petition constituted an "Insolvency Event" within clause 12.1.2. The court noted some drafting infelicities in clause 12 but treated the wording as sufficiently clear to bring a petition within the scope of "a step ... to appoint a liquidator".

This is an appeal from a Chancery Division decision given by Mr Anthony Elleray QC on 6 December 2002. The claimants (Mr Wake-Walker and Martin Rose Ltd, together with the trustees of a pension scheme) sought declarations that they were entitled under clause 12 of a shareholders' agreement dated 10 February 2000 to require AKG Group Ltd and AKG Intermediaries Ltd to transfer their 63.1% shareholding in Dentons at a stated price of 646,253.24.

Background and parties:

• Dentons is a pension consultancy company whose shares were owned 36.9% by the investors (claimants and pension trustees) and 63.1% by AKG and AIL.
• Clause 12 addressed "Insolvency and Change of Control" and set out a mechanism for notice, offer, expert valuation and completion including precise transfer terms in clause 12.8.
• A winding-up petition was presented against AKG on 27 November 2001. The investors served an "Offer Notice" on 25 March 2002 offering the stated price but proposing payment in two equal instalments, half on completion and half six months later.

Procedural posture and issues:

• The matter was tried under CPR Part 24. Master Price directed trial of three issues: (1) whether an insolvency event had occurred by presentation of the winding-up petition; (2) whether the offer notice was valid; and (3) if those issues favoured the claimants, what relief they were entitled to.
• The deputy judge held that an insolvency event had occurred but that the offer notice was invalid because it did not permit completion in the manner required by clause 12.8. The claim was dismissed. The claimants appealed on the validity point; the respondents cross-appealed on the insolvency point.

Court's reasoning:

• The Court of Appeal analysed clause 12 as a composite scheme: clauses 12.3-12.8 operate together to produce a compulsory acquisition mechanism. Clause 12.8 prescribes mandatory completion terms, most significantly that the buyer shall pay the total consideration by banker's draft on the completion date.
• An offer that provided for deferred payment could not, if accepted or if the offeree failed to invoke the expert procedure, lead to completion in accordance with clause 12.8. To allow the terms of completion to differ depending on whether the offered price was accepted or deemed accepted would be commercially incoherent and unlikely to accord with the parties' intention.
• The court therefore held that a valid offer notice must enable completion in accordance with clause 12.8 and that the offer in this case was invalid because it provided for a deferred instalment payment.
• On the insolvency point the court acknowledged drafting infelicities in clause 12 but concluded that presentation and service of a winding-up petition constituted "a step ... to appoint a liquidator" under clause 12.1.2. The court accepted that the clause was wide but concluded that the petition was an objectively evident step connecting to the possible appointment of a liquidator and so constituted an insolvency event for the purposes of the agreement.

Other points:

• The court observed that if an implied term were required to give business efficacy to the clause (that an offer must permit completion under clause 12.8) such a term would be permissible and not excluded by the whole-agreement clause.
• The appeal was dismissed; costs were awarded consistent with the judge's order below, namely that the unsuccessful party pay 50% of the successful party's costs (summary assessment subject to VAT deduction as indicated in the judgment).

Appeal dismissed. The Court of Appeal agreed with the deputy judge that the shareholders' agreement's clause 12 constitutes a single scheme for compulsory acquisition on an insolvency event and that a valid offer notice must permit completion in accordance with clauses 12.7 and 12.8, including payment of the total consideration on the completion date. The offer which provided for half the price to be paid six months after completion was therefore not a valid offer. The court also upheld the finding that presentation of a winding-up petition fell within the definition of an insolvency event in clause 12.1.2.

Appeal to the Court of Appeal (Civil Division) from the Chancery Division (decision of Mr Anthony Elleray QC dated 6 December 2002). The trial of the key issues had been ordered by Master Price on 26 September 2002. Neutral citation of this appeal: [2003] EWCA Civ 375.