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

A contractual compulsory share-transfer mechanism must be construed as a coherent whole. An offer notice is valid only if its terms permit completion in accordance with the scheme’s completion provisions, including payment of the full consideration on completion. A notice proposing a deferred instalment therefore fails, even though it states a price and an acceptance period. In a secondary, non-dispositive analysis, a winding-up petition served on the company was a contractual step for the appointment of a liquidator under an insolvency-event clause. Such a step must be objectively evident, and the reference to a liquidator is not confined to a provisional liquidator.

The claimants sought declarations under a shareholders’ agreement governing shares in Dentons, a pension consultancy company. The agreement gave investors rights to acquire the respondents’ shares following an Insolvency Event. After a winding-up petition was presented against AKG, the investors served an Offer Notice proposing payment of half the price on completion and the balance six months later.

The Chancery Division, on issues directed for trial under CPR Part 24, held that the petition constituted an Insolvency Event but that the Offer Notice was invalid, and dismissed the claim. The claimants appealed on the validity of the notice. The respondents challenged the finding on the Insolvency Event. The central questions concerned the proper construction of the compulsory transfer machinery and the meaning of a contractual step towards appointing a liquidator.

Disposition. The Court of Appeal unanimously dismissed the appeal. Blackburne J gave the leading judgment. Arden LJ and Peter Gibson LJ agreed, with Arden LJ adding observations.

1. Validity of the Offer Notice. Clause 12 constituted a composite scheme for the compulsory acquisition of shares. The completion regime in clauses 12.7 and 12.8 applied whether the offered price was accepted, deemed to be accepted, or replaced by a fair price determined by an expert. Clause 12.8.3 required the total consideration to be paid on completion. An offer providing for half the price to be paid six months later was therefore incompatible with the scheme and was not a valid Offer Notice under clause 12.4. The conclusion followed from construction of the agreement as a whole, rather than from implying a term. Alternatively, any such term was necessary to give the agreement business efficacy and was not barred by clause 20.1.
2. The court accepted that the notice’s acceptance date, which was two days short of the contractual 30-day period, was not fatal because its purpose was clear and the point was not relied upon, having regard to Mannai Investments Company Ltd v Eagle Star Life Assurance Company Ltd [1997] AC 749.
3. Insolvency Event. Although unnecessary to the disposition because the claim failed on the Offer Notice issue, the respondents’ challenge was fully argued and was rejected. Blackburne J and Arden LJ concluded that a winding-up petition served on the company was a step for the appointment of a liquidator under clause 12.1.2. The words to appoint were understood as meaning for the appointment of, and liquidator was not confined to provisional liquidator. If the step was not withdrawn or discharged within 30 days, it constituted an Insolvency Event.
4. Scope of “a step”. The step had to be objectively evident to the affected company. Arden LJ added that an unserved petition might raise questions about whether the conduct was sufficiently unequivocal and manifest, and that not every subsequent step in prosecuting a petition would necessarily constitute a further contractual step. Blackburne J construed dissolution in clause 12.1.1 as liquidation or winding-up; Arden LJ disagreed, considering that the wording could apply to a foreign court and that overlap between provisions should not be avoided where intended.
5. The appellants were ordered to pay 50% of the respondents’ assessed costs, subject to deduction of the VAT claimed.

• Court of Appeal (Civil Division): The court dismissed the appeal and upheld the lower court’s conclusion that the Offer Notice was invalid. It also upheld, in its non-dispositive consideration of the respondents’ notice, the finding that the winding-up petition constituted an Insolvency Event: [2003] EWCA Civ 375.
• Chancery Division: Mr Anthony Elleray QC, sitting as a Deputy Judge, held that an Insolvency Event had occurred but that no valid Offer Notice had been served, and dismissed the claim.