Dyment v Boyden & Ors

Under Companies Act 1985 s.151(1), financial assistance must be given before or at the same time as the acquisition of shares. A company is not treated as bound by a lease before it has committed itself merely because the landlord delivered the lease in escrow and later conditions were satisfied. Under s.151(2), the court must separately identify the purpose for which acquisition liability was incurred and the purpose for which assistance reduced or discharged it. Commercial pressure and the other party’s motive do not substitute for the company’s own purpose. A transaction may be connected with an acquisition without being undertaken for that purpose.

Audrey Dyment appealed from an order of Hart J in the Chancery Division dismissing her application concerning proofs of debt lodged by the landlords of premises leased to Pathways Residential and Training Centres Ltd, a company in liquidation.

Mrs Dyment had acquired the landlords’ shares in the company. The company later entered into a 21-year lease at a rent alleged to be substantially above market value. She contended that the excessive rent constituted unlawful financial assistance under s.151 of the Companies Act 1985, and sought to expunge or reject the landlords’ proofs of debt. The central issues were whether the company was bound by the lease when the shares were acquired and whether the lease was entered into for the purpose of acquiring those shares.

The appeal was dismissed unanimously. Lord Justice Peter Gibson gave the principal judgment, with Lord Justices Clarke and Keene agreeing.

1. Section 151(1). The prohibition applies only where the company gives financial assistance before or at the same time as the share acquisition. The company had not become legally bound by the lease when Mrs Dyment acquired the shares. The doctrine of relation back could not make an intended tenant bound before it had committed itself merely because the landlord had delivered the lease in escrow and the escrow conditions were later fulfilled. Alan Estates v W G Stores [1982] Ch.511 did not decide whether relation back applied against a party other than the party delivering the deed. The penal consequences of contravention reinforced the conclusion. The ground under subsection (1) therefore failed.
2. Section 151(2). The provision requires two separate purpose inquiries. The relevant liability must have been incurred for the purpose of acquiring the shares, and the company’s assistance must have been given for the purpose of reducing or discharging that liability.
3. The excessive rent materially reduced the company’s net assets, but that alone was insufficient. The implied obligation undertaken by Mrs Dyment was to procure the company’s entry into the lease. The evidence supported the finding that her purpose was to obtain The Mount so that the business could continue, not to acquire the shares. The company’s purpose was the same. The Bishops’ motive in demanding compensation through the rent could not be attributed to Mrs Dyment or the company merely because she considered that she had no commercial alternative.
4. The lease was therefore in connection with the share acquisition but was not for its purpose. Hart J’s conclusion was a finding of fact with which the Court of Appeal could not interfere. The appeal was dismissed.

1. Court of Appeal (Civil Division) [2004] EWCA Civ 1586 dismissed Mrs Dyment’s appeal.
2. High Court of Justice, Chancery Division, Cardiff District Registry Hart J dismissed the Originating Application after a three-day trial on 27 February 2004.