Anglo Petroleum Ltd v TFB (Mortgages) Ltd

Companies Act 1985, section 151, concerns a commercial concept. The court must examine the commercial substance and reality of the transaction, while recognising that the provision is penal and should not be strained.

A genuine restructuring of a company’s own indebtedness, including giving security for a reduced debt, is not financial assistance for a purchaser’s acquisition merely because it is connected with a share sale. A third-party lender’s position depends on what it knew about the purpose and use of its loan. On the facts, the lender financed the company’s existing indebtedness and working capital and had no actual or constructive knowledge of any unlawful purpose.

The judgment determined a preliminary issue arising in three related actions concerning a £15 million loan made by TFB (Mortgages) Ltd to Anglo Petroleum Ltd, secured over Anglo’s assets and supported by a guarantee from Paul Sutton.

The issue was whether the credit agreement, security agreement and guarantee were invalid or unenforceable under sections 151 to 153 of the Companies Act 1985 or at common law. The challenge alleged that Anglo’s borrowing and security indirectly financed Kaluna Ltd’s acquisition of Anglo’s shares, or materially reduced Anglo’s net assets for that purpose.

1. The claims failed. The court held that neither the Credit Agreement nor the Security Agreement infringed section 151 of the Companies Act 1985. The consequential challenge to Mr Sutton’s guarantee therefore also failed.
2. Section 151 had to be applied by examining the commercial substance and reality of the arrangements. The words financial assistance had no technical meaning. As the provision was penal, it should not be extended to transactions that were not fairly within it. This approach was derived from Charterhouse Investments Ltd v Tempest Diesels Ltd [1986] BCLC 1 and applied consistently with Chaston v SWP Group Plc [2003] 1 BCLC 655.
3. The transaction was not, in commercial reality, a £11 million or £15 million purchase of Anglo’s shares funded by Anglo. The share acquisition involved a nominal price, while the separate compromise reduced Anglo’s indebtedness to its former parent by £15 million in return for payment and security. That restructuring benefited Anglo and restored its solvency. The security secured Anglo’s own reduced indebtedness and did not constitute financial assistance to Kaluna.
4. The later TFB loan was expressly for refinancing Anglo’s indebtedness and providing working capital. The evidence did not establish that TFB knew, actually or constructively, that its funds were being used to finance the share acquisition or to replace security that constituted unlawful assistance. Knowledge of the relevant facts could have been sufficient even without knowledge that they amounted to an infringement, but the necessary factual knowledge was absent.
5. Obiter, clause 11 of the Credit Agreement could not be construed to permit recovery of a loan rendered void by section 151, since that would circumvent the statutory illegality principle. Mr Sutton’s guarantee of “Customer Liabilities” could not survive if those liabilities were void. If necessary, the security agreement’s severability wording would have permitted recovery of the unconnected £6 million advance and a proportionate fee.