NBH Ltd & Anor v Hoare & Ors

Informal unanimous shareholder assent may satisfy a statutory requirement for approval in general meeting where the statute does not require a formal resolution. Under sections 320 and 322 of the Companies Act 1985, a vendor’s historic increase in an asset’s value is not necessarily a statutory gain: the relevant question is whether a gain was made by the transaction itself. The provisions operate correspondingly, so section 322(3)(a) concerns acquisitions by directors or connected persons from the company, while section 322(3)(b) concerns disposals to the company. Fraudulent conspiracy requires positive proof. Suspicious transactions, unexplained accounting irregularities and conjecture do not establish liability without evidence linking the defendants to dishonest conduct.

The claimants, formerly Hughes Waste Group Ltd and Hughes Waste Management Ltd, sued three defendants for losses arising from a 1997 venture-capital investment and subsequent inter-company dealings. Claim 1 alleged that the first defendant was liable under sections 320 and 322 of the Companies Act 1985 after a company acquired landfill assets from a connected company without a formal general-meeting resolution. Claims 2 and 3 alleged that all three defendants had dishonestly conspired to divert funds and extend unrecoverable credit to associated companies. The central issues were the statutory approval and accounting provisions, the alleged uninvoiced works, the falsified accounting records and whether the evidence established a fraudulent conspiracy.

1. Claim 1 dismissed. The purchase of the landfill assets was approved before completion by Mr Hoare, then the sole shareholder of the holding company. Applying the Duomatic principle, informal assent by all shareholders entitled to attend and vote may satisfy the requirement in section 320(1) of the Companies Act 1985 for approval by resolution in general meeting. The principle applied notwithstanding the wording of the section.
2. In any event, the alleged £4m gain was not a gain made by the transaction. The vendor exchanged assets worth more than £5.5m for £4.4m. The statutory reference to a gain concerned the transaction itself, not the vendor’s historic acquisition cost. The statutory scheme also linked section 320(1)(a) with section 322(3)(a), and section 320(1)(b) with section 322(3)(b). The claimants’ proposed combination of section 320(1)(b) with section 322(3)(a) was inconsistent with that scheme.
3. Claims 2 and 3 dismissed. The claimants had elected to rely on fraudulent and dishonest conspiracy. There was no direct evidence of its formation or existence. The Friday meetings, banking arrangements and payment figures did not establish dishonesty. The evidence showed that KPH had carried out substantial uninvoiced infrastructure works for HWM, so payments to KPH were properly treated as payments on account of work done or believed to be owed.
4. The continuation of credit to HTH raised difficult commercial questions. It was not self-evidently improper to preserve the trading relationship, particularly because withdrawal of credit might have ended HTH’s operations, deprived HWM of its vehicle fleet and jeopardised the sale of HWM’s business. Those matters could not support an inference of fraudulent conspiracy.
5. Improper accounting entries had been made, but the evidence did not identify who was responsible. The claimants therefore failed to prove that any defendant caused or knowingly participated in the falsifications. The alternative deed-of-release argument did not arise.

This was a first-instance claim in the High Court. The judgment states that proceedings were commenced by HWG and HWM in December 2003, but records no earlier judgment or appeal.