Kinlan & Anor v Crimmin & Anor

A company’s informal approval of an off-market purchase of its own shares may satisfy statutory requirements where the relevant members unanimously assent and the requirement protects only current members. The Duomatic principle cannot waive requirements intended to protect creditors, future members or the integrity of the company’s capital records.

Nevertheless, the statutory requirement that the consideration for a share purchase be paid on acquisition is strict. Failure to comply renders the relevant contractual provisions void. Restitution may still be refused where the recipient, acting in good faith, fundamentally changed position by surrendering rights and control in reliance on the transaction’s validity.

The liquidators of Styleprint Ltd applied under section 212 of the Insolvency Act 1986 against former director and shareholder Peter Crimmin and former director Angela Crimmin.

The dispute concerned an agreement under which Styleprint purchased Mr Crimmin’s shares, paid him £122,500, and obtained his resignation and withdrawal from the company’s management. The liquidators alleged non-compliance with the Companies Act 1985, misfeasance and breach of trust, and sought repayment.

The principal questions were whether the agreement was void or voidable for failures relating to shareholder approval, payment on acquisition and disclosure of interests, and whether repayment or statutory relief followed.

1. The claim was dismissed. The agreement was void in material part because section 162(2), read with section 159(3), required the terms of the purchase to provide for payment of the consideration on acquisition. Clause B1 deferred £30,000 until after the shares had been surrendered. Section 143(2) therefore made Clause B1 and inseverable associated provisions void.
2. The complaint under section 164 failed. The resolution signed by the only shareholder entitled to vote was, in substance, a special resolution authorising the transaction. The statutory notice and inspection requirements could be waived under the Duomatic principle because they protected current members. The same conclusion followed from section 381A and Schedule 15A, paragraph 5.
3. The principle did not permit waiver of the requirement that the resolution accurately record the company’s true capitalisation. That requirement also protected persons who might inspect the company’s records, including creditors and future members.
4. There was substantive compliance with section 317. The agreement and proposed consultancy arrangement were fully apparent to the directors when they considered and approved the transaction. Any technical breach would have made the agreement voidable rather than void, and the company’s subsequent conduct would have made rescission inequitable.
5. There was no separate misfeasance or breach of trust. The transaction was a fair, arm’s-length bargain, and the respondents had acted honestly and reasonably. Mr Crimmin nevertheless had a good defence of change of position to the restitutionary claim. He had surrendered his rights and practical protection as a quasi-partner in good-faith reliance on the agreement’s validity, and that lost position could not be restored.
6. Alternatively, the judge considered that a quantum meruit or set-off might have been available for the valuable surrender of Mr Crimmin’s participation, but that analysis was not relied upon. If liability had otherwise arisen, relief under section 727 would also have been appropriate.