AMG Global Nominees (Private) Ltd v Africa Resources Ltd

The Court of Appeal considered two issues: whether the sale and payment mechanism set out in the share purchase agreement (the SPA) amounted to unlawful financial assistance by the English holding companies contrary to s.151 Companies Act 1985 (read with the definition of "financial assistance" in s.152), and whether Africa Resources Ltd (ARL) was in default under the Memorandum of Deposit and Charge (MDC) so as to permit T&N (acting by its administrators) to exercise a power of sale. The court held that the parent companies did not themselves give financial assistance: the payments constituted assistance provided by the foreign subsidiaries and the parent had not "hived down" assets or assumed liability such that s.151 was infringed. The court also held that AMG failed to prove a default by ARL under the MDC; the burden lay on AMG and the judge was entitled to infer no default from the absence of contemporaneous complaints or evidence that surplus export proceeds were available but withheld.

Background and parties:

• SMM Holdings Ltd and THZ Holdings Ltd (English companies) held bearer share warrants in respect of companies incorporated in Zimbabwe (SMMZ and Endurite). T&N sold those bearer warrants to Africa Resources Ltd (ARL) by an SPA of 7 March 1996, with payment by instalments to be procured from export proceeds of SMMZ. A Memorandum of Deposit and Charge (MDC) secured ARL's obligations.
• In 2004 administrators of T&N purported to sell the shares to AMG under an agreement dated 5 November 2004. AMG applied (Part 8) for rectification of the register under s.359 Companies Act 1985 to be registered as holder of the bearer warrants; ARL intervened by Part 20 asserting prior title under the SPA and MDC.

Nature of the claim / relief sought: AMG sought rectification of the registers and registration as holder of the bearer share warrants; ARL sought declarations that it had the better right to the warrants and that they remained subject only to the MDC.

Issues framed by the court:

1. Whether the SPA and attendant arrangements involved unlawful financial assistance by the English holding companies contrary to s.151 (with the statutory definition in s.152).
2. Whether ARL was in default under the MDC on 5 November 2004 such as to permit T&N (by its administrators) to sell the warrants to AMG.

Court’s reasoning and conclusions:

• On s.151/s.152: the court followed the analytical approach in Arab Bank plc v Merchantile Holdings Ltd and concluded that the statutory prohibition is directed to the company giving the assistance. The payments and any reduction in the net assets resulted from acts of the Zimbabwean subsidiaries; there was no "hive-down" or transfer of an asset or assumption of liability by the English parents sufficient to characterise the parents as providers of financial assistance. The court emphasised the need to identify financial assistance given by the parent itself and accepted the trial judge's view that the transaction was not one fairly within s.151.
• On default: the court held the onus of proving default lay on AMG (the party asserting the affirmative). The trial judge's findings — notably the absence of any contemporaneous complaint by T&N or its personnel (who were closely involved with ARL and its subsidiaries) that surplus export proceeds had been withheld — were sufficient to permit an inference of no default. There was no requirement to adduce additional evidence of SMMZ's working capital needs where the parties had invited the judge to make findings on the evidence before him and no adjournment was sought to call further evidence.
• Accordingly, the SPA and MDC were valid when made and ARL had the better right to the bearer share warrants; the appeal was dismissed.

Appeal dismissed. The Court held that (1) the SPA did not infringe s.151 Companies Act 1985 because any financial assistance was provided by the foreign subsidiaries and there was no "hive-down" or other act by the English parents amounting to provision of financial assistance by them; and (2) AMG failed to prove that ARL was in default under the MDC on 5 November 2004, the burden of proof lying on AMG and the trial judge being entitled to infer no default from the contemporaneous evidence.

Appeal from the High Court, Chancery Division (Evans-Lombe J), Lower Court Ref. No. 1201 of 2005; judgment at first instance given by Evans-Lombe J on 13 February 2008. Permission to appeal was granted by Lloyd LJ. This Court (Chancellor, Hooper LJ and Wilson LJ) delivered judgment on 20 November 2008.