AMG Global Nominees (Private) Ltd v Africa Resources Ltd

Under sections 151(2) and 152(1)(a)(iv) of the Companies Act 1985, a reduction in a parent company’s net assets caused by lawful financial assistance from a subsidiary does not itself establish assistance by the parent. Assistance actually provided by the parent must be identified. Authorising a subsidiary to use its own assets is not equivalent to transferring a parent asset to the subsidiary to finance the acquisition.

A party asserting that a default has activated a security power of sale bears the burden of proof. A creditor’s failure to raise an alleged default may support an inference that no default occurred where the creditor was closely acquainted with the debtor’s affairs.

AMG claimed rectification of the registers of SMM Holdings Ltd and THZ Holdings Ltd after acquiring their bearer share warrants from T&N plc’s administrators. Africa Resources Ltd intervened, asserting a prior right under a 1996 share purchase agreement and memorandum of deposit and charge.

Evans-Lombe J rejected AMG’s arguments that the agreement infringed section 151(2) of the Companies Act 1985 and that Africa Resources was in default. He dismissed AMG’s application and declared that Africa Resources had title to the warrants, subject to T&N’s security. The appeal concerned the alleged financial assistance and whether the power of sale had arisen.

1. Appeal dismissed. Africa Resources had the better right to the bearer share warrants, and the share purchase agreement and memorandum of deposit and charge remained valid.

2. Section 152(1)(a)(iv) of the Companies Act 1985 requires financial assistance to have been given by the company said to be in breach. A reduction in the parent company’s net assets is relevant to identifying the provider, but is not sufficient by itself. The court could identify no financial assistance provided by SMM Holdings Ltd. The assistance came from the Zimbabwean subsidiary’s own assets.

3. The principle in Arab Bank plc v Merchantile Holdings Ltd [1994] Ch.71 was applicable. Financial assistance by a subsidiary does not automatically constitute assistance by its parent. The example of a parent transferring an asset to a foreign subsidiary so that it can finance the acquisition is materially different. The parent’s control of, or authorisation of, the subsidiary’s use of its own assets is not such a transfer or an assumption of liability. Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1980] BCLC 1 supported construing the statutory language by reference to commercial realities without straining a penal provision.

4. On the construction of the SPA and MDC accepted on appeal, Africa Resources’ obligation to procure payment was confined to surplus export proceeds after the relevant income and expenses had been dealt with. Default arose only if sufficient proceeds existed to meet the contractual payment obligation.

5. The burden of proving default lay on AMG. Its claim depended on establishing a default sufficient to activate T&N’s power of sale and displace Africa Resources’ prior title. The court looked to the substance of the issue, rather than the form of the pleadings. Even if the burden were otherwise, the trial judge was entitled to decide the issue on the evidence available. The parties had invited factual findings and had not sought an opportunity to adduce further evidence.

6. The close relationship between T&N, Africa Resources and their subsidiaries, together with the absence of any complaint by T&N that surplus export proceeds had been withheld, was evidence from which the judge could infer that no default had occurred. The absence of a contractual notice requirement did not remove the significance of that evidence. AMG therefore failed to establish default, and the power of sale had not arisen.

1. Court of Appeal (Civil Division): Appeal dismissed. The court upheld the finding that the SPA did not breach the Companies Act 1985 and that Africa Resources was not in default.
2. High Court, Chancery Division: Evans-Lombe J dismissed AMG’s application on 13 February 2008 and declared that Africa Resources alone had title to the bearer share warrants, subject to T&N’s security.