AMG Global Nominees (Private) Ltd v Africa Resources Ltd

Financial assistance is not established merely because a subsidiary lawfully provides assistance for the purchase of shares in its parent and the parent controls or approves that assistance. Section 152(1)(a)(iv) requires financial assistance to be given by the company said to have contravened the prohibition. A reduction in that company’s net assets is not, alone, sufficient. An indirect provision requires assistance from the parent, such as an asset leaving the parent or an assumption of liability by it. Where default is relied on to activate a power of sale, the party asserting default bears the burden of proof. The court may infer absence of default from the commercial relationship and a creditor’s failure to raise it, where the evidence supports that inference.

T&N plc agreed to sell bearer share warrants in SMM Holdings Ltd and THZ Holdings Ltd to Africa Resources Ltd, with the price to be paid from specified export proceeds of Zimbabwean subsidiaries. The transaction included security in favour of T&N. T&N later sold the share interests to AMG Global Nominees (Private) Ltd, which sought rectification of the companies’ registers. Africa Resources intervened, asserting a prior title and denying any default that could trigger T&N’s power of sale.

Evans-Lombe J rejected the arguments that the sale agreement infringed section 151(2) of the Companies Act 1985 or that Africa Resources was in default, and dismissed AMG’s claim. The appeal concerned whether the agreement involved unlawful financial assistance and whether default had occurred by the date of the later sale.

The appeal was dismissed. Africa Resources had the better right to the bearer share warrants because the sale and security agreements were valid and no default had been established.

1. Financial assistance. The relevant question under section 151(2) of the Companies Act 1985 was whether SMM Holdings Ltd itself had given financial assistance. Section 152(1)(a)(iv) required assistance to be given by that company, and a reduction in its net assets was not, by itself, enough to identify it as the provider.
2. The court applied Arab Bank plc v Merchantile Holdings Ltd [1994] Ch 71. Lawful assistance by a foreign subsidiary did not automatically amount to assistance by its English parent. The parent’s control or approval of the subsidiary’s payment was not equivalent to a hive-down. The relevant example involved an asset leaving the parent or an assumption of liability by it. No such assistance by SMM Holdings Ltd was identified. The court also adopted the commercial-realities approach in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1980] BCLC 1.
3. Burden of proof. The substance of AMG’s claim was that its title, derived through T&N, displaced Africa Resources’ prior title by activating the power of sale. AMG therefore bore the burden of proving default. The burden was determined by the substance of the issue, rather than the grammatical form of the pleadings.
4. Sufficiency of evidence. The judge was entitled to infer that there had been no default from the close relationship between T&N and Africa Resources, the parties’ knowledge of the subsidiaries’ affairs, and the absence of any earlier complaint that surplus export proceeds had not been paid. The lack of a contractual notice requirement did not remove the evidential significance of that omission. AMG could not complain on appeal that more cogent evidence might have been produced when it had invited factual findings on the evidence at trial.

The sale agreement did not breach section 151, Africa Resources was not in default when the later sale was concluded, and the prior title prevailed.

• Court of Appeal (Civil Division) — [2008] EWCA Civ 1278: appeal dismissed.
• High Court, Chancery Division — Evans-Lombe J rejected the section 151(2) illegality argument and found no default under the security arrangement. AMG’s claim was dismissed and Africa Resources’ title was declared subject to T&N’s security.