AMG Global Nominees (Private) Ltd v SMM Holdings Ltd & Anor.

A contractual security interest over shares may remain effective even where payment is conditional on the availability of proceeds from a defined source. Failure to pay an instalment does not necessarily constitute default where the agreement permits the unpaid amount to be carried forward and paid from later proceeds.

Financial assistance provided by a foreign subsidiary from its own assets is not, without more, financial assistance provided by its English parent under sections 151 and 152 of the Companies Act 1985. The court must examine the commercial realities, but a penal provision should not be extended beyond transactions fairly within its terms.

AMG claimed rectification of the registers of SMM Holdings Ltd and THZ Holdings Ltd after acquiring bearer share warrants from T & N plc under a purported mortgagee’s sale. Africa Resources Ltd, the original purchaser of the shares, brought Part 20 proceedings against AMG, contending that T & N’s power of sale had not arisen because Africa Resources was not in default under the sale and security agreements.

AMG alternatively alleged that the transaction involved unlawful financial assistance under sections 151 and 152 of the Companies Act 1985, or misfeasance by SMM Holdings’ directors. The issues concerned construction of the payment and security provisions, whether the debt had been released, and whether assistance by a Zimbabwean subsidiary was attributable to its English parent.

1. Africa Resources broadly succeeded in its Part 20 claim. The sale and security agreements were to be construed together. Africa Resources had a primary obligation to pay the purchase price, but payments were to be procured from surplus export proceeds when available. An unpaid amount could become a carry-forward amount bearing interest, and failure to pay an instalment did not itself constitute a default triggering the mortgagee’s power of sale.

2. The obligation extended to surplus export proceeds received from any source, not merely proceeds passing through the Minerals Marketing Corporation of Zimbabwe. Surplus proceeds meant export proceeds remaining after the subsidiary’s necessary operating, staffing, maintenance, capital and environmental expenses. There was no evidence that such surplus proceeds had existed and had not been paid.

3. The unpaid balance and accrued interest remained due. T & N retained a contractual lien over the share warrants and Africa Resources retained an equity of redemption. Since no default was established, T & N had not shown that its power of sale had arisen. Any share warrants delivered to AMG under the sale agreement were therefore to be returned, subject to T & N’s continuing security and any appropriate order concerning warrants still held by T & N.

4. The financial-assistance claim failed. Applying Arab Bank plc v Mercantile Holdings Ltd 1994 Chancery 71, the relevant assistance was provided by SMMZ through payment of money forming part of its own assets. Nothing done by SMMH or its directors amounted to comparable assistance by SMMH. The Zimbabwean subsidiary’s assistance was lawful under section 58 of the Zimbabwe Companies’ Act, and sections 151 and 152 of the Companies Act 1985 did not apply to it as a foreign company.

5. In accordance with Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1980] BCLC 1, the court considered the ordinary commercial meaning of financial assistance and the need not to strain a penal provision. The alternative question whether the transaction materially reduced SMMH’s assets did not require determination. The alleged misfeasance likewise did not establish a basis for avoiding the sale agreement.