Jordan & Anor v Roberts & Ors

A private company may acquire its own fully paid shares otherwise than for valuable consideration only within the statutory exceptions. Unpaid shares cannot be acquired by the company under that exception. A share cannot simply be surrendered to a private company so as to cancel it or reduce issued capital. A transfer requires a proper instrument, although a holder may in principle make a gift by constituting himself or herself trustee of the share for the intended donee. A private agreement between shareholders does not alter the company’s constitution or bind later members and officers unless duly incorporated into the constitution or separately agreed with them.

The claimants sought rectification of the register of members of Home Assistance Services Ltd under section 359 of the Companies Act 1985. They claimed to hold 10 shares each and to be directors. The defendants disputed their status, asserted that the claimants’ shares had reverted to the company, and claimed that the defendants held the larger shareholdings.

The court determined the validity and ownership of the issued shares, the effect of alleged surrenders and transfers, the status of the claimants and Ms Binns as directors, and whether a shareholders’ protective agreement altered the company’s constitution.

1. Outcome. The court concluded that the issued share capital comprised 40 shares: 10 held by each claimant, 10 by Mrs Roberts, 9 by Ms Binns and 1 by Ms Barker. The claimants and Mrs Roberts were directors. Ms Binns had ceased to be a director on 19 May 2008. The register was to be rectified accordingly, with further argument on the form of order, any injunction and costs.
2. Under section 143 of the Companies Act 1985, a company limited by shares is generally prohibited from acquiring its own shares, and a prohibited acquisition is void. The exception for acquisition otherwise than for valuable consideration applies to fully paid shares. It does not permit acquisition of unpaid shares. The court rejected a de minimis argument that unpaid nominal amounts could be ignored.
3. A share could not simply be surrendered to the company if that involved cancellation or reduction of issued capital. For a transfer causing the shareholder to cease holding the share, section 183 required a proper instrument of transfer. No such instrument existed for Ms Barker’s share or Ms Binns’ purported surrender. The court nevertheless accepted that a shareholder could in principle make a gift by constituting himself or herself trustee of the share for the company, but found that Ms Binns had not intended such a gift.
4. The alleged protective agreement was a private agreement between Mrs Roberts and Ms Binns concerning the exercise of their powers. It did not directly amend the company’s constitution or bind persons who later became members or officers without an appropriate agreement or constitutional amendment.
5. The court rejected the alleged terms making the claimants subordinate directors or subjecting their shares to a probationary reversion. The contemporaneous evidence showed that each claimant had been allotted 10 shares and appointed a director. The later purported allotments giving the defendants 80 shares had not been authorised by the company.