Ford v Polymer Vision Ltd

The claimant sought summary judgment declaring valid a debenture (the Ford Debenture) granted by Polymer Vision Limited (PVL) to secure monies advanced by him and a ten year option agreement (the Option Agreement) to purchase PVL's assets, and sought specific performance of a covenant for further assurance in the debenture (clause 6). The court examined whether the board meetings authorising those instruments were validly convened in accordance with PVL's articles and the shareholders' subscription and shareholders agreement (the SSA), and whether limitations in the company constitution were overcome by section 40 of the Companies Act 2006 which protects persons dealing in good faith with a company.

Key legal principles applied were: (1) the test of actual or apparent authority of directors to bind the company (as explained in Criterion Properties); (2) the operation of section 40 Companies Act 2006 to validate transactions in favour of a person dealing in good faith despite limitations in the constitution; and (3) the requirement that directors exercise powers for the purpose for which they were conferred and in the company's interests.

On the facts the judge found procedural defects in convening the meetings on 29 January and 3 February 2009 (failure to give notice to all Special Directors and the meetings being deemed to occur in the United Kingdom contrary to article 26.1). Nevertheless, applying section 40, the court concluded that PVL had no real prospect of successfully defending the claim to the validity of the Ford Debenture because the claimant dealt in good faith and the directors' decision to grant security for monies actually advanced was not an improper use of power. By contrast, the Option Agreement raised more serious concerns (whole-assets disposal at a price tied only to liabilities and a ten year option period) and could not be resolved on summary judgment. The application to order execution of a Dutch-style pandrecht by power of attorney under clause 6 of the debenture was also refused on summary judgment grounds because the court had insufficient evidence or comfort about its scope and consequences under Dutch law.

Background and parties: PVL, a company developing rollable-display technology, was in severe financial difficulty in early 2009. The claimant, Stewart Ford, advanced substantial sums to PVL and sought declarations that (1) a debenture dated 29 January 2009 granted to him (the Ford Debenture) was valid and secured those advances, and (2) an Option Agreement dated 5 February 2009 granting him a ten year option to buy PVL's assets at a price equalling verified liabilities was valid. He also sought specific performance of clause 6 of the debenture requiring further assurances, including a power of attorney to enable registration of a Dutch-style pledge (pandrecht).

Procedural posture: This was a first-instance application for summary judgment (Part 24) following urgent steps; there was contested evidence about who constituted PVL's board and a short-lived administrators' appointment which the court found invalid because PVL's centre of main interests was in the Netherlands.

Relief sought: (i) declarations of validity of the Ford Debenture and the Option Agreement; (ii) an order compelling PVL to perform the covenant for further assurance in clause 6 of the Ford Debenture (effectively to enable a Dutch pandrecht to be created by power of attorney).

Issues framed: Whether the 29 January and 3 February board meetings were validly convened in accordance with PVL's articles and the SSA; whether the directors who authorised and executed the instruments had actual or apparent authority; whether section 40 Companies Act 2006 validated the acts in favour of a person dealing in good faith; whether the claimant dealt in good faith; and whether specific performance in respect of a Dutch pledge could be ordered.

Court's reasoning and findings:

• The court found defects in notice to Special Directors under the SSA and in the location of the meetings under the articles; on a strict reading those meetings were not validly convened.
• Section 40 Companies Act 2006 applies to limitations in a company's constitution and protects third parties dealing in good faith; the Ford Debenture and Option Agreement were transactions within the scope of that section.
• On the evidence there was no real prospect that Mr Ford had not acted in good faith in relation to the Ford Debenture: he advanced monies to a company in dire need, acted on legal advice, and sought security for sums actually advanced. The directors' decision to grant security for monies advanced was not an improper exercise of power.
• By contrast, the Option Agreement was potentially a misuse of directors' powers because it committed PVL to sell all its assets on terms that may not reflect value (price tied to liabilities only) and for a long period (ten years). The propriety of that transaction could not be resolved on summary judgment and required fuller evidence (valuations, justification, shareholder consultation, etc.).
• The court declined to order the specific performance sought for creation of a Dutch pandrecht by power of attorney under clause 6, expressing unease at ordering execution of a foreign security instrument whose precise scope under Dutch law and relation to the debenture had not been sufficiently evidenced.

Outcome: the court granted a declaration that the Ford Debenture was valid and binding on PVL but refused summary disposal of the Option Agreement and refused to order the execution of the proposed Dutch pledge by power of attorney; those matters must proceed to trial if contested.

At first instance the court allowed the claimant's application in part. It declared that the Ford Debenture granted on 29 January 2009 was valid and binding on PVL because the transaction was within section 40 Companies Act 2006 and the claimant dealt with PVL in good faith; however, the court refused to determine on summary judgment the validity and enforceability of the Option Agreement (granting an option over all assets for ten years at a price tied solely to liabilities) and refused to order specific performance requiring PVL to grant a Dutch pandrecht by power of attorney under clause 6 of the debenture, because those matters raised substantial merits and foreign-law issues requiring trial evidence and were not suitable for summary disposal.