Martin Griffiths QC (trial judgment)

The court decided that the 360 million subscriber shares allotted to Mr Nasir on incorporation of Zavarco Plc were taken as subscriber shares under the memorandum and therefore, under section 584 of the Companies Act 2006, had to be paid up in cash. There was no concluded arrangement on or before 29 June 2011 within the meaning of section 594 that made the subsequent transfer of ZB shares to Z the consideration for those subscriber shares, so the exception in section 594 did not apply and section 593 applied. As a result Mr Nasir was liable under section 593(3) to pay the nominal value of his shares with interest.

The court found the pleaded arrangement to be vitiated by backdating, inconsistency and lack of objective documentary support; it rejected allegations of estoppel by convention and by representation, refused relief under section 606 of the Companies Act 2006 and dismissed the restitution claim. Articles 69, 73 and 74 of Z's articles authorised the directors to call for unpaid sums and to forfeit shares; the call notice and notice of intended forfeiture were properly served and Z is entitled to forfeit if the call is not paid.

Background and parties: Zavarco Plc (Z) was incorporated in England on 29 June 2011. On incorporation 70% of the shares were registered to Mr Sidhu and 30% (360 million) to Mr Nasir. ZB (a Malaysian company) and its subsidiaries were later transferred to Z. Z served a call notice on Mr Nasir for unpaid par value and a Notice of Intended Forfeiture; Mr Nasir disputed liability. Both parties issued claims and the Part 7 claim by Z (seeking payment and/or forfeiture and other relief) was tried; Mr Nasir counterclaimed.

Nature of the claims and relief sought: The principal issues were whether Mr Nasir was obliged to pay the par value of his subscriber shares in cash under section 584; whether an arrangement within section 594 existed so as to avoid the valuation requirements of section 593; whether Z could forfeit the shares under its articles; whether estoppel or other equitable relief (including relief under section 606 and restitution) prevented Z from calling on the unpaid sums.

Issues framed by the court:

• On what terms were the shares allotted to Mr Nasir?
• Application of Companies Act 2006 sections 584, 593 and 594.
• Entitlement to forfeit under the articles (articles 69, 73 and 74).
• Estoppel by convention and by representation.
• Relief under section 606 and restitution.

Findings and reasoning: The judge analysed the pleaded case, contemporaneous documents and witness evidence. The Share Purchase Agreement (SPA) dated 29 June 2011 was found to have been backdated and not executed until 8 August 2011. The court concluded there was no settled arrangement on or before 29 June 2011 such as to bring section 594 into play; the identity and allocations for Schedule 2 recipients were unresolved and the SPA expressly distinguished the shares to be issued as consideration from the "existing ordinary shares" allotted on incorporation. The judge found key witnesses unreliable, identified widespread backdating and concluded that the claimed arrangement was not established on the crucial date.

The court held that section 584 required cash payment for subscriber shares, and, because no acceptable independent valuation satisfying section 593 had been provided and no valid section 594 arrangement applied, section 593(3) made Mr Nasir liable to pay the nominal value with interest. The call notice and notice of intended forfeiture were valid under articles 69, 73 and 74. Estoppel arguments failed on the evidence; relief under section 606 was refused as not just and equitable given the statutory overriding principle that the company should receive money or money's worth equal to the nominal value; the restitution claim failed.

Additional context: The judgment notes the rarity and strictness of relief under section 606, criticised the Ari & Co valuation as backdated and insufficiently supported, and emphasised the absence of a concluded agreement on the material date.

The claimant's claim succeeds and the defendant's counterclaim fails. The court held that the 360 million subscriber shares allotted to Mr Nasir on incorporation were subject to section 584 of the Companies Act 2006 and required payment in cash; there was no arrangement on or before 29 June 2011 within section 594 to exempt the shares from the valuation requirement in section 593, so Mr Nasir is liable under section 593(3) for the nominal value with interest. The call and notice of intended forfeiture were properly issued under articles 69, 73 and 74 and Z is entitled to forfeit if payment is not made. Estoppel claims and the application for relief under section 606 and for restitution were refused, principally because there was no settled arrangement on the material date, the relied-on documents were backdated or uncorroborated, and it was not just and equitable to relieve Mr Nasir of the statutory liability.