Zavarco Plc v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir

Subscriber shares in a public company taken pursuant to the memorandum must be paid up in cash. A later transfer of shares in another company does not satisfy that obligation unless it formed part of a settled arrangement at the time of allotment and complied with the statutory conditions for non-cash consideration. An arrangement under Companies Act 2006, section 594 must have settled terms and must be open to all relevant shareholders. Where the valuation requirements are contravened, the allottee is liable for the nominal value and interest. Relief is discretionary and must preserve the company’s receipt of money or money’s worth. Estoppel and restitution require proof of the relevant assumption, representation or failure of basis.

Zavarco Plc claimed payment of €36 million representing the nominal value of 360 million shares allotted to Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir on Zavarco’s incorporation. He contended that the shares were to be paid for by the transfer to Zavarco of shares in Zavarco Berhad under an agreement or arrangement made by 29 June 2011.

The court also determined whether the statutory rules on subscriber shares and non-cash consideration applied, whether the shares could be forfeited, whether estoppel or restitution arose, and whether relief should be granted under section 606 of the Companies Act 2006.

Claim succeeded; counterclaim dismissed.

1. Mr Nasir took the 360 million shares on the terms of the memorandum and articles, and on no additional agreement that the shares would be paid for by Zavarco Berhad shares. The later share purchase agreement did not govern the incorporation allotment. No implied term could be established. The court applied the principles in Marks and Spencer plc v BNP Paribas Securities Trust Co (Jersey) Ltd [2016] AC 742; [2015] UKSC 71.
2. Under section 584 of the Companies Act 2006, the undertaking to take “at least one share” was satisfied by taking 360 million shares. All those shares were taken pursuant to the undertaking and had to be paid up in cash.
3. Section 594 required a settled agreement, scheme or arrangement. On 29 June 2011 the identity of the intended recipients and the number of shares to be issued remained unresolved. The later transfer of Zavarco Berhad shares was therefore separate from the initial allotment. In any event, the arrangement was not shown to have been open to all holders of the relevant Zavarco Berhad shares.
4. Section 593 applied. No compliant independent valuation report had been provided, and Mr Nasir was liable under section 593(3) for the nominal value of his shares, with interest.
5. The call notice and notice of intended forfeiture were valid. Under articles 69, 73 and 74 of Zavarco’s articles, Zavarco was entitled to forfeit the shares if the call remained unpaid.
6. Neither estoppel by convention nor estoppel by representation was established. There was no shared assumption or representation that the shares were fully paid, and no detrimental reliance.
7. Relief under section 606 was refused. The power was discretionary and had to be exercised justly and equitably, subject to the overriding requirement that the company receive money or money’s worth at least equal to the nominal value. That requirement was not met, and full relief would not be just and equitable.
8. The restitution claim failed. The alleged basis for the allotment had not failed because the Zavarco Berhad transfer was not consideration for the initial allotment. The court relied on the failure-of-basis principles stated in Barnes v The Eastenders Group [2014] UKSC 26; [2015] AC 1.