Autocal Holdings Ltd v Jeffery

A loan is ordinarily repayable on demand where no express repayment term was agreed and no specific term can properly be inferred. The court will not complete an incomplete bargain by selecting possible trigger events or giving an undefined expression such as “like a sale” a precise meaning. A payment to a shareholder which is repayable only from a future dividend would amount to an unlawful distribution if it could deprive the company of recovery. A guarantor whose charged property is taken in enforcement may obtain credit for its true value against the principal debtor’s liability, but only to the extent value is proved.

Holdings claimed repayment of a £131,000 loan made to Mr Jeffery to fund his subscription for shares, sums debited to his director’s loan account, and withdrawals from the company’s bank account. Mr Jeffery contended that the loan was repayable only on a specified trigger event and that the director’s account sums were advances against future dividends. He also sought credit for the value of shares transferred when security for his guarantee was enforced.

The principal issues were the terms of the undocumented loan, the enforceability of any alleged dividend arrangement, and the legal effect and value of the transferred security.

1. The claim for repayment of the £131,000 loan succeeded. The email of 8 April 2009 was admissible evidence because the issue was whether an agreement had been reached and on what terms, rather than the construction of an existing written contract. However, it was only a broad outline subject to further discussion. The parties did not agree the meaning of “trigger event like sale” or whether repayment depended on a sale or another event.

2. The court could not supply the missing terms. It would have been impermissible to select possible events regarded as analogous to a sale, or to disregard the word “like”, because that would amount to making the parties’ bargain. The directors’ approval of the loan did not adopt terms which had not previously been agreed or recorded. The proper inference was that no specific repayment term had been agreed. The loan was therefore repayable on demand, and demand had been made and not complied with.

3. The claim for £14,156 was also allowed. No agreement was proved that personal expenditure would be repayable only from subsequently declared dividends. Further, such an arrangement would be unenforceable against the company. Payment on terms that the company could recover the money only from a future dividend would constitute an immediate distribution of company assets, not a genuine debt, and could breach the Companies Act 2006. The recipient, knowing of the breach, could not rely on the arrangement to resist repayment.

4. Mr Jeffery accepted liability for £37,500.80 withdrawn from the company’s bank account. The counterclaim based on the Topco shares was dismissed. A guarantor whose charged property is taken in enforcement receives credit, as against the beneficiary and principal debtor, for the true value of that property. The evidence established that the shares had no value at the relevant date.

5. Judgment was entered for Holdings for the three principal sums, with interest from the date of demand on the loan and director’s loan account claims, and on the withdrawals. Further submissions on interest were reserved if required.