Buckingham Homes Ltd & Anor v Rutter & Ors

A company’s shareholders may, with full knowledge of the relevant facts, approve or ratify a course which the articles require them to approve at a meeting. Their approval may be given after the event or inferred from conduct making it inequitable to deny approval.

Directors must act for the company’s interests, even where those interests overlap with the interests of other group companies or shareholders. However, liability requires proof of breach and causative loss. Where the company would have suffered no loss, or where the relevant transaction caused no recoverable loss, the claim fails. If liability were otherwise established, the court may grant complete relief under section 1157 of the Companies Act 2006 where the directors acted honestly and reasonably and ought fairly to be excused.

The claim was brought by Buckingham Homes Ltd, formerly Professional and Development Services Ltd, against its former directors. The claims concerned decisions relating to a commercial property owned by the company.

The company alleged that the directors had acted in breach of duty by borrowing £150,000 from Barclays and lending it to an associated company, granting a long lease of part of the property, and applying £343,231.97 of sale proceeds towards liabilities owed by another group company and guaranteed by the defendants.

The defendants relied principally on resolutions recorded at a December 2009 meeting, the claimant’s later approval or acquiescence, absence of causative loss, and, alternatively, section 1157 of the Companies Act 2006.

1. Resolutions and approval. The court found that Mr Ross attended the meeting on 16 December 2009 and was bound by the resolutions recorded in the minutes. Alternatively, if he had not attended, his subsequent knowledge of the proposed sale and use of proceeds, absence of objection, and personal benefit meant that he had approved the transactions or could not equitably deny approval. The principle stated in EIC Services Ltd v Phipps [2003] BCC 931 applied.
2. Effect of the Note. The Note permitted the RP Shareholders, acting by Special Majority, to decide how the property and realised equity value were dealt with. Its provisions did not prevent the resolutions concerning the sale, lease of part of the property, or application of proceeds.
3. £150,000 transaction. The borrowing and onward loan were authorised. In any event, the transaction was in the interests of the company because it enabled the associated company to trade, pay rent, and support the company’s ability to service its own borrowing. The loan was repaid, so no loss was established.
4. Lease of part of the property. The company failed to prove that retaining and developing the relevant part would have produced a recoverable profit or loss of chance. The evidence showed that the company could not raise the necessary finance and that any development would probably have been routed through a special purpose vehicle, as occurred with the retained part.
5. Payments to Barclays. The payments constituted realised equity value which the RP Shareholders were entitled to distribute. Mr Ross knew of the payments, raised no objection, and benefited from the release of his guarantee. The payments therefore caused no actionable loss in the circumstances.
6. Relief. If any breach had been established, the defendants had acted honestly and reasonably and would have been wholly relieved under section 1157 of the Companies Act 2006.
7. The claim failed and judgment was entered for the defendants.