Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor

The court determined that key questions of company law arose in the liquidation: ownership of ordinary shares in Watersheds Capital Partners Limited, the validity and effect of a purported redemption of preference shares, and an alleged unlawful capital reduction. Applying established equitable principles (notably Pennington v Waine) and taking account of missing and incomplete books and records, the judge found on the balance of probabilities that the ordinary shares had been equitably assigned to Nosnephetsj Limited and that the subsequent transfer back to Mr Buzzoni in September 2012 was for no consideration and in breach of duty. The court also held that the purported redemption of the redeemable preference shares did not comply with statutory requirements and that the objective wording in the annual return showed the redemption price to be £2.00 per share (total £440,000), with no reliable evidence of a genuine set-off or cash discharge. The company was found to have been insolvent or near-insolvent by March 2012. Relief in respect of recovery and remedies was reserved for further hearing and the parties were invited to agree an order.

Background

Nosnehpetsj Limited (formerly Watersheds Limited) was wound up and restored; the liquidator (Mr Green) brought proceedings concerning transfers of shares in Watersheds Capital Partners Limited ("Capital"), the redemption of preference shares and an alleged unlawful capital reduction. The principal factual dispute concerned whether 100 ordinary shares in Capital had been transferred to the Company around 2010/2011 (as recorded in annual returns and accounts) and later transferred back to Mr Buzzoni on 26 September 2012.

Nature of the claim

• Relief sought: declarations and recovery by the liquidator concerning ownership of ordinary shares, relief for an unlawful redemption of preference shares (including a claim that the full redemption price remained payable), and a claim that capital had been unlawfully reduced in breach of sections 642–644 of the Companies Act 2006.

Issues framed by the court

• Whether legal and beneficial ownership of the ordinary shares had passed to the Company in 2010/2011 despite absence of a stock transfer form;
• Whether the preference shares were validly redeemed and, if not, what sum remained payable (interpretation of the redemption wording);
• Whether a return of capital was unlawful under CA 2006 ss 642–644.

Evidence and findings

• The judge assessed witness reliability and documentary evidence, recognising the distorting effects of time and litigation on memory and the evidential value of contemporaneous documents.
• There was a persistent failure to produce complete books and records; the court accepted authorities permitting adverse inferences from absence of documents in fiduciary/company contexts.
• On the balance of probabilities the entries in the public accounts and annual returns were deliberate, the director (Mr Buzzoni) had approved them, and it was more likely than not that a stock transfer form had been executed but was now lost, shredded or not disclosed. Applying equitable principles (Pennington and related authorities), the court held an equitable assignment had occurred such that it would be unconscionable for Mr Buzzoni to recall the gift after tax relief was obtained and after the Company became insolvent.
• The Company was found insolvent or near-insolvent by March 2012.
• As to the preference shares, the return's wording was interpreted objectively and held to require payment of £2.00 per share on redemption (total £440,000). The defendants' asserted set-off was not established by reliable documentary evidence and no cash redemption was shown.
• The capital reduction point was dealt with briefly as parties reached agreement; the defence accepted no loss had been caused by any alleged failure of formalities.

Reasoning and outcome

The court applied principles on (i) construction of documents (Arnold v Britton), (ii) constructive/equitable completion of imperfect gifts (Pennington and Choithram), and (iii) drawing inferences from absence of contemporaneous documentation in fiduciary contexts (Re Mumtaz). On those bases the liquidator succeeded on the principal claims (equitable ownership of the ordinary shares vested in the Company; the preference share redemption was ineffective and £440,000 remained the contractual redemption obligation absent proof of discharge). The judge reserved specific remedies for a further hearing and invited the parties to agree an order.

This was a first instance decision disposing of the liquidator's claims in the liquidator's favour on the principal issues. The court held that (i) on the balance of probabilities the 100 ordinary shares in Watersheds Capital Partners Limited had been equitably assigned to Nosnehpetsj Limited (the subsequent transfer back to Mr Buzzoni was for no consideration and in breach of duty), (ii) the purported redemption of redeemable preference shares did not comply with statutory formalities and the objective wording fixed the redemption price at £2.00 per share (total £440,000), and (iii) the Company was insolvent or near-insolvent by March 2012. The judge reserved determination of specific relief and invited the parties to agree an appropriate order; further hearing was indicated for relief.