Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor

An incomplete transfer or gift of shares may take effect in equity where the intention to make an immediate gift is established and it would be unconscionable for the transferor to recall it. The absence of a stock transfer form is not necessarily decisive, particularly where the transferor controlled or failed to produce the company’s records.

Inferences may properly be drawn against directors who fail to produce books and records within their custody or control. Documents filed at Companies House are construed objectively. A clear statement that redeemable preference shares are redeemable at a specified price determines the redemption price, irrespective of subjective intention. A purported redemption which fails to comply with statutory requirements is ineffective.

The claimant company was in liquidation. It sought relief concerning the ownership of ordinary shares in Watersheds Capital Partners Ltd, the redemption of preference shares held by it, and an alleged unlawful reduction of its share capital.

The liquidator relied on company accounts, annual returns, tax treatment and the defendants’ failure to provide complete books and records. The defendants contended that the share ownership entries were errors, that no effective share transfer had occurred, and that the preference shares had been redeemed by set-off. By trial, the parties had agreed the third issue in substance.

The central questions were whether an equitable assignment of the ordinary shares had occurred, what sum was payable on redemption of the preference shares, and whether any effective set-off or capital-reduction claim was established.

1. Ordinary shares. The court found, on the balance of probabilities, that Mr Buzzoni intended an immediate gift of the ordinary shares in Watersheds Capital Partners Ltd to the claimant. The entries in the annual returns and accounts were deliberate, had been approved by him, and had supported claims for group tax relief. The absence of the stock transfer form did not prevent an equitable assignment. Following Pennington v Waine [2002] 1 WLR 2075, it would have been unconscionable to recall the gift after it had been publicised and relied upon. The later transfer back to Mr Buzzoni, for no consideration and after insolvency, was in breach of duty to the claimant.
2. Missing records and evidence. The court applied the approach in Re Mumtaz Properties Ltd, Wetton v Ahmed [2011] EWCA Civ 610. Contemporary documents, and the absence of documents which should have existed, were relevant to testing the oral evidence. A director cannot avoid liability by relying on the absence of records where responsibility for keeping them rested with him.
3. Preference shares. The purported redemption failed to comply with statutory requirements and was ineffective. Applying the objective approach in Arnold v Britton [2015] UKSC 36, the unambiguous wording of the annual return meant that the shares were redeemable at £2 per share. The amount due was therefore £440,000. The alleged loans and set-off were not proved.
4. Capital reduction. The claimant accepted that no capital had in fact been returned to members and that no loss had been caused. No substantive relief was therefore established on that issue. The parties were invited to agree an order, with relief concerning the ordinary shares to be addressed at a further hearing.