Chalcot Training Ltd v Ralph & Anor

A company does not allot shares at a discount merely because it pays the proposed allottee money which is then used to pay part of the subscription price. The question is whether the allottee remains liable to contribute the full nominal value of the shares when called. A payment made from trading income as genuine remuneration, which the recipient may use freely, is not a payment out of the company’s shares or capital money in consideration of subscribing for shares. Sections 580 and 552 of the Companies Act 2006 therefore target different forms of abuse of share capital and were not engaged where the allottees remained liable for the unpaid balance.

Chalcot Training Ltd appealed against the decision of a Deputy High Court Judge, reported at [2020] EWHC 1054 (Ch), concerning tax-avoidance arrangements under which its employed shareholder-directors received payments and were allotted partly paid shares. The company argued that the arrangements involved shares allotted at a discount, contrary to section 580 of the Companies Act 2006, and the application of shares or capital money as prohibited commission, discount or allowance under section 552.

The tax consequences were reserved for proceedings before the tax tribunal. The central questions were whether the recipients remained liable for the full nominal value of the shares and whether the payments were made from the company’s shares or capital money in consideration of subscribing for them.

1. Appeal dismissed. The question of mistake did not arise once both Companies Act arguments failed.
2. Section 580 of the Companies Act 2006 prohibits an allotment on terms that the shareholder is liable to pay less than the nominal value. Its purpose is to preserve the company’s nominal share capital. The relevant liability remains where the allottee has paid 1p per £1 share and remains liable for the unpaid 99p on a call, including on liquidation or cessation of employment.
3. The fact that the company first paid money to the allottee did not alter that conclusion. The trial judge found that the payments were genuine remuneration for services as directors and employees, made from trading income, and freely usable by the recipients. They were not payments made to subscribe for shares. The recipients therefore remained obliged to provide the unpaid capital from their own funds.
4. The authorities on shares issued at a discount, including Welton v Saffery, Ooregum Gold Mining Co of India Ltd v Roper, Eddystone Marine Insurance Co, Metropolitan Coal Consumers' Association v Scrimgeour and Hong Kong and China Gas Co Ltd v Glen, were consistent with that analysis. The critical question was whether the arrangement discharged or reduced the allottee’s liability to contribute the nominal capital, not merely whether money originated with the company.
5. Section 552 was likewise directed at the application of the company’s shares or capital money in payment of commission, discount or allowance for subscribing for shares. The payments here came from trading income, not capital money, and the company remained entitled to the unpaid capital. They therefore fell outside section 552.
6. Lord Justice Arnold and Lord Justice Edis agreed with Lord Justice Lewison.

1. Court of Appeal (Civil Division): The appeal from the Deputy High Court Judge was dismissed. The Court of Appeal gave written reasons after announcing its decision at the hearing.
2. High Court of Justice, Business and Property Court, Business List (ChD): The Deputy High Court Judge decided the Companies Act issues against the company, as reported at [2020] EWHC 1054 (Ch).