JAMIE MARTIN v HOCHANDA LIMITED

A shareholder’s general ability to sell shares is subject to the contractual transfer provisions in the company’s articles. Where those provisions establish pre-emption rights, the shareholder cannot treat an alternative sale route as an unfettered right to sell to the highest bidder. A voluntary proposal by other shareholders to facilitate a sale on stated conditions does not prevent the sale merely because the shareholder declines those conditions or the proposed broker withdraws. The court may also consider whether the shareholder took reasonable steps to pursue the available routes and whether there is evidence that the alleged conduct actually prevented a sale.

This was a preliminary factual issue arising from an unfair prejudice petition. The petitioner, a minority shareholder in Hochanda Limited, alleged that the respondents had effectively prevented him from selling his shares in April 2018 by restricting access to financial information, imposing conditions concerning a prospective purchaser and requiring a minimum price for any additional share subscription.

The respondents relied on the company’s articles, which contained pre-emption provisions governing transfers, and contended that their response offered an alternative route to a sale rather than preventing one. The court had to determine, on the balance of probabilities, whether the respondents had effectively prevented the petitioner from selling his shares.

1. Outcome. The answer to the preliminary issue was “no”. The respondents had not effectively prevented the petitioner from selling his shares in April 2018.
2. The petitioner’s asserted general right to sell his shares as he wished was subject to the contractual provisions in the company’s articles. Article 10 contained pre-emption rights and provided an available mechanism for a shareholder wishing to transfer shares. The respondents could have required the petitioner to use that mechanism.
3. Instead, the respondents offered, for the time being, an additional and voluntary route. They indicated that they would not invoke their pre-emption rights, subject to conditions concerning the identity of a purchaser and the provision of confidential information. The reference to 25 pence per share concerned any additional subscription by a prospective purchaser, not the petitioner’s own shares.
4. The fact that the proposed broker decided not to act did not amount to prevention of a sale. It meant only that the voluntary alternative route was no longer available. The petitioner remained able to pursue the Article 10 procedure and had not shown that prospective purchasers could not be found without immediate access to management accounts.
5. The court rejected the contention that the respondents’ conduct had to be assessed against an unrestricted right to sell to the highest bidder. The petitioner had also taken no reasonable further steps, including testing the market, responding to the conditions, seeking an alternative arrangement with the broker or invoking Article 10.
6. The decision in Re A Company (No 8699 of 1985), [1986] BCLC (382), concerned arguability on a strike-out application and did not govern this preliminary issue, where the articles supplied a different contractual context.