Re Euro Accessories Ltd

This was a petition under section 994 of the Companies Act 2006 challenging the exercise of an option in Article 6A of the companys articles which allowed the majority shareholder to require the minority shareholder to transfer his shares for consideration described as "for fair value". The court construed "fair value" as the value of the actual sale shares being transferred, not as a pro rata share of the whole company's value, so that a minority discount may be applied. The judge relied on the established principle that, unless the instrument indicates otherwise, a shareholder is entitled only to the value of the particular parcel of shares being sold (citing Shanda Games/Maso and Short). The petition was dismissed, but the court declared that a consideration of 45,000 would have represented the fair value of the minority shares for the purposes of Article 6A.

This case concerned the correct construction of the term "fair value" in an article (Article 6A) inserted into the articles of Euro Accessories Limited by a 75.01% shareholder, enabling him to require the 24.99% shareholder to transfer his shares on a specified transfer date. The petitioner alleged that the majority had expropriated his shares at less than fair value and limited his complaint to the question of fair value at the transfer date (4 May 2016).

The issues framed for decision were: (i) the admissible background for construing a company's articles; (ii) the proper meaning of "fair value" in Article 6A; (iii) whether "fair value" required payment of a pro rata share of the company's total value (i.e. no minority discount) because the option conferred an unfettered right of expropriation; and (iv) whether equitable or unfair-prejudice considerations required a different valuation approach.

The court held that admissible background is limited to what a reasonable reader of the public constitutional documents and filings at Companies House would know. Applying ordinary principles of contract construction and the scheme and purpose of the articles, the judge concluded that Article 6A required valuation of the Sale Shares themselves and not a hypothetical pro rata share of the whole company. The court relied on authority (including Shanda Games Ltd v Maso and Short v Treasury Commissioners) for the general principle that, absent an indication to the contrary, a minority shareholder is entitled to the value of the parcel of shares being transferred and not to a share of any control premium. The judge rejected the petitioner's alternative arguments that (a) the term should be read as importing the IVSC 2013 definition of "fair value" so as to produce a median between pro rata and discounted values, and (b) the article should incorporate equitable/just-and-equitable considerations that would require a pro rata valuation. The petition was dismissed. The court nevertheless made a declaratory finding, for clarity, that a minority-discount valuation figure of 45,000 represented the fair value of the shares for the purpose of Article 6A, without ordering payment.

The Petition is dismissed. The court held that "fair value" in Article 6A referred to the value of the actual Sale Shares being transferred, so that, absent an indication to the contrary in the articles or admissible background, a minority discount is appropriate when valuing the parcel of shares being acquired; equitable or pro rata remedies were not to be implied into Article 6A. The court made a declaratory finding that 45,000 represented the fair value of the minority shares for the purposes of Article 6A.