IN THE MATTER OF WATERSIDE NURSERY LIMITED AND IN THE MATTER OF SCHEDULE 4 TO THE SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT ACT 2015

This case concerns the construction of Schedule 4 to the Small Business, Enterprise and Employment Act 2015 and whether the court retains jurisdiction to make a suspended cancellation order under paragraph 6 where the company applies after the three month period prescribed by paragraph 5. The court held that it does have jurisdiction.

Key legal principles and grounds for decision:

• Schedule 4 (introduced by s 84 SBEEA 2015) abolishes bearer share warrants and establishes a statutory surrender mechanism including a nine month surrender period, mandatory notices by the company (paragraphs 2 and 4), a three month window for the company to apply for cancellation (paragraph 5) and a mandatory distinction in paragraph 6 between cancellation orders (where proper notice was given) and suspended cancellation orders (where notice was not given).
• The onus is placed on the issuing company and its officers to give required notices and to apply to court; failure to comply with paragraph 5 is penalised by criminal offences against officers.
• Parliament did not expressly rule out late applications; the statutory scheme and the remedial purpose of the provisions favour an interpretation that the court retains jurisdiction even if the company applies late, with the criminal sanctions serving as Parliament's chosen penalty for delay.
• Applying purposive construction and the presumption against doubtful penalisation, the court concluded that refusing jurisdiction would frustrate the legislative objective of abolishing bearer warrants and would leave shares in limbo.

On the facts, because the issuing company had not given the required notices and the bearer did not have actual notice, the court was obliged to make a suspended cancellation order.

Background and parties. Waterside Nursery Limited (the Company) issued a share warrant to bearer in January 2000 which remained held by a Guernsey trustee (the Trustee). The Company later filed returns treating the Trustee as registered holder. The provisions of Schedule 4 to the Small Business, Enterprise and Employment Act 2015 govern abolition of bearer share warrants and set time limits for surrender and for company applications to court to cancel outstanding warrants.

Nature of the application. The Company applied to the High Court under paragraph 6(2) of Schedule 4 for a suspended cancellation order so that the bearer could be given a two month grace period to surrender the warrant. The application was made after the three month period for applications under paragraph 5 had expired and none of the statutory notices required by paragraphs 2 and 4 had been given.

Issues framed by the court. (i) Whether an application made after the three month period in paragraph 5 is an application "under paragraph 5" so as to fall within the court's jurisdiction under paragraph 6; (ii) if the court has jurisdiction, whether it must make a cancellation order or a suspended cancellation order in the absence of the required notices.

Reasoning and analysis. The court analysed the statutory scheme: the surrender period, the progressive suspension of rights in paragraph 3, the company’s duty to notify (paragraphs 2 and 4), the requirement to apply to court (paragraph 5) and the mandatory outcomes in paragraph 6. The judge adopted a purposive approach, noting Parliament's clear aim to abolish bearer warrants and the emphasis on the company’s responsibilities. The statutory penalties for officers for failure to apply on time (paragraph 5(4)) were identified as the sanction Parliament chose for late company compliance, rather than jurisdictional exclusion. The judge applied the principle against doubtful penalisation and concluded that construing the time limit as jurisdictional would frustrate the statute’s purpose and leave shares and companies in legal limbo. Alternative remedies (court-approved capital reduction, winding up, striking off) were examined and found to be imperfect or unavailable in many cases, supporting the conclusion that the court should retain jurisdiction.

Result. The court concluded that it did have jurisdiction to entertain a late application under paragraph 5 and, because the Company had not given the required notices and the Trustee did not have actual notice, the mandatory outcome under paragraph 6 was a suspended cancellation order granting a two month grace period for surrender. The judge made no findings on criminal liability for offences under Schedule 4 or on disputed dividends or voting rights, and limited the decision to the construction point and the appropriate order.

The court held that it has jurisdiction to entertain an application under paragraph 5 of Schedule 4 made after the three month period prescribed by that paragraph. Applying the statutory scheme purposively and having regard to the onus on the company and the sanctions Parliament provided for failure to comply, the judge concluded that a late application is still an application “under paragraph 5”. Because the requisite notices had not been given and the bearer did not have actual notice, the court was obliged by paragraph 6 to make a suspended cancellation order, affording the bearer a two month grace period to surrender the warrant.