Syspal Capital Limited v Christopher John Truman & Anor

Articles of association should be interpreted objectively, by considering their language in the context of the articles as a whole, their scheme and purpose, ascertainable company-specific background and commercial common sense. Where an employee-shareholder works for a group company in more than one capacity, a provision triggered when the shareholder ceases to be employed and does not continue in that capacity may refer to all the stated capacities, rather than only the capacity first relinquished. A forced transfer mechanism was therefore not triggered by dismissal from employment while the shareholder remained a director of another group company. An implied qualification requiring lawful termination was unnecessary where the articles expressly applied for any reason.

The claimant held 76 per cent of the shares in the second defendant, a holding company. The first defendant held the remaining shares and had been an employee and director of a subsidiary, as well as a director and shareholder of the holding company.

After his dismissal as an employee of the subsidiary, he remained a director of the holding company. He later resigned from that directorship on his sixty-fifth birthday. The issue was whether article 11.3 deemed a transfer notice to have been served on his dismissal or only on his later resignation, determining whether his shares were valued at Market Value or Fair Value.

1. Interpretation. The court applied the objective, unitary approach to contractual interpretation. Articles of association require particular attention to their natural and ordinary language, the scheme and purpose of the articles, facts about the company and its membership reasonably ascertainable from public filings, and commercial common sense.
2. Meaning of article 11.3. The phrase “in that capacity” referred back to the three capacities stated immediately before it: employee, director and consultant. It did not refer only to the capacity in which the shareholder had most recently ceased working. The first defendant therefore continued in one of the relevant capacities while he remained a director of the holding company, so the provision was not triggered by his dismissal as an employee of the subsidiary.
3. This interpretation accorded with the apparent purpose of protecting the shareholders’ interests where a shareholder stopped contributing to the day-to-day running of the business. It also avoided an interpretation enabling an employing company to procure a forced sale at a lower valuation by dismissing a shareholder who remained a director.
4. The court distinguished Signia Wealth Ltd v Vector Trustees Ltd. Its wording and article structure differed, and the relevant issue there had not been seriously contested. It was not determinative.
5. The alternative argument for implying a requirement of lawful termination was rejected. The words “any reason” indicated that investigation into the lawfulness of the reason was excluded. A qualification was not necessary for business efficacy or commercial coherence. The possibility that the provision might otherwise appear more reasonable was insufficient.
6. An employment tribunal order for reinstatement under section 114 of the Employment Rights Act 1996 would be directed to the subsidiary employer and would not alter the position of the holding company or the rights of its other shareholder under the articles.
7. The court held that the deemed transfer notice arose on the first defendant’s resignation as a director of the holding company on 24 May 2023. The sale price was therefore Fair Value. An inquiry into valuation was directed, with the parties to draw up the order.