Barry Maloney v Falcon VII Investment SARL

A contractual exemption from investor consent must be construed according to the defined terms chosen by the parties and the agreement read as a whole. A clause permitting an SF Repayment by the Buyer Group without consent did not extend to preparatory steps for an ICG Realisation Event, actions by an individual promoter, or transactions involving another group company. Contractual protections requiring consent therefore remained effective. Breaches of those protections constituted relevant defaults, entitling the investor to terminate the services agreement and altering board voting rights. Information rights were subject to implied limits against bad faith, improper purpose and Wednesbury unreasonableness, but those were high thresholds. Contractual notice requirements also governed whether failure to respond could support termination.

Mr Maloney and Falcon VII held competing economic and voting interests in a group owning an interest in Workhuman. Their rights were governed by interlocking financing documents, articles, a shareholders’ agreement and a services agreement.

After relations broke down, Mr Maloney supported resolutions concerning Workhuman’s articles, capital reduction and possible distributions intended to fund repayment of Falcon Financing’s debt and redemption of Falcon VII’s equity. He relied on clause 5.4 of the shareholders’ agreement, which permitted an SF Repayment by the Buyer Group without investor consent.

Falcon VII contended that the clause did not remove consent requirements for preparatory steps, capital restructuring, appointments or actions by Mr Maloney personally. The court also considered the validity of Morgan Stanley’s appointment, information requests and adviser appointments.

1. Clause 5.4. The clause was construed in accordance with the unitary contractual exercise described in Wood v Capita Insurance Services Ltd. The defined term “SF Repayment” had its precise meaning: repayment of the relevant financing debt. It did not mean an ICG Realisation Event. “Buyer Group” meant the companies within that defined group and did not include Mr Maloney personally or Workhuman.
2. The clause could cover steps which actually formed part of the machinery for effecting an SF Repayment. The AIB Notice was capable of being such a step. By contrast, the Workhuman capital restructuring and Shareholder Resolutions were preparatory. They were neither sufficient nor necessary conditions of an SF Repayment or ICG Realisation Event and were not required by the contractual machinery. They therefore remained subject to the consent covenants in Schedule 5.
3. The “notwithstanding” wording did not displace the requirement to adhere to the shareholders’ agreement, articles and financing documents. The surrounding provisions, including clauses 5.3, 10.2, 10.3 and 10.5 to 10.9, supported Falcon VII’s interpretation. The clause was an avoidance-of-doubt provision and did not rewrite the wider contractual scheme.
4. Mr Maloney’s participation in the relevant Workhuman board meetings and EGM constituted breaches, including Material Breaches, Default Events and Services Defaults. Falcon VII’s termination notice was valid. From 29 May 2023 Mr Maloney no longer had the enhanced three-vote entitlement at the Topco board, and the other directors outvoted him.
5. Morgan Stanley had been selected as the AIB, but it was never validly engaged by Topco because Mr Maloney lacked authority and was outvoted. The purported adviser appointments were likewise ineffective.
6. The information rights covered information relating to or held by the Target Group. Implied limits excluded bad-faith, improper-purpose and Wednesbury-unreasonable requests, but those thresholds were not met. The requests were not served in the contractual manner. They could constitute breaches, but failure to comply with them did not itself give rise to a right to terminate.
7. Mr Maloney’s claim failed. Falcon VII’s counterclaim succeeded in principle, with the precise declarations and consequential matters to be settled after submissions.