Supreme Court of Ireland Decisions

Judgment Title: Walls -v- PJ Walls Holdings Limited

Neutral Citation: [2007] IESC 41

Supreme Court Record Number: 74 & 79/05

High Court Record Number: 2003 604 COS

Date of Delivery: 31 July 2007

Court: Supreme Court

“1. A declaration pursuant to section 204 of the Companies Act 1963 that the respondent is neither entitled nor bound to acquire the shares (or any of them) of the applicant in Walls Properties Limited.

The company’s assets consist of freehold land. Its income consists of rents and other investment income. The appellant contends that its true value depends on the net value of the land which it holds. The principal asset is an office building and land at Northern Cross, Malahide, Dublin. The property has the benefit of planning permission for a 165 bedroom hotel and outline planning permission for 225 apartments. On behalf of the appellant Séan O’Neill valued the lands at €33,000,000 million. The offer values Properties at €20,550,000 million. Further the purchase price for the entire issued share capital is payable by six instalments, the first instalment to be paid on the 21st December 2003 and the last instalment on the 30th November 2009. Notwithstanding this the shares in Properties are to be transferred leaving the transferors as unsecured creditors of Holdings.
(b) Thornhill -
Thornhill is the owner of a 1.17 acre site adjoining the lands of Properties. The offer is €1 per share for the entire issued share capital of €100. Mr O’Neill for the appellant values the lands at €877,500. However outstanding bank loans charged against the lands at September 2003 amounted to €920,560 and on this basis the respondent contends that Thornhill has in fact a negative valuation.

In relation to the valuation evidence the learned trial judge said –
“While understanding the argument based on valuations, it seems to me improbable that the majority of the shareholders accepted the combined worth of Properties and Thornhill at €20,550,100 million if their combined net worth was in fact €35,568,425 million…I am unable to accept the valuation figures as so definitive as not to leave great scope for differences and while mindful that the only valuation of shares exhibited is that produced by the applicant long after these proceedings issued, I cannot conclude, as invited by Mr Cush to do, that the offer is at a gross undervalue. An ex post facto valuation of shares, if it had been sought and obtained to justify the terms of the offer, could not displace the respect (not uncritical acceptance) for the views taken by the majority of the offer “package” as a whole. The fact that the majority may have relied on the views expressed by Paul and/or Liam, to whom they were related, and who were not financial analysts, does not detract from the reasonable probability that they might have considered Paul and Liam to have detailed intimate knowledge of the business and what its assets and shares were worth. While the record of Deloitte & Touche dated 25th May 2004 of the stated valuation approach adopted by Holdings in valuing the ordinary shares and properties as of September 2003 smacks of ex post facto reasoning, I cannot ignore such evidence. In the context of such evidence I do not accept that the applicant has shown that the offer is obviously and convincingly unfair.”

“I agree that certain criticisms set out in the applicant’s affidavit show that a good case could be made out for the formulation of a better scheme, of a fairer scheme, of one which would have been more attractive to the shareholders if they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have been involved, but is that enough? Is it necessary to establish the validity of such an offer as put forward in the present case? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment might have been offered to persons whose shares are sought to be expropriated? A better and fairer offer might have been made, possibly, but I do not think that because the scheme is not 100% fair or right there is the kind of unfairness with which Maughan J. was dealing in the case to which I have referred (In Re Hoare and Co.). The mere finding of items, or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment.

A scheme must be obviously unfair, patently unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be effective to bind a dissenting shareholder unless it complies to the extent of 100% with the highest possible standards of fairness, equity and reason. After all, a man may have an offer made to him and, although he would prefer something better, would be quite prepared to accept it because it was good enough in all the circumstances.”

It is true that there is a cost to shareholders in having to await payment of the consideration over a prolonged period. The cost to the appellant, calculated by Mr Carr on his behalf, is €191,818.18. It is a considerable sum taken in isolation but in the context of the transaction overall it has to my mind minimal impact particularly when regard is had to the benefit to shareholders in Properties of proceeding by way of a sale of shares rather than a sale of lands. There is, however, the additional element that pending the final payment an accepting shareholder will be an unsecured creditor of Holdings for the amount outstanding of the consideration. However, accepting the status as unsecured creditor, there is nothing to suggest that Holdings will be unable to meet its obligations. In his affidavit sworn on the 22nd January 2004 on behalf of the respondent Michael Paul Walls deposes as follows –
“The grounds and rationale behind the deferred payment structure (included nothing payable in 2004) were discussed (and specifically explained by me to Joe (the appellant)) in the initial meeting prior to the offers being made. I also discussed the proposed payment structure at the EGM. The primary reason for the staggered payment structure was to strengthen the overall prospects for the development project. There is a strong asset base in Holdings to support the acquisition price and residual consideration. In contrast to Properties, Holdings has a strong sustainable cash flow from its trading activities to meet the deferred payments, even envisaging a scenario where the development potential of the lands is not fully realised. In this regard the initial payment of €9.1 million to the accepting shareholders was made out of Holdings own cash resources without resorting to bank loans. As a shareholder in Holdings, Joe is and has at all times been well aware of Holdings strong financial footing and its ability to meet the offered payments.”
On the basis of the affidavits filed in the matter I am satisfied that any risk to accepting shareholders is minimal. The deferred payments are advantageous to Holdings and its proposals for the lands of Properties and Thornhill and so beneficial to the appellant in his capacity as a shareholder in Holdings. To my mind the attitude of the other shareholders who have accepted the offer would in any event very largely determine this issue: their acceptance signifies that they saw the advantages to be gained by them as outweighing the risk identified by the appellant.
The appellant has not discharged the onus which he carries in relation to this ground.

The offer was contained in a letter dated 7th October 2003 which was received by the appellant on that date. The offer was open for acceptance until 5 p.m. on the 17th October 2003. However the date was subsequently extended to the 10th November 2003. The appellant complains that the time originally set was too short to enable a shareholder to make the necessary enquiries particularly with regard to valuation. In Michael Paul Walls replying affidavit of 22nd January 2004 he deposes that the appellant was informed of the proposed offer, the rationale for the same and the site valuations and the urgency which attended the offer in September 2003. Following this the appellant wrote to some of the directors of Holdings and some of the shareholders of Properties on the 30th September 2003. Following this there were a number of meetings between Michael Paul Walls and the appellants at which the offer was discussed. At the extraordinary general meeting of Holdings on the 16th October 2003 at which all shareholders including the appellant were present, Michael Paul Walls dealt in detail with the offer. There were a number of telephone conversations between Michael Paul Walls and the appellant. On the 20th October 2003 the appellant had a meeting with Liam Wall, Pat Veale a director of Holdings and Shaun Greene financial controller of Holdings in relation to the offer.
The learned trial judge was satisfied that the appellant was not going to accept the offer regardless of time and his solicitor wrote to this effect on the 5th October 2003, but that in any event five weeks to consider the offer was, he held, adequate. There was urgency in proceeding with the offer in that delay would have affected other shareholders who had accepted the same in that there was a concern that the budget due later in 2003 would alter the tax regime, advantage of which it was the intention that benefit should be taken.
The appellant’s complaint in the High Court ignored the extension of the time for acceptance as did the ground of appeal before this court. I am satisfied that it is appropriate to have regard to the extended period and not just the period of ten days originally allowed for acceptance. It is not suggested that the extended period is inadequate. Accordingly in all the circumstances the learned trial judge was correct in determining that the extended period was adequate. The appellant fails on this ground.

In these circumstances no question of unfairness, I am satisfied, arises on this ground.

“7(a) A share may be transferred by a member or any person entitled to transfer to any member selected by the transferor: but save as aforesaid, and save as provided by paragraphs (f), (h) or (k) hereof, no share shall be transferred to a person who is not a member so long as any member or any person selected by the directors as one to whom it is desirable in the interest of the company to admit to membership is willing to purchase the same at the fair value.”

“If any member at any time attempts to deal with or dispose of any shares in the company otherwise than in accordance with the provisions of this article such member shall be deemed immediately prior to such attempt to have served the company with a transfer notice in respect of all the shares registered in the name of such member and the provisions of this article shall thereupon apply to such shares and such transfer notice shall be deemed to have been served on the date on which the directors shall receive actual notice of such attempt.”