[2007]JRC106
royal court
(Samedi Division)
1st June 2007
Before : |
M. C. St. J. Birt, Esq., Deputy Bailiff, and Jurats Clapham and Morgan. |
In the matter of Level One Holding (Jersey) Limited.
And in the matter of Representation of Special Opportunity Holdings Limited, Forbrit Trustees Limited, Capita Nominees Limited and Level One Holding (Jersey) Limited.
Advocate F. K. Milne for the Representors.
judgment
the deputy bailiff:
1. This is an application seeking declaratory relief that two purported transfers of shares in Level One Holdings (Jersey) Limited were void and consequential rectification of its register of members pursuant to Article 47 of the Companies (Jersey) Law 1991 ("the 1991 Law").
Factual background
2. Level One Holding (Jersey) Limited ("Level One") is a Jersey company which was incorporated on 9th August 2006. It is the holding company for a group of German limited partnerships which in turn own real property in Germany. It has an issued share capital of two shares of €1.50 each.
3. Until 26th March 2007 Level One had two shareholders. One share was registered in the name of Forbrit Trustees Limited ("Forbrit") and the other was registered in the name of Capita Nominees Limited ("Capita"). Both of these are Jersey companies and form part of the Capita Fiduciary Group which carries on the business of trust and company administration in Jersey. Forbrit and Capita had each executed a declaration of trust in favour of another Jersey company called Special Opportunity Holdings Limited ("Special"). They each therefore held their respective share in Level One as nominee for Special which was accordingly the sole beneficial owner of Level One.
4. Mr Richard Boleat is an employee of the Capital Fiduciary Group and he was responsible for the administration of Level One and Special. On the afternoon of 22nd March 2007 he received an e-mail from Mr Andrew Henderson, an employee of the Level One group with responsibility for matters of finance. The e-mail referred to a proposed new loan facility for Level One from Credit Suisse. One of the requirements of the facility was that the shareholders of Level One should guarantee the facility. The proposed facility raised a number of issues in connection with existing obligations of Level One and these had to be addressed by Mr Boleat. The upshot was that on 25th March he responded to Mr Henderson raising a number of matters including a potential problem with the registered shareholders of Level One guaranteeing the proposed facility. This was because he was not happy that Forbrit and Capita, as mere nominees with no financial interest of their own in Level One, should give such a guarantee.
5. A number of discussions took place between Mr Boleat and Mr Henderson on 26th March in connection with the matter during which it became clear that the guarantee by the shareholder(s) of Level One was essential and that there were very tight time constraints in relation to the completion of the facility. Accordingly, at about 6.00 p.m. on 26th March, Mr Boleat suggested that, as neither Forbrit nor Capita could properly give the guarantee, the sensible solution would be for the nominees to transfer the shares in Level One to Special which, as both legal and beneficial owner, would then be in a position to give the guarantee. Mr Henderson agreed with this suggestion. In view of the urgency and in the belief that this was in the best interests of all of the various companies, Mr Boleat decided that even though Special had not approved this course of action, he should proceed as though it had done so. He believed that this act would be ratified by the board of directors of Special subsequently. Accordingly he did not at that time contact any other directors of Special or attempt to convene a meeting of the board of Special. Mr Boleat was a director of Special and there were three other members of the board.
6. Mr Leslie Norman, who was a director of Capita and Forbrit as well as Level One, was available at that time. Mr Boleat therefore spoke to him about the matter. The upshot was that Mr Norman and Mr Boleat signed a stock transfer form on behalf of each of Forbrit and Capita purporting to transfer the shares in Level One to Special. The difficulty with this was that in fact Mr Boleat (contrary to his belief at the time) was not a director of Forbrit (although he was a director of Capita). Furthermore no board meeting of either Capita or Forbrit was held.
7. Immediately thereafter Mr Norman and Mr Boleat purported to hold a board meeting of Level One for the purpose of approving and registering the share transfers. Although they were both directors of Level One, there were two other directors. No notice of the board meeting was given to the other directors. The minutes show accordingly that a meeting of the board of directors of Level One was held on 26th March at which Mr Norman and Mr Boleat were present. They resolved to approve the share transfers from Forbrit and Capita respectively to Special and the register of members was duly completed to reflect this.
8. Subsequently it transpired that a transfer of shares in Level One would trigger a charge to real estate transfer tax in Germany. Accordingly the various transfers have not been ratified by the boards of any of the companies as was originally envisaged by Mr Boleat.
Are the transfers valid?
9. Miss Milne has taken us through the matter in some detail. We are in no doubt that the transfers of the shares in Level One from Forbrit and Capita respectively to Special are void and of no effect for a number of reasons.
(i) Lack of authority by Forbrit
10. The first issue is whether Mr Boleat and Mr Norman had actual authority to transfer the shares in Level One to Special. Article 64 of the Articles of Association of Forbrit contains a standard provision whereby the power to manage the business of the company is vested in the board of directors as a whole. Under such an article, an individual director or sub-group of the directors has actual authority to act on behalf of the company only where such authority has been delegated to them. See Mitchell & Hobbs (UK) Limited v Mill [1996] 2 BCLC 102.
11. No board meeting was held by either of the nominee companies specifically to authorise the execution of the share transfers. Nevertheless there was in each case a standing resolution by the board permitting any two directors to transfer shares and take certain other actions. This constituted a delegation under Article 66 of the Articles of Association. It follows that if two directors of Forbrit had signed the share transfer in this case, they would have had actual authority to do so even in the absence of a specific board resolution concerning these shares. However, the form of transfer was not signed by two directors because Mr Boleat was not a director of Forbrit. The transfer was therefore only signed by one director, namely Mr Norman. It follows that there was no actual authority to execute the share transfer form on this occasion.
12. The same problem does not arise in relation to Capita because Mr Boleat was a director of that company. The form was therefore executed by two directors in accordance with the standing delegation of authority and there was therefore actual authority for Capita to transfer the shares.
13. If there was no actual authority in the case of Forbrit, can it nevertheless be argued that there was ostensible or apparent authority for two directors to sign the form of transfer on Forbrit's behalf? In many cases that would be so because a third party is generally entitled to assume that a director has power to bind the company. However, that does not apply where the third party has notice of the lack of actual authority. In this case the other parties to the transaction were Special and Level One. In the case of Special, it was Mr Boleat alone who was taking the necessary actions on behalf of the company. In the case of Level One, it was Mr Boleat and Mr Norman who held the board meeting to register the transfers. Mr Boleat and Mr Norman were clearly aware of the position and cannot be taken to have relied on their own ostensible authority. They must be taken to have been aware of the true position as to their authority.
14. It follows that there was no actual or ostensible authority for Forbrit to execute the form of share transfer but Capita had actual authority to do so.
(ii) Did Special agree to the transfer of shares?
15. Article 18 of Special's Articles of Association vests the power to manage the company's business in its board of directors and Article 19 gives power to delegate this authority. However, unlike the two nominee companies, there had been no general resolution of delegation. Furthermore no board meeting was convened to authorise Mr Boleat, as a director of Special, to agree to the transfer of shares. In purporting to instruct the two nominee companies on behalf of Special to make the transfers Mr Boleat acted alone. Thus Special never became party to any agreement to transfer the shares and never gave its consent to the registration of the shares in its name because Mr Boleat had no actual authority to do so.
16. Article 25 of the Companies (Jersey) Law 1991 provides as follows:-
"Definition of 'member'
(i) The subscribers of a company's memorandum are deemed to have agreed to become members of the company, and on its registration shall be entered as such in its register of members.
(ii) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company."
It is clear from this provision that a transfer of shares is a bilateral transaction. The transferee has to agree to become a member. In this case Special never agreed to become a member because the only person purporting to do so on Special's behalf was Mr Boleat, as a single director. Because there was no general delegation or a specific resolution authorising him, he had no actual authority, on behalf of Special, to agree to it becoming a member of Level One. Again, no question of ostensible authority can arise because the third parties in this case were Forbrit, Capita and Level One and, through Mr Boleat and/or Mr Norman, they were aware of the position.
(iii) Did Level One validly approve the transfers?
17. Mr Boleat and Mr Norman purported to hold a meeting of the board of Level One to approve the transfers and to authorise the secretary to issue new certificates. Under the Articles of Association of Level One the approval of the board was required to the transfer of shares. At the material time there were four directors of Level One but it is conceded that no notice of the proposed meeting was given to the other two directors. A directors meeting held other than at a fixed time is invalid unless notice of it is given to all the directors. Any business conducted at such a meeting is therefore of no effect. See Baker v Falle [1991] JLR 284 at 295 applying Re Portuguese Copper Mines [1989] 42 Ch D 160. In the circumstances the approval of the transfers by the board of directors of Level One was invalid and of no effect.
Summary
18. We hold therefore that the purported transfer of the share in Level One from Forbrit to Special executed and registered on 26th March was void and of no legal effect for the following reasons:-
(i) The share transfer form purportedly executed on behalf of Forbrit was executed without the authority of Forbrit;
(ii) Special did not agree to the purported share transfer and did not consent to becoming a member of Level One;
(iii) Level One through its director Mr Boleat had knowledge of the circumstances set out in (i) and (ii) above;
(iv) There was no valid meeting of the board of Level One to approve the transfer or authorise the secretary to issue a new certificate to reflect the transfer. Any consequential changes to the register of members of Level One was therefore equally invalid and of no effect.
19. We also hold that the purported transfer of the share in Level One from Capita to Special executed and registered on 26th March 2007 was void and of no legal effect for the following reasons:-
(i) Special did not agree to the purported share transfer and did not consent to becoming a member of Level One;
(ii) Level One through its director Mr Boleat had knowledge of the circumstances set out in (i) above;
(iii) There was no valid meeting of the board of Level One to approve the transfer or authorise the secretary to issue a new certificate to reflect the transfer. Any consequential changes to the register of members of Level One was therefore equally invalid and of no effect.
Rectification
20. Article 47 of the 1991 Law confers a power upon the Court to rectify the share register of a company where the name of a person is entered in the register of members without sufficient reason. In Re Thayer Group Limited [2006] JRC 125B the Court endeavoured to summarise the applicable principles as follows at para 15:-
"(i) The jurisdiction to rectify the register of a company is to be widely construed (see Re Imperial Chemical Industries [1936] 2 All ER at 462).
(ii) The Court has a discretion as to whether or not to grant rectification even where satisfied that there are grounds for making such an order (see Re Diamond Rock Boring Co. Limited ex parte Shaw [1877] 1 QBD 463).
(iii) Rectification may be retrospective i.e. to take effect from the date upon which the correct entry should have been made, but the Court may refuse to do this where it would prejudice the rights of third parties (see Re Sussex Brick Company [1904] 1 Ch 598, and Smith v Charles Building Services Limited [2006] EWCA Civ 14 at para 22)."
21. Taking these elements in turn, we are quite satisfied there is jurisdiction to rectify the register in this case. The purported transfers from Forbrit and Capita to Special on 26th March were invalid and of no effect for the reasons we have given. Special should not therefore have been entered in the share register.
22. As to the second element, there seems no good reason not to exercise our discretion to order rectification. If we were to refuse rectification, the effect would be to render valid two transactions to which Special had never agreed and which we have held to be invalid.
23. As to the third element, there are only two third parties who may be affected. The first is Credit Suisse which has the benefit of a security interest in support of the guarantee given by Special in respect of the facility to Level One. If rectification is ordered, the shares will once again become registered in the names of Forbrit and Capita rather than the name of Special. Special will however still have the entire beneficial interest in Level One. We have been shown a letter from Credit Suisse in which it confirms, as one would expect, that this will not adversely affect its security and it is quite content for the rectification to take place.
24. The only other third party who may theoretically be affected are the taxation authorities in Germany. However, the charge to taxation arises on the basis that there has been a transfer of shares from Forbrit and Capita to Special. We have held that as a matter of law there has been no such transfer for the reasons we have given. In those circumstances no charge to taxation will arise. Accordingly we see no prejudice in the register being rectified to show the true position.
25. In conclusion we declare that the purported transfer of the two shares in Level One by Forbrit and Capita respectively to Special on 26th March 2007 were void and of no legal effect and we order that the register of members of Level One be rectified accordingly.
Authorities
Companies (Jersey) Law 1991.
Mitchell & Hobbs (UK) Limited v Mill [1996] 2 BCLC 102.
Baker v Falle [1991] JLR 284 at 295.
Re Portuguese Copper Mines [1989] 42 Ch D 160.