Pennington v Harold Crampton & Ors (2003)
The registration of shares in the name of a deceased shareholder's executors had not been a transfer that enabled existing shareholders to invoke a right of pre-emption contained in a specifically adopted provision in a company's articles of association.
Determination of various issues in relation to the effect of a company's articles of association on the transfer of shares and the administration of a former shareholder's estate. The company's articles of association had included a provision in Article 8(A) for the transfer of company shares to a class of family relatives, and in the circumstances of a deceased shareholder that their share "may be transferred to, or placed in the names of, his or her executors or trustees". Article 8(B) provided that a company share was not to be transferred to a person outside the limited class defined in Article 8(a) unless it was first offered to existing shareholders at a fair value. The deceased (C) had held 1,500 out of the 2,000 shares issued in the company. The Court of Appeal had previously determined in Pennington v Waine (2002) EWCA Civ 227 , (2002) 1 WLR 2075 that a gift of 400 of C's shares made to C's husband's nephew had been effective in equity and in Hurst v Crampton Bros (Coopers) Ltd (2002) EWHC 1375 (Ch) , (2003) 1 BCLC 304 it had been held that Artcile 8(B) applied to those shares. C's will had provided for the transfer of her remaining shares to her husband's nephew and another relative, neither of which came within the class of relatives in Article 8(a). The key issues in dispute were (1) whether Article 8(b) applied to C's executors in seeking to register their names as holders of the 1,100 shares upon C's death, such that the existing shareholders' pre-emption rights could be invoked; (2) in what way Article 8(b) applied to the gift of 400 shares, in particular how the shares were to be valued.
(1) The wording of Article 8(A) in respect of the treatment of company shares upon the death of a shareholder conflicted with the wording of Table A Regulations 30 and 31. Whilst Regulations 30 and 31 were adopted unamended, Article 8(A) was specifically adopted and, as such, Article 8(a) overrode the effect of Regulation 30 and 31. The registration of the 1,100 shares in the name of C's executors was not a transfer, or intention to transfer, for the purposes of entitling existing shareholders to purchase the shares under Article 8(B). The retention of the 1,100 shares by C's executors to hold on trust for the specific legatees did not amount to a transfer within the meaning of Article 8(B). Further, a transfer of shares held by a former executor to the present executors or trustees of the shares would not be a transfer to which Article 8(B) applied, being a transfer permitted by Article 8(A). (2) In relation to the 400 shares, the company's auditors were to value the shares according to their current market valuation as opposed to the value of the shares at the time when C signed the share transfer. The consistent and apparently careful use of the singular throughout Articles 8(B) lead to a conclusion that the shares were to be valued per share by determining a fair value for the company and dividing it between the 2000 shares. Existing shareholders were entitled to accept all or any one or more of the shares. A fair value should not take into account the effect of the litigation between the shareholders or between a shareholder and the company.
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