Company Shares and Forgotten Agreements

Company Shares and Forgotten Agreements

The sale of company shares where an agreement in relation to those shares had been forgotten, was found to be valid in an important ruling in the UK’s Court of Appeal. 

The expert company and commercial lawyers at top Bahamas law firm ParrisWhittaker have many years’ experience advising clients on company law and commercial matters.

Whilst company law in The Bahamas is governed by the Companies Act 1982, rulings from the higher courts in the United Kingdom have significant persuasive effect on the law here.

What’s the background?

In this case, the company’s articles of association contained a clause giving the directors power to refuse to approve any proposed transfer of shares in the company.  At a board meeting the directors were told of a transfer of shares to a third party and no objections were raised by any of the directors, all of whom appeared to treat the transfers as a ‘done deal’.  It was accepted that they had unanimously approved and agreed the transfers, subject to transfer forms being lodged with the company.

However, one of the directors (also a shareholder) said he had found some old documents which reminded him that the shareholders had, many years previously, agreed that the company’s shares were subject to ‘pre-emption rights’ on transfer. No other director or shareholder had remembered this at the board meeting and, furthermore, various other transfers of shares had been approved by the board regardless of those (forgotten) pre-emption rights.

A dispute arose as to whether the transfers were therefore invalid.  The Court of Appeal ruled that the director who had found the documents could not rely on the pre-emption rights to prevent the transfer - it was irrelevant that the directors had unwittingly forgotten about the shareholders’ agreement.  It would be unconscionable to allow him to enforce those pre-emption rights against the other shareholders.  The company was therefore ordered to register the third party as a shareholder in its register of shareholders.

What does this mean?

Company directors need to make sure they are aware of all rights and obligations that exist in respect of the company’s shares before any transaction is undertaken.  All preemption and similar rights should be clearly recorded and communicated to all directors and shareholders to avoid the risk of a future dispute.

How can we help?

The experienced company lawyers at ParrisWhittaker are available to give you expert advice and representation on your company’s documentation, and expert help in the event of a dispute.  Contact us urgently for strategic legal advice. 

1 Christopher Dixon & EFI Loughton Ltd v Blindley Heath Investments Limited & Others [2015] EWCA Civ 1023