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Law
Law
This has been put shortly, and is not now contentious.
By section 550 of the Act directors of a company may exercise a power to allot shares in it; and it was for them to do so here.
By section 558 shares are “taken to be allotted when a person acquires the unconditional right to be included in the company’s register of members”.
Allotment is distinct from issue. As Lord Templeman said in National Westminster Bank plc v IRC [1995] 1 AC 119, 126, describing the Act’s predecessor:
“The Act of 1985 preserves the distinction in English law between an enforceable contract for the issue of shares (which contract is constituted by an allotment) and the issue of shares which is completed by registration. Registration confers title. Without registration, an applicant is not the holder of a share or a member of the company: the share has not been issued to him… A person who has been allotted shares is in as good a position in equity as a person to whom shares have been issued but that does not mean that there is no distinction between allotment and issue; an allotment creates an enforceable contract to issue and accept shares”.
A “member” of a company, as defined in the Act, is by section 112 either (1) a subscriber to its memorandum, deemed to become a member on its registration and who “must be entered as such in its register of members”, or (2) “Every other person who agrees to become a member of a company, and whose name is entered on the register of members”.
The members may therefore be subscribers to the memorandum, or those others who have agreed to become members and whose name is in the register either (for our purposes) consequent on allotment or on transfer.
It follows from the above that an allotment is only constituted when made in favour of an identifiable person. It cannot be used to create some equivalent to authorised share capital.
It is not now disputed that if the Court finds here that there was a specifically-enforceable agreement that Mr Aristodemou transfer two shares from his own name to Mr Chambi, including execution by Mr Aristodemou of a share transfer form, then Mr Chambi would have the right to his name being entered in the Company’s register of members.
While the clean hands point was initially put in relation to the estoppel and acquiescence claims, their engaging equitable jurisdiction, it could apply as well to the specific enforcement of any agreement. Mr Anderson has provided a quotation from Snell (34th edition) at 5-010:
“the question is not whether any general moral culpability can be attributed to B, the party seeking relief, but is rather whether relief should be denied because there is a sufficiently close connection between B’s alleged misconduct and the relief sought. It is accepted therefore that ‘the scope of the application of the ‘unclean hands’ doctrine is limited’ and the maxim is applicable only in relation to conduct of B which has ‘an immediate and necessary relation to the equity sued for”, so that B is ‘seeking to derive advantage from his dishonest conduct in so direct a manner that it is considered unjust to grant him relief’”.
The obligation on a company to maintain a register of members is contained at section 113; an obligation which it is for its directors to ensure it meets. The Court nevertheless has the ability under section 125 to decide questions of title and “any question necessary or expedient to be decided for rectification of the register”. That can include a reconstitution of the register (which, in whatever names, both parties say is appropriate here, as if a register ever existed it has not been produced); and the dates of registration may in any event be retrospective: Re Sussex Brick Company [1904] 1 Ch 598, followed by Roth J in Re I Fit Global Limited [2013] EWHC 2090 (Ch).
That relief may be subject to the doctrine of laches, where there has been lapse of time in asserting a cause of action such that it would now be inequitable to grant relief on it. Mr Anderson cites the example of Re ISIS Factors plc [2004] BCC 359, in which Blackburne J determined obiter that he would have refused relief as the applicant had been “sitting back and doing nothing for seven years”. “Nothing” meant just that: no receipt of or request for a share certificate, annual accounts, or notices of meetings; and ignoring letters for a call; until it turned out the company had become very valuable. While cases depend on their facts, those were extreme.
The importance of the Preliminary Issue is that it is only a member who has locus to present a petition under section 994, albeit that (as here) in an appropriate case that locus may be determined within the petition: see the recent collation of the law by ICC Judge Greenwood in Re Contingent & Future Technologies Limited [2023] EWHC 2451 (Ch).