CA-2024-001924 - [2025] EWCA Civ 1206

Under the heading “Background”, the SHA recited as follows:

“(A)

The Company currently has an issued share capital of £ 3,370, divided into 3,370 A Shares of £ 1.00 each, all of which are fully paid.

(B)

Each Initial Shareholder is the registered owner of the number and class of Shares set out opposite his name in Part 1 of Schedule 1.

(C)

The parties have agreed to enter into this agreement as a deed for the purpose of regulating the exercise of their rights in relation to the Company and for the purpose of making certain commitments as set out in this agreement.”

Schedule 1 identified the “Initial Shareholders” as Gwent and Mr Kulkarni. Gwent was said to have 1,718 A Shares and Mr Kulkarni to have 1,652 A Shares.

By clause 2.2, Gwent and Mr Kulkarni undertook to use their reasonable endeavours to promote the success of the Company’s business. By clause 3, the Company agreed not to take any of the actions set out in schedule 2 without “Shareholder Consent”, and by clause 4.1 Gwent and Mr Kulkarni agreed to use their reasonable endeavours to procure that the Company did not take any such action without “Shareholder Consent”. The matters specified in schedule 2 included these:

“3.

Increase or reduce the amount of its issued share capital, grant any option or other interest over or in its share capital, redeem or purchase any of its own shares, sell, transfer or cancel any shares held from time to time in treasury or otherwise alter, or effect any reorganisation of, its share capital.

4.

Permit the registration (upon subscription or transfer) of any person as a member of the Company other than pursuant to an allotment or transfer permitted or required by, and made in accordance with, this agreement or the Articles.”

“Shareholder Consent” was defined in clause 1.1 to refer to “the prior consent of a majority of the holder(s) for the time being of the A Shareholders, excluding, where relevant, any Shares held by an Excluded Shareholder”. “Excluded Shareholder” was stated in clause 1.1 to mean “each Shareholder whose proposed course of action is the subject of the relevant Shareholder Consent”.

Clause 6 required a shareholder wishing to transfer any shares to give a “Transfer Notice”. When a Transfer Notice was served, the Company was to offer the relevant shares to other shareholders. The “Transfer Price” for each share was to be “Fair Value” unless the Transfer Notice was served within three years of the date of the SHA. In that event, by clause 6.6, the Transfer Price was to be “restricted to a maximum of the lower of the subscription price paid for each Sale Share, including any share premium, and the Fair Value of each such Sale Share unless agreed otherwise in writing with Shareholder Consent”.

Clause 7 provided for “Compulsory transfers”. Clause 7.1 was in these terms:

“A Shareholder is deemed to have served a Transfer Notice under clause 6.4 immediately before any of the following events:

(a)

the Shareholder’s death;

(b)

a bankruptcy petition being presented for the Shareholder’s bankruptcy, or an arrangement or composition being proposed with any of his creditors, or where he otherwise takes the benefit of any statutory provision for the time being in force for the relief of insolvent debtors;

(c)

the Shareholder lacking capacity (under section 2 of the Mental Health Act 2005) to make decisions in relation to the Company or his shareholding unless he/she has a valid registered power of attorney in place; and

(d)

the Shareholder committing a material or persistent breach of this agreement which, if capable of remedy, has not been so remedied within 10 Business Days of notice to remedy the breach being served by the Board (acting with Shareholder Consent).”

A Transfer Notice deemed to have been served under clause 7.1 was defined in clause 1.1 as a “Deemed Transfer Notice”. By clause 7.2, a Deemed Transfer Notice “deemed to be served under clause 7.1(d) shall immediately and automatically revoke a Deemed Transfer Notice deemed to be served by the relevant Shareholder under any of the events set out in clause 7.1(a) to clause 7.1(c) (inclusive)”. By clause 7.3, the provisions of clause 6 were to apply to a Deemed Transfer Notice, except that (among other things):

“(d)

if the Seller is deemed to have given a Transfer Notice as a result of clause 7.1(d), the Transfer Price shall be restricted to a maximum of the lower of the subscription price paid in respect of each Sale Share, including any share premium, and the Fair Value of each such Sale Share; and

(e)

the Seller does not have a right to withdraw the Deemed Transfer Notice following a valuation.”

Clause 6.7 had also stated that a Deemed Transfer Notice “may not be withdrawn”.

Clauses 9 and 10 provided respectively for “Drag along” and “Tag along” rights. Clause 11 recorded that it was agreed by the A Shareholders that the Company would issue up to 3,235 B Shares.

Clause 13 dealt with the appointment and removal of directors. Clause 13.2 stated:

“Each holder of any A Shares shall have the exclusive right to appoint one director as an A Director, at all times during the continuance of this agreement. The holder(s) of the A Shares shall also have the exclusive right by notice to the Company remove and replace any directors appointed in accordance with this clause 13.2.”

By clause 13.3, the holders of B Shares were also to have the right, by way of majority vote, to appoint one director.

Clause 14, which was concerned with directors’ meetings, enhanced the position of Gwent. A directors’ meeting could not be quorate without a director appointed by Gwent (clause 14.1) and clause 14.5 stated:

“In relation to any transaction of the Company which requires a decision of the Board of Directors, the Controlling Shareholder Director [i.e. the director appointed by Gwent] shall be entitled to have such number of votes as enables him/her to carry or defeat any proposal for a resolution of the directors.”

By clause 16.1, shareholders agreed to exercise their powers as shareholders to “procure that the provisions of this agreement are properly and promptly observed and given full force and effect according to the spirit and intention of the agreement”. Clause 19 was an “entire agreement” provision.