In Jusan Technologies Ltd v Uconinvest [2025] EWHC 704 (Ch) (24 March 2025), the High Court found that, although the directors acted beyond the scope of their authority and in breach of the company's articles of association, the claimant could not rely on this as the transaction fell within s.40 of the Companies Act 2006 which gave the directors an unlimited power to bind the company in favour of a person dealing with it in good faith.
So what happened?
Under the terms of a share purchase agreement, the defendant agreed to purchase shares in the claimant company that were held in treasury. The claimant company was party to a shareholders' agreement which included an obligation on the parties to procure that no share transfer would be registered unless the incoming transferee executed a deed of adherence in the form required with the claimant company and each of its shareholders.
The defendant executed and delivered a deed of adherence in the form required but this was not countersigned by all the requisite parties and as the deed was conditional on execution by all the requisite parties, it failed to take effect. Despite this, the claimant company's directors registered the defendant as a shareholder in the register of members.
Notwithstanding that the court found that the defendant's registration was in excess of the powers of the claimant's directors as conferred by its constitution, the court applied s.40 of the Companies Act 2006 and that the defendant was a person dealing with the claimant company within the meaning of s.40 when it was registered as a member. Given it was not disputed that the defendant acted in good faith, the directors' power to bind the claimant company in connection with the transaction was deemed free of the restrictions in the articles, including the limits on their power to register the defendant as a shareholder.
Key takeaways:
- Section 40 of the Companies Act 2006 applies equally to dealings between the company and its shareholders as it does to any person with no existing relationship with the company.
- There is a practical risk in introducing a contractual or articles based restriction on a transfer of shares which, if not carefully drafted, could allow an individual shareholder to block the valid registration of a transfer that otherwise meets the requirements of the company's constitution. In this case, the transfer was made by the claimant company and therefore within the ambit of s.40 of the Companies Act 2006 which preserved the validity of the registration. However this would likely not have been the case had the transferor been another shareholder. Draftsmen should therefore always ensure that any restriction placed on the registration of a transfer of shares is carefully thought out in order to avoid unintended consequences.
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