Following a 3-day hearing, the Court of Appeal has dismissed the appeal of Geoffrey Arbuthnott, a former director of Charterhouse Capital Limited, the holding company for the well-known and leading private equity buy-out business. Kenneth MacLean Q.C. leading Sam O’Leary of One Essex Court and James Potts Q.C. of Erskine Chambers represented the successful respondents at trial and on appeal.
Mr Arbuthnott had brought a petition under section 994 of the Companies Act 2006 in which he alleged that he had suffered unfair prejudice in his capacity as a shareholder in Charterhouse. After a 27-day trial, Asplin J rejected his submission that there had been a breach of an oral agreement relating to the purchase of his shares which he said had been made between himself and the Chief Executive of Charterhouse, Gordon Bonnyman at the time of his retirement. Asplin J also rejected his allegations that the compulsory acquisition of his shares in the context of a management buy-out had been unlawful and at a gross undervalue.
Mr Arbuthnott’s appeal focused on the second of these points. Raising over 60 separate grounds of appeal, Mr Arbuthnott contended that the acquisition of his shares had been contrary to the company’s articles of association and a shareholders’ agreement and that amendments to the articles association to facilitate the buy-out were invalid. He also argued that the remuneration model operated by the business and the failure of the company to pay dividends in the years after his resignation gave rise to further grounds of unfair prejudice.
The Chancellor of the High Court (with whom Lewison and McCombe LJJ agreed) held that the compulsory acquisition of Mr Arbuthnott’s shares was permitted under the shareholders agreement and could also have been achieved under the existing articles of association. Against that background, the amendments to the articles of the association were no more than a “tidying-up exercise”. Asplin J had been entitled to conclude, as she did, that the amendments were capable of having been considered by the members to be in the interests of the company as a whole.
The judgment contains an important consideration of the principles applicable to determine the validity of an amendment to a company’s articles of association. In particular, the Court of Appeal approved statements made by Latham CJ and Dixon J in the High Court of Australia in Peters’ American Delicacy Co v Heath (1939) 61 CLR 456 to the effect that the power of the members to amend will be validly exercised even though the amendment is not for the benefit of the company because it relates to a matter in which the company as an entity has no interest but rather is only for the benefit of shareholders as such or some of them, provided that the amendment does not amount to oppression of the minority or is otherwise unjust or is outside the scope of the power.
Kenneth MacLean QC and Sam O'Leary of One Essex Court acted for the Respondents (instructed by Slaughter & May)