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Member Bob Hollyman QC achieves valuable precedent for shareholder disputes in Birchfield (as trustees of the PLC Trust) v Birchfield Holdings Ltd [2021] NZCA 428


September 20, 2021

The Court of Appeal has upheld an entry of defendants’ summary judgment on the basis that a buy-out offer was capable of curing unfairness to the shareholders pleaded under s 174 of the Companies Act 1993. The decision is notable because, as the Court noted, “[t]his approach … has never previously been relied on as the basis for granting summary judgment for the defendant in a s 174 claim” in New Zealand.

Bob Hollyman QC successfully acted for the defendants in the High Court and the respondents in the Court of Appeal.

The parties held equal shareholdings in a company – 25% each – and each was a director.  However, the relationship between the appellant and the other directors broke down, irretrievably, and for various reasons he was removed as director of the companies.

The appellants issued proceedings in the High Court under s 174 of the Companies Act, claiming that the affairs of the companies were being conducted in a manner that was oppressive, unfairly discriminatory or unfairly prejudicial to them.

Before and after the proceedings were filed, the respondents had made various offers to buy out the appellants’ shares at fair value, to be assessed in accordance with the company’s constitution. The appellants, who had initially sought to be bought out, did not accept any of the offers.

The respondents applied for summary judgment on the basis that their buy-out offers removed any unfair prejudice there might otherwise be, and that the offers provided the appellants with all the relief they might possibly obtain in their proceedings. The claim was based on a line of English authority which had been recognised in New Zealand, but only in passing.  The application was successful in the High Court, although that Court required that a fresh offer be made.

The appellants appealed to the Court of Appeal.

The Court of Appeal set out the principle in some detail.  It recognised the policy basis for the principle, that it provides a simple way to resolve many shareholder disputes without resort to what are often lengthy and expensive court proceedings.  

The Court pointed out that whether an offer to buy out a shareholder cures any unfairness to that shareholder will be highly fact-sensitive. The Court referred to the following factors as generally relevant:

  • The value offered, or the means proposed for arriving at that value;
  • The ability of the claimant to satisfy themselves that the figure offered is reasonable before they have to decide whether to accept or reject that offer (including access to company documents necessary to see how the price has been arrive at and to determine whether it is a reasonable valuation);
  • The substance of the unfair prejudice allegations, and the implications of those allegations for the assessment of fair value (for example, where the conduct that is alleged to be unfairly prejudicial has arguably had a material effect on the value of the company, an offer to buy the shareholder out for fair value is unlikely to cure the alleged prejudice);
  • The likelihood of the majority shareholder being able to implement the offer made; and
  • The proximity of the offer to the unfairly prejudicial conduct complained of.

Applying the above, the Court considered that any deficiencies in the buy-out offer were minor and could be easily cured with adjustments, with the result that there was no arguable claim under s 174.

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