Company update

Transferring shares

In Cream Holdings Ltd v Davenport [2011] EWCA Civ 1287, the Court of Appeal upheld a decision of the High Court that the articles of association of a company should be read as containing implied terms that a transferor of shares under pre-emption provisions would cooperate in doing everything reasonably necessary to procure the appointment of an independent accountant to determine the 'fair value' of the shares to be transferred and would not unreasonably refuse to agree to the terms of engagement, if reasonable.

Mr Davenport was a director of Cream Holdings Ltd, and held just over 25 per cent of the company's issued share capital. He was removed from his position as a director and that departure triggered the operation of certain pre-emption provisions in the articles under which an employee who was also a shareholder was required to transfer his shares on leaving his employment, pursuant to a deemed transfer provision.

As Mr Davenport and the company could not agree a 'fair value' for the shares, an independent third-party accountant had to be instructed, in accordance with the articles, to determine what constituted 'fair value'.

Mr Davenport indicated his willing to accept any of three accountants, one of which was subsequently instructed by the company, but he refused to sign the engagement letter sent to him by the accountant as he was unhappy with some of the terms of the instruction, such as a requirement that he should contribute to an advanced payment of the accountant's fees. The transfer of Mr Davenport's shares could not take place until the 'fair value' of the shares was established.

The judge held that Mr Davenport was being unreasonable in his refusal to cooperate fully to instruct the accountant and that he could not unreasonably refuse to agree to the terms of engagement as the terms were reasonable to both parties and therefore consistent with the rights and obligations of both parties under the articles.

Oral contract

In BVM Management Ltd v Yeomans [2011] EWCA Civ 1254, the Court of Appeal held that an oral contract for a fixed term of two years contained an express term that it could be terminated on three months' notice, on the facts of the case.

Before 2007, Mr Middleton worked for a company called GBFR Ltd, which provided catering for events at the Great Hall at Mains in Lancashire, which was owned by the Yeomans.

The agreement between GBFR and the Yeomans was for a fixed term and allowed either party to terminate the contract by giving three months' written notice.

Mr Middleton left GBFR and formed his own company, BVM Management Ltd. An agreement was made between BVM and the Yeomans that BVM would take over the management of events at the Great Hall for a fixed term of two years 'on the same terms as already applied'; however, no agreement was ever signed.

The Yeomans terminated the contract on the basis that there had been a repudiatory breach of the contract and in any event it could be terminated on three months' written notice. BVM disputed that they had breached the contract and that the contract could be terminated on three months' written notice. BVM alleged that the agreement was for a fixed term of two years and that no agreement had been signed or made to allow early termination.

The judge concluded that, although the right to terminate the contract on three months' written notice was never actually discussed between the parties, it was written in the agreement that the Yeomans gave to BVM at the beginning of their engagement. The fact that the contract was never signed did not mean that the termination could not apply as all the other terms of the contract applied.

Both parties had read the contract and had orally agreed to run the contract on that basis, without any objection, thus the three-month termination provision was allowed.

Opportunities for SMEs

The chancellor delivered his autumn statement on 29 November 2011 (with some amendments on 6 December) and as expected it painted an overall gloomy picture for Britain. There were, however, plenty of announcements aimed at assisting the growth of SMEs, including:

1) Seed enterprise investment scheme (SEIS). This is possibly the most attractive to businesses and investors alike. The SEIS will be introduced from April 2012 and will initially run until April 2017 but may continue after that date. The scheme offers a 50 per cent income tax relief for individuals who invest up to £100,000 in start-up companies. In addition to this, investors will also be offered a CGT exemption on gains realised and then reinvested through SEIS in 2012/13. Although an attractive scheme, the government has confirmed that it would tighten the focus of the scheme by introducing tests to prevent companies being set up simply to gain access to the relief.

2) From January 2012 the enterprise finance guarantee scheme (EFG) will be extended to include businesses with an annual turnover of up to £44m. The EFG gives additional lending to small businesses that cannot obtain a more traditional loan from the banks due to inadequacy of the security they are able to offer.

3) The government has announced that it will underwrite an initial £20bn bank loans to small businesses (with a turnover up to £50m) under the new national loan guarantee scheme, with a further £20bn to be released in the next two years. The chancellor believes that this scheme will bring down the cost of lending by up to one per cent.

4) The government will also plough £1bn into the business finance partnership, which aims to raise funds from non-bank sources to invest in mid-sized businesses and SMEs in the UK and consequently reduce the reliance on bank funding.

The autumn statement has therefore introduced some potentially valuable opportunities for SMEs. Whether or not these measures prove popular as an alternative to traditional bank funding remains to be seen.

First Bribery Act sentence

A court clerk from London has become the first person convicted under the Bribery Act 2010 and has been jailed for a total of nine years '“ six years for misconduct in a public office and three years for the bribery offence. He will serve both sentences concurrently.

Munir Yakub Patel was filmed by The Sun accepting a bribe of £500 to avoid putting details of a traffic summons on a court database.

The Bribery Act 2010, which came into force on the 1 July 2011, made it illegal to offer or receive bribes.

Before being caught, Mr Patel accepted payments from 'at least 53 people' to prevent them being prosecuted, earning at least £20,000 in the process.

A strong message has been sent out that the Bribery Act 2010 will not be used solely against corporate entities and emphasises the importance of compliance with the new legislation.

Boardroom diversity

The government's desire to increase the levels of diversity in the boardroom is once again apparent with the recent announcement that the Financial Reporting Council will be amending the UK Corporate Governance Code to strengthen the principles of boardroom diversity. The amended code will apply to companies whose financial years beginning on or after 1 October 2012 and requires:

• A description of the work of the nomination committee in the annual report to include a summary of the board's policy on diversity, including gender, any measurable objectives in implementing the policy and any progress made.
• Board evaluations to include consideration of the balance of skills, experience, independence and knowledge of the company on the board, its diversity and factors relevant to the effectiveness of the board as a unit.

These changes follow the recommen-dations made by Lord Davies in February 2011 in his review of the gender diversity of the boards of UK-listed companies.

Annual re-election of directors

The UK Corporate Governance Code, which was introduced in 2010, provides that all directors of FTSE 350 companies should be elected annually. Although there was much debate and controversy following the introduction of the code, 18 months on it has been found that 80 per cent of FTSE 350 companies (excluding investment trusts) have proposed annual re-election of the full board at their 2011 AGM.