Key Choice Financial Planning Limited vs Timothy Evoy: Share Forfeiture Dispute

7 Jan 2025Court Report

High Court rules on the legality of share forfeiture for unpaid debts unrelated to shareholding

Background

The High Court recently addressed a significant dispute involving Key Choice Financial Planning Limited and Timothy Evoy, focusing on the legality of share forfeiture for debts unrelated to shareholding. The case, heard by Mr Justice Michael Green, stemmed from an appeal against an earlier decision by District Judge Wales, which declared the forfeiture of Mr Evoy's shares ineffective.

Case Details

The dispute arose when Key Choice Financial Planning Limited, the appellant, attempted to forfeit Mr Evoy's shares due to an unpaid costs liability. Mr Evoy, the respondent, was a former director of the company and held 57 ordinary shares. The company argued that its Articles of Association allowed for such forfeiture if any debt owed by a shareholder remained unpaid.

Legal Arguments

The appellant's argument hinged on the interpretation of Article 25.1 of its Articles of Association, which it claimed permitted forfeiture for any unpaid debt. The respondent contended that the articles only allowed forfeiture for debts directly related to the shares themselves.

Court's Analysis

Mr Justice Green undertook a detailed analysis of the Articles of Association, considering the language and structure of the relevant provisions. He noted inconsistencies in the articles, particularly the absence of language tying the forfeiture to specific shares in Article 25.1, which was present in other related articles.

Judgment

The court concluded that the power to forfeit shares must be limited to debts related to the shares themselves. Mr Justice Green highlighted that the articles, when read as a whole, supported this interpretation, aligning with commercial common sense and avoiding an unjust windfall to the company.

Implications

This judgment clarifies the limitations of share forfeiture in company law, emphasizing the need for clear and consistent language in Articles of Association. It serves as a reminder that forfeiture is a severe remedy and must be explicitly justified within the governing documents.

Conclusion

The appeal was dismissed, affirming the lower court's decision that the forfeiture was ineffective. This case underscores the importance of precise drafting in corporate governance documents to avoid disputes and potential penalties.