Share purchase agreements often include indemnities or covenants to pay designed to protect the buyer for a period after completion where some unquantifiable liability is anticipated that will impact on the value of the company being acquired. This is particularly so in the case of unpaid tax.

Sale at an undervalue; time for presenting a petition; implied term avoids manifest injustice; complying with time limits; order for sale threshold; Wragge & Co's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Sale at an undervalue

In Butterfield Bank (UK) Ltd v Philip and others, the bank sought summary judgment against four guarantors of a bank facility. It was alleged that the bank had sold a property at a £500,000 undervalue.

A couple of myths dispelled…..

”It’s the company’s problem, not mine.”

Wrong: It’s a surprisingly common misconception that because your business is contained in a limited company, its demise will not affect you. This is simply not correct.

“I work for the shareholders, not the creditors”

The Court of Appeal has given guidance on when the duty of directors to have regard to the interest of creditors arises. This is an important point, as the general statutory duty of a director to promote the success of the company for the benefit of the company's members is expressly subject to the rules on creditors' interests. The court's decision also considers whether a dividend payment can be challenged as a transaction at an undervalue under section 423 of the Insolvency Act 1986.

Facts

In normal circumstances, a director’s primary duty (owed to the company, not the company’s shareholders or the corporate group) is to promote the success of the company for the benefit of its shareholders as a whole. When a company enters a period of financial distress (the so-called “zone of insolvency”) there is a shift of emphasis in the duties of the directors: directors must consider the interests of the company’s creditors and, depending on the extent of the financial distress, may need to prioritise such interests over those of its members.

Common Starting Points

• Failing UK business.
• Proposed withdrawal from UK market following unsuccessful operations of an international group.
• Proposed solvent restructure involving corporates incorporated in the UK.

Common Questions Raised by Corporations Facing These Difficulties

Insolvency of the suspected fraudster may seem the end of the hunt, unless an egg-hunter can establish a proprietary interest in the assets (see our blog yesterday). But it can offer additional clues, or alternative pots of treasure, whether the fraudster is an individual or corporate entity.

A recent judgment by the UK High Court highlights the potential risks for directors in making a solvency statement about a company without having made a full inquiry into its affairs. This briefing looks at issues a director should consider before making the equivalent Irish-law declaration of solvency as part of the summary approval procedure.

The Case

The Court of Appeal has considered whether interim dividends paid to a shareholder at a time when the company did not have sufficient distributable reserves, making the payments unlawful, could later be reclassified as salary payments.

Facts

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Hong Kong, Italy, Singapore, and the United Kingdom and as an affiliated partnership conducting the practice in Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia.