Walls v Walls Holding Ltd

• Jurisdiction: Ireland
• Judge: MR. JUSTICE T.C. SMYTH
• Judgment Date: 05 November 2004
• Neutral Citation: [2004] IEHC 355
• Court: High Court
• Docket Number: Record No. 604COS/2003
• Date: 05 November 2004

[2004] IEHC 355

THE HIGH COURT

Record No. 604COS/2003

WALLS v WALLS HOLDING LTD

DUBLIN

IN THE MATTER OF WALLS PROPERTIES LIMITED

and

WALLS v. WALLS HOLDING LTD

and

IN THE MATTER OF SECTION 204 OF THE COMPANIES ACT1963

BETWEEN/

PATRICK JOSEPH WALLS

Applicant

-and-

WALLS HOLDING LIMITED

Respondent

Citations:

COMPANIES ACT 1963 S204(1)

COMPANIES ACT 1963 S204

FITZWILTON PLC, IN RE 2000 2 ILRM 263

BUGLE PRESS LTD, IN RE 1961 1 CH 270

HOARE, RE 1933 150 LT 34

COMPANIES ACT 1929 S155 (UK)

PRESS CAPS LTD, RE 1949 CH 434

SUSSEX BRICK CO, IN RE 1961 CH 289

GRIERSON, OLDHAM 7 ADAMS, RE 1968 1 CH 17

MCCORMICK V CAMEO INVESTMENTS 1978 ILRM 191

SECURITIES TRUST LTD V ASSOCIATED PROPERTIES LTD UNREP MCWILLIAM 19.11.1980 1983/6/1604

COMPANIES ACT 1963 S60

KEANE COMPANY LAW IN THE REPUBLIC OF IRELAND 3ED 451

COMPANIES ACT 1963 S25(1)

LEE & CO LTD V EGAN WHOLESALE LTD UNREP KENNY 24.4.1978 1978/5

DUGGAN V STONEWORTH INVESTMENTS 2000 1 IR 563 2000 2 ILRM 26

COMPANIES ACT 1963 S204(4)

EVERTITE LOCKNUTS, IN RE 1945 2 CH 220

Abstract:

Company law - Shares - Compulsory acquisition - Dissenting shareholder - Whether statutory provision for compulsory acquisition takes precedence over pre-emption rights provided for in articles of association - Whether court should exercise its discretion in favour of dissenting shareholder - Whether scheme unfair - Onus of proof that scheme unfair or agreed price inadequate - Companies Act 1963, section 204.

section 204 of the Companies Act 1963 provides that “where a scheme…involving the acquisition by one company…of all the shares…of another company…has…been accepted in respect of not less than four fifths in value of the shares affected…the transferee company may…give notice…to any dissenting shareholder that it desires to acquire the beneficial ownership of his shares, and when such notice is given the transferee company shall, unless on an application made by the dissenting shareholder,…the court thinks fit to order otherwise, be entitled and bound to acquire…those shares”. The applicant sought to prevent the respondent from acquiring his shares in the companies pursuant to section 204 of the Act of 1963 on the grounds, inter alia, that the offer was at a substantial undervalue; that the offer process was fundamentally unfair in terms of the information which was withheld from shareholders and; that the applicant had not been afforded the opportunity of exercising his pre-emption rights as provided in the Articles of Association.

Held by Smyth J in refusing the relief sought that:

1. the onus was on a dissentient shareholder to satisfy the court that the compulsory acquisition offer was, in the eyes of the majority, unfair.

2. That section 204 of the Act of 1963 did not require that the holders of four fifths majority of the countable shares be independent or disinterested in the transferee company and if they had such an interest, that was merely a factor to be taken into account by a court in exercising its discretion under section 204.

3. That price only could not be the sole basis for determining whether an offer as a whole was to be viewed as unfair. An ex post facto valuation of shares could not displace the respect of the views taken by the majority of the offer.

4. That a dissentient shareholder could not, merely for the reason that he was not given all the information which he might require from the directors of the transferor company, upset the purchase scheme.

5. That the provisions of section 204 took precedence over any pre-emption rights provided for in the Articles of Association.

Reporter: P.C.

MR. JUSTICE T.C. SMYTH

1 I hereby certify the following to be a true and accurate transcript of my shorthand notes of the evidence in the above-named action.

MR. JUSTICE SMYTH: In these proceedings, the Applicant seeks, by means

2 and declarations referred to in the originating Notice of Motion dated 18th December 2003, to prevent the Respondent from acquiring his shares in walls Properties Limited (“Properties”) and Thornhill Properties Limited (“Thornhill”) pursuant to the provisions of Section 204(1) of the Companies Act1963.

3 Properties, Thornhill and the Respondent (“Holdings”) are all private companies and have common shareholders who are all members of the walls family. The Applicant holds ten ordinary shares in each of the Properties and Thornhill (amounting to 10% in Thornhill and just beneath 10% in Properties of the issued shares). The Applicant also holds 20 cumulative preference (or voting shares) in Holdings amounting to 10% of the issued shares.

4 The Applicant submitted that throughout the events that preceded this litigation Holdings was not an independent third party bidder. In this regard, it is to be noted that the controlling shareholder in Holdings is Liam Vincent Walls (“Liam”), who holds 106 (53%) of the voting shares. Michael Paul Walls (“Paul”) holds 29 (14.5%) of the voting shares in holdings. It was submitted that Liam and Paul were the principal architects of the offer and this was not seriously disputed.

5 Together, they were the sole directors of Properties and Thornhill and Paul was, and is, the manager of both. In addition to controlling Holdings in general meeting, they are both executive directors with Liam as the chief executive officer and secretary of Holdings (and its group companies). Paul, though a managing director of Properties, is paid, for this executive position in Properties, by Holdings.

6 In both Properties and Thornhill, Paul holds 20 (20%) ordinary shares and in both these companies Liam holds 16 (16%) shares in each. In each of these companies, the children of Paul hold between them a further ten shares and the children of Liam hold between a further six shares. From the foregoing, it is clear that the principal architects of the offer, together with their near relatives, are the major shareholders of the transferee companies and (in addition to their positions as executive directors and the principal shareholders of Holdings) it was submitted by the Applicant they had a clear interest in the offer. I am satisfied and find as a fact, on the affidavit evidence, that there was no undue influence or coercion, on those who swore affidavits, exercised by either Paul or Liam and as a matter of probability on none of their children.

7 The evidence establishes that prior to the making of any offer to acquire the Applicant's shares on 7th October 2003, a meeting took place on 26th September 2003 between Michael Paul Walls and the Applicant. I am satisfied that at that meeting the Applicant was informed that it was intended to make an offer, that an EGM would be held to consider it and that it was intended to process the offer in a short interval of time, as it was apprehended that an adverse tax regime might be introduced in the following Budget. At this meeting on 26th September the Applicant was given sight of a Memorandum which was prepared by Michael Paul Walls, which is referable to residential lands at Balgriffan, County Dublin. This document was not disclosed, though its existence was referred to, until a fifth affidavit was sworn on 12th May 2004, several months after the case was originally listed for hearing. The document, when exhibited, was referred to as having been "generated as a negotiating tool only". The Memorandum refers to the then pre offer position and clearly indicates that PJW (Holdings) had "residual valuations producing circa 40K per residential site and WP (Properties) with a market valuation at 55/60K per site - - is unlikely to produce a solution". The Memorandum records an alternative proposal upon which the writer notes:-

"The proposal has drawbacks for some individual shareholders but it is clearly in their overall interest and therefore I am prepared to fully support the proposal if it is acceptable to PJW (Holdings)."

8 The writer goes on to record some of the benefits he perceives from a proposal made for an arrangement without attempting "to differentiate between the Holding company and Construction, but use only PJW:-

"PJW opportunity to revalue acquired assets upwards to strengthen balance sheet if required at some time. Can be presented as “steal” using market valuations…"

9 There is no evidence of an independent share valuation having been sought or obtained prior to the making of an offer by the transferee company; and while there is an abundance of affidavits referring to property valuation, there is no disclosure to the Applicant or to the court of property "valuations" said to exist in the Memorandum of 26th September 2003. It is no function of the court to engage in a consideration of the value attributed to the properties - - it is concerned with the fairness in the eyes of the majority of the offer. The price per share or share valuation is part of the offer, underlying the share valuation will be a valuation of the assets. However, the first and only independent

10 share valuation presented to the court is post the offer and its rejection by the Applicant, and obtained by the Applicant after the issue of proceedings.

11 There was some "without prejudice" correspondence in late September 2003, before the offer (whence these proceedings sprung) of 7th October was made. Briefly, the terms of the offer were:-

12 1. It was open for acceptance until 5.00pm on 17th October 2003 (some ten days after the date of the covering letter).

13 2. In respect of Properties, each share was valued at €186, 818.18, valuing the total issued shares capital at €20,550,000).

14 3. In respect of Thornhill, €1.00 per share, valuing the total issued share capital at €100.

15 4. With regard to Properties, all shares were to be transferred upon purchase, but the purchase consideration was to be paid in six instalments commencing on 7th December 2003, with a final payment being made on 30th...