The drafting of share transfer rights is at the centre of a high-profile struggle for control of Claridge’s, the Berkeley and the Connaught
The dispute between Irish property developer Patrick McKillen and the Barclay brothers for control of Coroin Limited is seeing the High Court thrash through a number of company law and practice points.
At the heart of the dispute are the pre-emption rights set out in agreements between the shareholders of Coroin Limited and various other parties. Coroin is the ultimate owner of the three trophy London hotels. The background to the case is well set out in this article from the Daily Telegraph (which coincidently is owned by the Barclay brothers).
Patrick McKillen, a 36% shareholder in Coroin, argues that the Barclay brothers have by various manoeuvring sought to gain control of Coroin, by acquiring equity held by other shareholders and by purchasing related debt. Mr McKillen argues that this manoeuvring has breached the requirements of the transfer provisions of the governing agreements.
Did the share transfer pre-emption provisions apply if ownership of a shareholder changed hands?
The initial piece of litigation, on which judgment was passed by the High Court in December 2011, saw Mr McKillen argue that the pre-emption clause in the shareholders’ agreement and articles of association required a transfer notice (offering the relevant Coroin shares to other existing shareholders) to be served when a holder of shares in Coroin was itself sold. The holder in question was Misland (Cyprus) Investments.
The court decided that the agreement clearly did not require a transfer notice to be served in that situation – as there was no change of control clause that would kick in when a Coroin shareholder (as opposed to Coroin shares) changed hands – and that if the sophisticated parties involved had intended such a provision to appear, then it would have done:
“The absence of any such provisions in what is a complex clause, providing for many eventualities, itself tells against the suggested construction. It is a reasonable objective assumption that these sophisticated investors in a large commercial venture, and their advisers, did not overlook the possibility of a sale of Misland, particularly in the light of both the definition of “Shareholder Group” with its special provisions for Misland and the proviso to clause 6.15. The absence of provisions dealing with a sale of a corporate shareholder is, objectively speaking, consistent with a decision by the parties not to include them.” [Paragraph 102 of the judgment]
The point is also discussed in this note by Shoosmiths.
Other points from the judgment
The judgment discusses:
- That extrinsic evidence is almost never admissible in the construction of articles of association [paragraphs 62 to 69].
- The importance of exactness and precision in drafting pre-emption provisions, dealing as they do with property rights [paragraphs 73 and 74].
- The meaning in law of the terms “shareholder”, “transfer” and, in the context of shares, “any interest therein” [paragraphs 82 to 85].
As we say above, this judgment is the first in a number of related actions before the court. This judgment from February 2012 addresses the transfer of loan facilities from NAMA (the Irish “bad bank”) to a Barclay brothers vehicle, which again Mr McKillen alleges were transferred in breach of agreement.
The main litigation as to control of Coroin is ongoing.
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