• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
  • Kemp Little specialises in the technology and digital media sectors and provides a range of legal services that are crucial to fast-moving, innovative businesses.Our blend of sector awareness, technical excellence and responsiveness, means we are regularly ranked as a leading firm by directories such as Legal 500, Chambers and PLC Which Lawyer. Our practice areas cover a wide range of legal issues and advice.
  • Our Commercial Technology team has established itself as one of the strongest in the UK. We are ranked in Legal 500, Chambers & Partners and PLC Which Lawyer, with four of our partners recommended.
  • Our team provides practical and commercial advice founded on years of experience and technical know-how to technology and digital media companies that need to be alert to the rules and regulations of competition law.
  • Our Corporate Practice has a reputation for delivering sound legal advice, backed up with extensive industry experience and credentials, to get the best results from technology and digital media transactions.
  • In the fast-changing world of employment law our clients need practical, commercial and cost-effective advice. They get this from our team of employment law professionals.
  • Our team of leading IP advisors deliver cost-effective, strategic and commercial advice to ensure that your IP assets are protected and leveraged to add real value to your business.
  • Our litigation practice advises on all aspects of dispute resolution, with a particular focus on ownership, exploitation and infringement of intellectual property rights and commercial disputes in the technology sector.
  • We have an industry-leading reputation for our outsourcing expertise. Our professionals deliver credible legal advice to providers and acquirers of IT and business process outsourcing (BPO) services.
  • We work alongside companies, many with disruptive technologies, that seek funding, as well as with the venture capital firms, institutional investors and corporate ventures that want to invest in exciting business opportunities.
  • Our regulatory specialists work alongside Kemp Little’s corporate and commercial professionals to help meet their compliance obligations.
  • With a service that is commercial and responsive to our clients’ needs, you will find our tax advice easy to understand, cost-effective and geared towards maximising your tax benefits.
  • At Kemp Little, we advise clients in diverse sectors where technology is fundamental to the ongoing success of their businesses.They include companies that provide technology as a service and businesses where the use of technology is key to their business model, enabling them to bring their product or service to market.
  • We bring our commercial understanding of digital business models, our legal expertise and our reputation for delivering high quality, cost-effective services to this dynamic sector.
  • Acting for market leaders and market changers within the media industry, we combine in-depth knowledge of the structural technology that underpins content delivery and the impact of digitisation on the rights of producers and consumers.
  • We understand the risks facing this sector and work with our clients to conquer those challenges. Testimony to our success is the continued growth in our team of professionals and the clients we serve.
  • We advise at the forefront of the technological intersection between life sciences and healthcare. We advise leading technology and data analytics providers, healthcare institutions as well as manufacturers of medical devices, pharmaceuticals and biotechnological products.
  • For clients operating in the online sector, our teams are structured to meet their commercial, financing, M&A, competition and regulatory, employment and intellectual property legal needs.
  • Our focus on technology makes us especially well positioned to give advice on the legal aspects of digital marketing. We advise on high-profile, multi-channel, cross-border cases and on highly complex campaigns.
  • The mobile and telecoms sector is fast changing and hugely dependent on technology advances. We help mobile and wireless and fixed telecoms clients to tackle the legal challenges that this evolving sector presents.
  • Whether ERP, Linux or Windows; software or infrastructure as a service in the cloud, in a virtualised environment, or as a mobile or service-oriented architecture, we have the experience to resolve legal issues across the spectrum of commercial computer platforms.
  • Our clients trust us to apply our solutions and know-how to help them make the best use of technology in structuring deals, mitigating key risks to their businesses and in achieving their commercial objectives.
  • We have extensive experience of advising customers and suppliers in the retail sector on technology development, licensing and supply projects, and in advising on all aspects of procurement and online operations.
  • Our legal professionals work alongside social media providers and users in relation to the commercial, privacy, data, advertising, intellectual property, employment and corporate issues that arise in this dynamic sector.
  • Our years of working alongside diverse software clients have given us an in-depth understanding of the dynamics of the software marketplace, market practice and alternative negotiating strategies.
  • Working with direct providers of travel services, including aggregators, facilitators and suppliers of transport and technology, our team has developed a unique specialist knowledge of the sector
  • Your life as an entrepreneur is full of daily challenges as you seek to grow your business. One of the key strengths of our firm is that we understand these challenges.
  • Kemp Little is trusted by some of the world’s leading luxury brands and some of the most innovative e-commerce retailers changing the face of the industry.
  • HR Bytes is an exclusive, comprehensive, online service that will provide you with a wide range of practical, insightful and current employment law information. HR Bytes members get priority booking for events, key insight and a range of employment materials for free.
  • FlightDeck is our portal designed especially with start-up and emerging technology businesses in mind to help you get your business up and running in the right way. We provide a free pack of all the things no-one tells you and things they don’t give away to get you started.

High Court releases first edition of "company law for dummies" handbook

The recent case of Dickinson v NAL Realisations (Staffordshire) Ltd is a “101” guide to how not to run a small business, providing insight into the pitfalls that can await any director or shareholder that may wish to cut corners rather than ratifying decisions through the appropriate approval processes.

The case concerned a range of company law topics, but I will discuss here the three more commonplace scenarios dealt with by the proceedings: (i) the sale of freehold property; (ii) the purchase by a company of its own shares; and (iii) a sale of a subsidiary. Each of which also engaged ancillary points of company law, such as directors’ authority and duties

Facts

Dickinson was the majority shareholder in NAL Realisations (Staffordshire) Ltd (previously called Norton Aluminium Ltd) (“NAL”) holding 50.6% of the issued shares. The other shareholders were a pension scheme, of which the trustees were Dickinson, his wife and a professional trustee, and a family settlement. Dickinson and his wife were the only directors of NAL until 2008 when they were joined by Mr Williamson.

In 2005, NAL transferred its factory premises to Dickinson for £224,000. The company also took a four-year leaseback at a rent of £40,000 per annum. NAL’s decision to approve the transaction was evidenced by a board minute of a meeting at which Dickinson and his wife were seemingly present.

In 2010, NAL sold its wholly-owned subsidiary, Norse Castings Ltd (“NCL”), to Dickinson for £1. No evidence of a board meeting was recorded and it was clear that the other NAL directors were not consulted about the sale: Mr Williamson was not told about the sale until after the fact and Mrs Dickinson was not sure when she first learned about it.

Later that year, NAL entered into an agreement with each of its shareholders to buy back a total of 2.5 million shares at nominal value. All the documents relating to the buy-back were signed by Dickinson and NAL did not make any payment for the purchase of the shares; rather the funds were left in the company as a debt to the shareholders secured by a debenture in Dickinson’s name.

Findings

Transfer of factory premises

The judge found that the 2005 transfer of the factory premises was void for the following reasons:

  • the board meeting, which was evidenced by the board minute, to approve the transfer had never happened;
  • even if it had happened, the decision would not have been properly approved as:
    • Dickinson would not have been entitled to vote on the transaction or be counted in the quorum by virtue of being interested in the transaction; and
    • Mrs Dickinson could not have approved the transaction on her own as the quorum for a directors’ meeting was two directors; and
  • it could not have been ratified under the Duomatic principle (i.e. unanimous approval of the shareholders) as Dickinson was not entitled to act unilaterally on behalf of the pension scheme (the professional trustee was not aware of the transaction).

As a result of the transfer being void, the judge ruled that Dickinson held the factory premises on trust for NAL and was liable to restore it to NAL and to pay NAL compensation equalling the amount of rent paid or credited by NAL to him.

Transfer of NCL shares

In relation to the 2010 transfer of NCL to Dickinson, the judge concluded that the decision to sell the subsidiary was taken by Dickinson alone and, similarly to the property transfer, without the requisite authority. The judge determined that Dickinson’s delegated authority to act alone on certain company decisions stopped short of “selling assets to himself”. Accordingly, the transfer was either void or voidable, and in any event avoided as a result of the litigation, because:

  • the shares in NCL were a “substantial non cash asset” for the purpose of section 191 of the Companies Act 2006, the disposal of which required shareholder approval;
  • the sale was a transaction at an undervalue under section 423 of the Insolvency Act 1986; and
  • it was not in the interest of NAL to transfer NCL to Dickinson for £1 and in doing so Dickinson preferred his own interests over that of NAL’s in breach of his fiduciary duties and Dickinson knew he was acting in breach of his fiduciary duties.

Buy-back of NAL shares

The buy-back was held as void as a result of the consideration not being “paid for on purchase” as is required by section 691 of the Companies Act 2006; rather, the consideration was left as a debt owing from NAL to the shareholders. The judge also found that the buy-back was also a transaction at an undervalue within section 423 of the Insolvency Act 1986.

[For more information on share buy backs, please see my colleague Adam Kuan’s “Guide to share buybacks for private companies”.] 

Duties of Mrs Dickinson and Mr Williamson

According to the judge, Mrs Dickinson and Mr Williamson had breached their directors’ duties to, amongst other things, inform themselves of the company’s affairs and join in with the other directors to supervise such affairs and to form an independent judgment as to whether acceding to a shareholder’s request is in the best interests of the company.

Conclusions

This judgment goes to show that directors and shareholders of companies have certain inescapable personal responsibilities that must be recognised and adhered to if decisions made by such directors or shareholders on behalf of the relevant company are to be lawful.

In Dickinson’s case, the judge lamented that Dickinson had “not…sought to act in the best interests of, or even with any proper regard to the interests of, the company as distinct from himself”. The lesson here for any dominant director is to ensure that they bring the other directors of the company along with them during the decision making process and guarantee that decisions are conducted in line with the company’s constitutional documents and company law. This may mean having to argue one’s case as to the merits of a decision more regularly, but it will result in decision-making processes that stand up to scrutiny.

Concurrently, passive directors, although perhaps not the instigators of company decisions, still need to satisfy themselves that they are sufficiently supervising their fellow directors, informing themselves of the company’s affairs and coming to an independent view as to whether proposals are in the best interests of the company and its members as a whole.

Contact our experts for further advice

John Alder