Aveling Barford Ltd v Perion Ltd
A sale of a company's property at an undervalue to a person connected with its controlling shareholder, when the company had no distributable profits, was an unlawful return of capital.
Facts
Aveling Barford was controlled by Dr Lee. It sold a property to Perion, a company also controlled by Dr Lee, for £350,000, although it had been valued at £650,000. Perion soon sold the property for £1.5 million. Aveling Barford had no distributable reserves at the time. When it went into liquidation, the liquidator sued Perion to recover the property or its value.
Legal principle
Hoffmann J held that the sale was an unlawful distribution of capital, so Perion held the proceeds on constructive trust for Aveling Barford. He said that the sale was not a genuine exercise of the company's power to sell its property, but a dressed up distribution to its shareholder, and that a company cannot, without the leave of the court or the adoption of a special procedure, return its capital to its shareholders. Since the company had no distributable profits, the sale was ultra vires and could not be ratified by the shareholder.
Related cases on share capital and distributions
- Bairstow v Queens Moat Houses plc [2001] EWCA Civ 712, [2002] BCC 91
- Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393
- Brady v Brady [1989] AC 755
- Re Exchange Banking Co (Flitcroft's Case) (1882) 21 Ch D 519
- Re Halt Garage (1964) Ltd [1982] 3 All ER 1016
- It's a Wrap (UK) Ltd v Gula [2006] EWCA Civ 544, [2006] BCC 626
- MacPherson v European Strategic Bureau Ltd [2000] 2 BCLC 683
- Ooregum Gold Mining Co of India Ltd v Roper [1892] AC 125
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