Brady v Brady
Financial assistance by a company for the purchase of its own shares is not saved by the larger purpose exception merely because it was given to resolve a deadlock between shareholders.
Facts
The Brady family company was owned by two brothers, who had fallen out, causing a deadlock in its management. To resolve the deadlock, they agreed to divide the business, under a scheme which involved the company transferring assets to another company to pay for the purchase of its own shares. When one brother refused to complete the scheme, the other sought specific performance. The question was whether the scheme involved unlawful financial assistance for the purchase of the company's own shares.
Legal principle
The House of Lords held that the scheme involved financial assistance, and that it was not saved by the exception for assistance given for a larger purpose, because resolving the deadlock was the reason why the financial assistance was given, not a larger purpose of which the assistance was an incidental part. Lord Oliver said that purpose must be distinguished from reason or motive. However, the House held that the assistance could be validly given by the procedure for private companies, so specific performance was ordered. Financial assistance by private companies is no longer prohibited under the Companies Act 2006.
Related cases on share capital and distributions
- Aveling Barford Ltd v Perion Ltd [1989] BCLC 626
- 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
- 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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