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Ford v Polymer Vision Ltd

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Ford v Polymer Vision Ltd

Written by Calum Haswell

Tuesday, 12 May 2009

Abstract

Company – Debenture. Chancery Division: The court ruled, inter alia, that the validity of

an option agreement entered into by the claimant and defendant could not be dealt with summarily on the facts.

Catchwords

Company – Debenture – Validity – Defendant company conducting joint venture concerning development of certain technology – Product not on market and not making profits – Defendant company needing cash to maintain operations – Claimant lending money to defendant company and another – Defendant granting debenture to claimant – Defendant granting claimant an option agreement – Whether debenture and option agreements valid – Whether actions within scope of Companies Act, s 40 – Companies Act 2006, s 40.

Citation [2009] All ER (D) 83 (May)

Alternative Citations [2009] EWHC 945 (Ch)

Hearing Date 6 May 2009

Court Chancery Division

Judge Blackburne J

Representation Michael Todd QC and Geoffrey Zelin (instructed by Withers) for the claimant.John Jarvis QC and James Evans (instructed by Grundberg Mocatta & Rakison) for the defendant.

Summary

The judgment is available at: [2009] EWHC 945 (Ch)

Section 40 of the Companies Act 2006, so far as material, provides: (1) In favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, is deemed to be free of any limitation under the company's constitution. (2) For this purpose— (a) a person “deals with” a company if he is a party to any transaction or other act to which the company is a party, (b) a person dealing with a company - (i) is not bound to enquire as to any limitation on the powers of the directors to bind the company or authorise others to do so, (ii) is presumed to have acted in good faith unless the contrary is proved, and (iii) is not to be regarded as acting in bad faith by reason only of his knowing that an act is beyond the powers of the directors under the company's constitution.

The defendant company was established in November 2006 to conduct a joint venture concerned with the development of technology relating to 'rollable displays'. At all material times, the product was not on the market and the defendant had made no profits. Its main assets were said to be its intellectual property rights in respect of the technology which it was in the course of developing. The defendant company became a joint venture vehicle for the development of the technology as a result of a subscription and shareholders agreement dated December 2006 and made between the defendant and two other companies, 'TCSA' and 'Philips'. By late 2008, the defendant company was in a parlous financial state. The claimant was introduced to the person, X, in control of the parent company of TCSA, in September 2008. Through him, the claimant came to know of TCSA and TCSA's shareholding in the defendant company and the new technology which the defendant company had been developing. The claimant became very interested in what the defendant company was working on and, in due course, was introduced to the defendant company directors. He became aware of the defendant's pressing need for further funds. The claimant made numerous advances to X personally. In January 2009, the claimant was granted a debenture by the defendant (the Ford Debenture) to secure all liabilities owed by the defendant to the claimant. Further, in an agreement dated February 2009 (the Option Agreement) the defendant granted to the claimant an option, exercisable during a ten year period commencing that month, to purchase all of the defendant's assets and undertakings for a sum equal to the aggregate of its 'actual liabilities and indebtedness' as verified by the defendant's auditors. Two board meetings were held on 29 January and 3 February 2009 (see [51]-[61] of the judgment). There was, inter alia, an alleged failure to give notice to all of the Special Directors of these meetings. In February 2009, the claimant's concern was, having advanced substantial monies to the defendant, to ensure that those advances would be secured by the Ford Debenture, insofar as that instrument purported to extend to them. The defendant and, more precisely, TCSA questioned the validity of the Ford Debenture and also the subsequent Option Agreement, so the claimant issued proceedings and applied for summary judgment for declarations as to the validity of: (i) the Ford Debenture; and (ii) the Option Agreement.

Issues arose as to: (i) whether the grant to the claimant of the Ford Debenture and, later, the Option Agreement were acts or transactions within the scope of s 40 of the Companies Act 2006 ; and (ii) whether the alleged defects of the two board meetings rendered the option agreement invalid were within the scope of the expression 'limitation under the company's constitution' which appeared in ss (1) and 'beyond the powers of the directors under the company's constitution' which appeared in ss (2)(b)(iii) of the 2006 Act.

The court ruled:

On the facts, the defendant had no real prospect of defending the claimant's claim to establish the validity of the Ford Debenture. As to the Option Agreement, notwithstanding the defendant's difficulty in demonstrating a want of good faith on the claimant's part when entering into and accepting the benefit of that agreement, the claimant's case for the validity of that transaction was one that could not be dealt with summarily: there had been sufficient doubt about the propriety of the transaction to consider that the issue whether that transaction would be valid and binding on the defendant could only be properly disposed of at trial. The facts of the dispute, and the issues to which they would have given rise to, would be far from straightforward (see [97] and [108] of the judgment).

Avneet Baryan Barrister.