Company director fails in appeal against order to sell shares for less than market value

By a majority of two-to-one, judges in the Inner House of the Court of Session refused a reclaiming motion by Nigel Gray, who argued that the Lord Ordinary, Lord Tyre, was wrong to force him to sell his £20.6 million interest in Braid Group (Holdings) Ltd to the company for £2.4 million.

Lord Menzies, Lord Brodie and Lord Malcolm heard that Mr Gray had sought orders under section 996 of the Companies Act 2006 on the ground that the affairs of BGHL, which was valued at £32 million, had been conducted in a manner that was “unfairly prejudicial” to the interests of some of its members.

However, the respondents submitted that because of Mr Gray’s participation in bribery, he was a “bad leaver” in terms of the Glasgow-based logistics company’s article of association and was entitled on disposal of his shares to be paid only whichever was the lesser of their fair value or their subscription or par value.

Mr Gray was found to have been aware of an arrangement which allowed an employee from another company to benefit from gifts, foreign travel, holidays and cash, in exchange for placing business with the Braid Group.

The Lord Ordinary concluded that the interests of Mr Gray and others had been “unfairly prejudiced”, but made the order for the purchase of Mr Gray’s shares by the company for the sum of £2,444,000 – more than £18 million less than their true worth – after concluding that he was a “bad leaver”.

On appeal Mr Gray, a former managing director of Braid UK, argued that while the court had a discretion to “make such order as it thinks fit for giving relief in respect of the matters complained of” in terms of section 996 of the 2006 Act, the judge was “not entitled to do as he pleased”.

Senior counsel submitted that the Lord Ordinary had proceeded under the “misapprehension” that he was required to take into account all the circumstances when placing a value on the share purchase.

It was argued that the purpose of the order was to give “relief in relation to the matters complained of” and the judge was not entitled to make an order simply because he considered it to be “fair” in all the circumstances.

Senior counsel for the respondents submitted that Mr Gray had been found to be involved in two instances of bribery, which amounted to “gross misconduct” and he was dismissed as a director and employee of the company, although that was a matter of dispute.

It was argued that the court, which had a “very wide discretion” regarding remedy, was entitled to consider Mr Gray’s conduct when considering disposal of the petition – not merely the type of remedy, but the actual remedy, and the judge “could not ignore Mr Gray’s misconduct” in deciding what is fair.

Lord Menzies ruled that Lord Tyre’s judgment be quashed, as Mr Gray was not a “leaving shareholder”, meaning the Lord Ordinary “did not have a solid evidential basis” for his conclusion that he was faced with “circumstances in which the consequence of Mr Gray’s conduct is that the bad leaver provisions of the articles have become applicable”.

However, Lord Brodie and Lord Malcolm held that Lord Tyre had interpreted the law correctly.

In a written opinion, Lord Malcolm said: “I can detect no flaw or error in the decision of the Lord Ordinary – indeed I am in full agreement with it, and would endorse his analysis and reasoning.

“The case law confirms that in petitions of this kind, after having regard to all the relevant circumstances of the case, the court has a wide discretion to do that which is considered to be fair and equitable. The Lord Ordinary recognised that the discretion must be exercised in a reasonable and judicial manner, for example, avoiding unjust enrichment.

“I reject the proposition that his interlocutor creates unjust enrichment of the respondents. On the contrary, I view these proceedings, and the related actions raised by Mr Gray, as a failed attempt to extricate himself from the agreed consequences of his gross misconduct, namely implementation of the ‘bad leaver’ provisions.

“Having held that the bribery allegations were well-founded, the Lord Ordinary was fully entitled to proceed on the basis that ‘the consequence of Mr Gray’s conduct is that the bad leaver provisions in the articles have become applicable’. Indeed, during his evidence Mr Gray accepted that knowing involvement in the bribery allegations would justify his dismissal for highly damaging gross misconduct.”