''Aveling Barford Ltd v Perion Ltd''

989 Year 989 ( CMLXXXIX) was a common year starting on Tuesday of the Julian calendar. Events By place Byzantine Empire * Emperor Basil II uses his contingent of 6,000 Varangians to help him defeat Bardas Phokas (the Younger), who suffe ...

BCLC 626 is an

English company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to ...

case concerning

reduction of capital Reduction of capital or capital reduction is to decrease stock of a company. During reduction of capital, sometimes the company returns a portion of the stock of a company to shareholder. A private company can reduce its capital in many different wa ...

. It held that a sale at an undervalue of an asset was a dressed-up distribution. As the company did not have distributable reserves, the sale was in consequence an unlawful reduction of capital. The law in relation to the transfer of assets at an undervalue has been clarified in

CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...

, and the amount of the distribution arising in consequence of a sale at undervalue is now determined in accordance with section 845.

Facts

Mr Lee owned and controlled both Aveling Barford Ltd and Perion Ltd. Aveling Barford owned a country house and 18 acres of land in Grantham, which it sold to Perion £350,000, rather than the £1,150,000 it had been valued for prospective mortgagees. Aveling Barford subsequently went into liquidation, and the liquidator sued to have Perion be declared a constructive trustee of the proceeds realised by Perion on the resale of the property.

Judgment

Hoffmann J held that it was a breach of the directors'

fiduciary duty A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, fo ...

to sell the property at an undervalue. Given the relationship between the parties, the sale at an undervalue represented a distribution, and as the sale amounted to an unlawful reduction of capital, it was incapable of ratification. The transferee was therefore accountable as a constructive trustee. ‘This was a dressed up distribution’, it was ''

ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act that requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...

'' and incapable of ratification.

Notes

References

* {{Authority control United Kingdom company case law Grantham 1989 in United Kingdom case law High Court of Justice cases

Facts

Judgment

See also

Notes

References