The Court takes a sympathetic approach to interpreting articles of association

In the recent case of Syspal Capital Limited v Truman and 1 other [2024] EWHC 1561 (ChD) the Court considered a good leaver and bad leaver type provision in articles of association, in the context of a dispute concerning a minority shareholder. 

In essence, if the individual shareholder in question left the business via retirement, permanent incapacity or death, they would be entitled to “Fair Value” for their shares. This would be a proportionate value for their shares. If however they were dismissed or left to go to another company, they would get “Market Value”, which was a valuation that factored in a minority discount. Whilst the judgement is not clear on the difference between the two valuations, it is said to be significant. 

The Claimant was dismissed as an employee of one group company, having fallen out with the majority shareholders. He did however retain a directorship in another group company, which he retired from upon reaching the age of 65. 

The Court held that the articles should be interpreted in a way that meant that the Claimant be entitled to Fair Value for his shares, on the basis that he retained an office in the group structure (i.e. he was a director of one of the companies in the group). The Court also held that the articles contained significant other protections for the claimant minority shareholder, suggesting that a situation where the majority could be permitted to expropriate the minorities shares for the lower price simply by sacking them had not been envisaged at the point the articles had been drafted. 

This case shows that:-

• Where there is uncertainty in the drafting, the Court will imply the ordinary everyday meaning of words when interpreting articles;
• The Court will also look to other clauses to try and establish what was meant when the provision was drafted. 
• The Court will be inclined to be sympathetic towards the minority shareholder when interpreting leaver provisions. 

Therefore, as well as being careful as to when you can rely on a leaver provision (which are common in private equity invested companies), it also means that those drafting articles need to take care to ensure that they are clear enough so as to be effective.