Although there were pre-emption provisions on transfers of shares in a company owning three major London hotels, the Barclay brothers were able to get round those restrictions by buying all the shares in one of the company's corporate shareholders. The Court of Appeal has confirmed that those pre-emption provisions did not extend to a transfer of the shares in one of the company’s corporate shareholders.
Setting the scene
The setting for this case was the publicised plan of the Barclay brothers (Sir David and Sir Frederick Barclay) to acquire control and ownership of a company, Coroin Limited, and the hotels it owns: Claridge’s, the Connaught and the Berkeley.
Misland (Cyprus) Investments Limited, was one of the company’s shareholders. All of Misland’s shares were owned by A&A Investments Limited, a Bermudian company through which Peter Green and his family control their business interests.
In January 2011, a company owned by the Barclay brothers bought from A&A Investments Limited all the issued shares in Misland. So by acquiring Misland, the Barclay brothers had acquired control of some of the shares in Coroin.
Mr McKillen was another of Coroin’s shareholders. He didn’t like the Barclay brothers’ plan and sought ways to upset it.
Mr McKillen claimed that the sale of the shares in Misland triggered the pre-emption provisions in Coroin’s shareholders’ agreement and articles of association, and thus Misland’s shares in Coroin should be offered to the company’s other shareholders, including Mr McKillen.
Pre-emption provisions on transfers of shares in Coroin
Coroin’s shareholders’ agreement contained typical pre-emption provisions on transfers of shares: a shareholder desiring to transfer its shares (or any interest in them) gives notice of that fact to the company (a transfer notice) and then those shares are offered for sale to the other shareholders. If a shareholder attempts to dispose of its shares in Coroin (or an interest in them) otherwise than in accordance with the shareholders’ agreement, it is deemed to have given a transfer notice, and so its shares are offered to the other shareholders.
“Shareholder” was defined as any holder of shares, and included any beneficial owner of the shares.
Coroin’s articles contained similar provisions.
It was held in the High Court, and confirmed in the Court of Appeal, that those pre-emption provisions on transfers of shares did not apply to the sale by A&A Investments of its shares in Misland.
Although the pre-emption provisions referred to a transfer of an “interest” in shares in Coroin, an indirect interest such as that held by A&A through its ownership of Misland, was not such an interest. The pre-emption provisions would only apply to an interest arising from the beneficial ownership of the shares.
Misland was the beneficial owner of the shares in Coroin registered in its name so it held the interest arising from that beneficial ownership. There had been no transfer of that interest in those shares so the pre-emption provisions did not apply.
Our views on this outcome
One could sympathise with Mr McKillen over the outcome of this case.
If you wish to prevent an indirect takeover of your company such as the Barclays brothers managed in this case, you could include a change of control clause in your company’s pre-emption provisions. Essentially such a clause would provide that there is a deemed transfer notice upon the transfer of an indirect interest in the company’s shares.
You can read the High Court judgment of this case McKillen v Misland (Cyprus) Investments Limited and others  EWHC 3466 (Ch) here.
You can read the Court of Appeal decision in this case here.
For more information on these issues please contact Nicola Mallett or your usual Lewis Silkin contact.